Presented below are selected qualitative characteristics of financial information. 1. Relevance 2. Neutrality 3. Verifiability 4. Timeliness

Question:

Presented below are selected qualitative characteristics of financial information.

1. Relevance

2. Neutrality

3. Verifiability

4. Timeliness

5. Faithful representation

6. Comparability

7. Understandability


Instructions
For each of the following situations, indicate which qualitative characteristic was violated.

a. ______ Allen Ltd. reported its merchandise inventory at a net realizable value of $25,000. The company’s auditors disagree with this value and estimated the net realizable value to be $20,000.

b. ______ Owens Corporation does not issue its annual financial statements for the year ended December 31, 2020, until December 2021.

c. ______ Silver Mining Ltd. is the only company in the mining industry that uses the straight-line method to depreciate its mining equipment.

d. ______ Chapman Ltd. switches inventory cost formulas from average to FIFO and back to average in a three-year period.

e. ______ Enco Ltd. intentionally recorded revenue in 2020 for sales made in 2021 to ensure that management would receive their bonuses, which were based on profits.

f. ______ World Talk Corporation used terminology in its financial statements and notes to the financial statements that is not commonly used in financial reporting and did not provide explanations of the terminology.

g. ______ Precise Ltd., a multinational drilling company, reported separately its paper, paper clips, and pens in the balance sheet rather than reporting a single line item for office supplies. Total office supplies were $5,000.

h. ______ Community Health Foods Ltd. signed a legal agreement to finance the purchase of equipment. The agreement required annual payments of $15,000 for five years. The agreement referred to the payments as rental payments. The company records rent expense when the annual payments are made.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Related Book For  book-img-for-question

Accounting Principles Volume 2

ISBN: 978-1119502555

8th Canadian Edition

Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak

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