Exam 11: Accounting Principles

If accounting information has confirmatory value, it

To make decisions about allocating capital, users look for information in the financial statements about a company's ability to maintain relationships with key customers.

Not every country uses the same conceptual framework. This lack of uniformity has arisen because

For each of the independent situations described below, list the assumption, characteristic, concept, or constraint that has been violated, if any. List only one term for each case. 1. McHale Company reports only current assets and current liabilities on its balance sheet. Intangible assets and a 20-year mortgage payable are reported as a current asset and a current liability, respectively. Liquidation of the company is unlikely. 2. Fizzard Company is in its third year of operation and has yet to issue financial statements. (Do not use full disclosure principle.) 3. Harris Company is carrying inventory at its net realizable value of $110,000. The inventory had an original cost of $135,000. 4. Martin Company expenses some office equipment that is inexpensive even though it has useful life that exceeds 1 year. 5. Singh Corporation has selected FIFO as its inventory cost flow formula during the current year. Next year it plans to change to the weighted average cost formula.

If it is not possible to determine the future benefits arising from expenditure, then the costs will be capitalized.

In following the application of the qualitative characteristics, which characteristic would be immediately applied after the relevance characteristic?

Confirmatory value helps users forecast future events.

There is a direct association between cost of goods sold and sales revenue.

Information that is prepared free from bias is considered

Understandability enables users to have timely information that is useful for decision-makers.

The conceptual framework does NOT include

One of the conditions that must be met for revenue to be recognized is that the amount of the revenue can be reliably measured.

An item is considered to be material if

Which is NOT necessary to ensure that faithful representation is achieved?

_______________________ play(s) a fundamental role in the efficient functioning of the economy by providing capital (cash) to businesses.

In order for accounting information to be relevant, it must

The costs constraint

A number of unrelated transactions recorded by Provincial Company are as follows: 1. At the end of the month, the obsolete inventory was valued at $17,000. No entry was made. 2. Provincial, which owns an art gallery, purchases a valuable painting for $40,000 in November, and sells it in January, which is after the company's year end. The entry made when the painting is purchased is: 3. Equipment was purchased for $8,000 from a store that is going out of business. The equipment was appraised at $10,000. Instructions For each of the above situations, identify the accounting assumption, concept, constraint or recognition criteria that have been violated. Prepare the correct journal entry as it should have been made. If no entry should have been made, or if additional financial statement disclosure is required, explain.

Which revenue recognition method would most likely be used by a retailer?

Full disclosure means that the financial statements must be accompanied by notes to the financial statements.