Exam 2: Financial Reporting Theory

What is the cost constraint and how does it affect financial reporting?

The following events took place at Forrest's Tree Service during the first quarter of the year.Determine Forrest's net income for each month,including a quarterly total,under both the cash and accrual basis of accounting. a.Performed tree services in January - billed clients for $5,000. b.Monthly saw sharpening - January,February,March - $500 per month. c.Collected $2,500 from January clients on February 10th. d.Performed tree services in February - billed clients for $8,000. e.Employees are paid every other month,salary expense is $5,000 per month - paid on February 28. f.Performed tree services in March - billed clients for $10,000 - also collected remaining January balance and $5,000 due from February.

Which of the following is not an underlying principle of accrual accounting?

The role of qualitative characteristics in the conceptual framework is to increase the decision usefulness of financial information.

Which fundamental characteristic makes explicit the assumption of the full disclosure principle?

A purpose of the conceptual framework is to override accounting standards.

The IFRS element income relates to which U.S.GAAP element?

The periodicity assumption stipulates that the entity will continue to operate for an indefinite period of time.

Classification of assets into current and long-term illustrates which assumption?

Angelo's charges $200 per month for catering services.In the first quarter of the year,they collected $14,000.Fifteen customers pre-paid for three months of catering beginning in January,ten customers pre-paid for two months of catering beginning in February,and five customers paid for one month of catering in March.Using the cash basis of accounting,Angelo's will recognize ________ in revenue for January and ________ using the accrual basis.

The identified measurement bases are consistent with fair value reporting:

Identify the element,and whether it is point-in-time or period-of-time.

The conceptual framework indicates that the primary users of financial information are the investors,lenders,and other creditors.

Under U.S.GAAP,________ is an example of a period-of-time element and appears on the ________.

Identify the assumption represented in each scenario,the decide if it is satisfied or violated.

In the conceptual framework,what are the two types of elements of financial reporting?

A Fortune-500 company purchases a new clock which is expected to last for five years for $35.According to the materiality threshold,this would be treated as an ________ in the accounting records.

Shadow's Cleaning Service provides weekly cleaning services for $40 per week.In January,they collected payments from 50 customers for 3 months (12 weeks)of service each.For the month of January they will recognize ________ of revenue under the cash basis,and ________ under the accrual basis.

Quoted prices in active markets are the measure of fair value that is neither the most observable nor the least observable.

Information that is not material is never relevant.