Exam 14: Accounting Principles and Reporting Standards

The income statement shown below was prepared and sent by Jenna Preston, the owner of Preston Gifts, to several of her creditors. The business is a sole proprietorship that sells miscellaneous gifts. An accountant for one of the creditors looked over the income statement and found that it did not conform to generally accepted accounting principles. Using the following additional information provided by the owner, prepare an income statement in accordance with generally accepted accounting principles.

Financial information is said to be ____________________ if it can be reviewed by accountants outside the company, and these accountants arrive at the same conclusions as the preparers of the firm's financial statements.

The SEC has authority to define accounting terms and to prescribe accounting procedures used by all ____________________ held corporations.

The income statement shown below was prepared and sent by Curtis Brown, the owner of Curt's Crafts, to several of his creditors. The business is a sole proprietorship that sells crafts and toys. An accountant for one of the creditors looked over the income statement and found that it did not conform to generally accepted accounting principles. Using the following additional information provided by the owner, prepare an income statement in accordance with generally accepted accounting principles. Additional information provided by owner: 1. On December 31, 2014, accounts receivable from customers total $\$ 32,000$ . On January 1, 2014, accounts receivable totaled $\$ 52,000$ . 2. The beginning and ending merchandise inventories were valued at their estimated selling price. The actual cost of the ending inventory is estimated to be $\$ 6,000$ . The actual cost of the beginning inventory is estimated to be $\$ 18,000$ . 3. On December 31, 2014 suppliers of merchandise are owed $\$ 16,000$ . On January 1, 2014, they were owed $\$ 11,000$ . 4. The owner paid himself a salary of $\$ 1,600$ per month and charged this amount to the Salaries Expense account. 5. A check for $\$ 300$ to cover the December electric bill on the owner's personal home was issued from the firm's bank account. This amount was charged to Utilities Expense.

The process used by FASB in developing conceptual framework statements reflects deductive reasoning and involves which steps?