Exam 8: Reconciling Bank and Credit Card Statements

One problem with undue conservatism in accounting is that under-reporting income in one time period is often over-reporting income in later time periods.

The only factor that should be considered when a company estimates the expected economic useful life of a fixed asset is when the asset will physically wear out.

Under U.S. rules, once a company "writes down" an inventory item to a "market" value, it cannot later increase the carrying value of the inventory item.

The Marlborough Corp. is trying to decide how to record a loss contingency. It believes the likelihood of a payment is probable, but it believes that there is a range of possible amounts it will have to pay, from $4 million to $8 million. Each amount in the range is equally likely. Under GAAP, the accrual must be

In its Concepts Statements, the FASB favors conservative accounting.

Under GAAP, companies should report both the amount receivable from customers and an allowance for doubtful accounts.

One of Bagget Airlines' planes crashed on December 29. One-hundred fifty people were killed. No one has actually sued yet, but the company's lawyers say that lawsuits are highly likely to be filed, and the company will probably have to pay damages of from $60 to $90 million. All numbers within that range are equally likely. The company should

The Stratmore Corp. is the defendant in a lawsuit claiming it has slandered someone. At the end of 2017, the company's attorneys tell the company that it is "remote" that the company will lose the suit. However, if it does lose, the most likely amount it will have to pay is $500,000. This is a material number. The proper accounting is to

The effects of some changes in a company's estimates of its pension obligation are shown in other comprehensive income rather than in net income.

One factor that affects the expected useful life of equipment is expected obsolescence.

A "conservative" balance sheet would tend to overvalue liabilities.

The FASB sets the same rules for recognizing gain contingencies as assets as it does for recognizing loss contingencies as liabilities.

Generally accepted accounting procedures allow companies to choose to use either the "direct write-off" or "allowance" methods of accounting for bad debts, regardless of how material the bad debt expense is.

One reason that GAAP requires companies to recognize intangible assets they acquired from others, but usually does not allow recognition of internally developed intangible assets, is that a verifiable arms-length transaction price exists for the items acquired from others.

One major problem with GAAP is that companies do not have to disclose that they use estimates in preparing financial statements.

Under GAAP, companies that have "defined benefit" pension plans for their employees are required to record expenses for these plans while the employees are working, and are not allowed to wait to record the expenses until the employees retire.

Which group of financial statement users is likely to be least pleased with conservatively stated income statements?

The Westminster Corp. is the defendant in a lawsuit involving patent infringement. At the end of 2017, the company's attorneys tell the company that it is "probable" that the company will lose the suit, and the most likely amount it will have to pay is $10,000,000. This is a material number. The proper accounting is to

The FASB's general principles on when to recognize something in the financial statements say that items can be recognized, even if there is no way to measure them reliably.

Historically, which of the following has not been a factor leading toward more conservatism in accounting principles?