BUS4062

Unit 1 - Assignment 1

E 1-2

Accrual accounting

LO1-2

Listed below are several transactions that took place during the second and third years of operations for the RPG Company.

Year 2

Year 3

Amounts billed to customers for services rendered

$350,000

$450,000

Cash collected from credit customers

260,000

400,000

Cash disbursements:

Payment of rent

80,000

-0-

Salaries paid to employees for services rendered during the year

140,000

160,000

Travel and entertainment

30,000

40,000

Advertising

15,000

35,000

In addition, you learn that the company incurred advertising costs of $25,000 in year 2, owed the advertising agency $5,000 at the end of year 1, and there were no liabilities at the end of year 3. Also, there were no anticipated bad debts on receivables, and the rent payment was for a two-year period, year 2 and year 3.

Required:

1.Calculate accrual net income for both years.

2.Determine the amount due the advertising agency that would be shown as a liability on RPG's balance sheet at the end of year 2.

E 1-5

Participants in establishing GAAP

LO1-3

Three groups that participate in the process of establishing GAAP are users, preparers, and auditors. These groups are represented by various organizations. For each organization listed below, indicate which of these groups it primarily represents.

1.Securities and Exchange Commission-Established in between 1934 to protect investors for stocks and bonds."The act monitors and regulates corporate financial reporting and disclosures, use of accounting principles, auditing practices and trading activities" per Dictionary of Accounting Terms, fifth edition, Jae K. ShimPH.D and Joel G. Siegal, PH.D, CPA.SEC represents the federal government agency since it appointed by the government to monitor the private sector to oversee accounting standards.

2.Financial Executives International

3.American Institute of Certified Public Accountants- "a professional organization of practicing Certified Public Accountants. The "Institute "develop standards of practice for it members and provides technical guidance and advice to both governmental agencies SEC and AICPA membership

4.

5.4. Institute of Management Accountants

6.

7.5.Association of Investment Management and Research

E 1-7

Concepts; terminology; conceptual framework

LO1-7

Listed below are several terms and phrases associated with the FASB's conceptual framework. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it.

List A

List B

1. Predictive value

2. Relevance

3. Timeliness

4. Distribution to owners

5. Confirmatory value

6. Understandability

7. Gain

8. Faithful representation

9. Comprehensive income

10. Materiality

11. Comparability

12. Neutrality

13. Recognition

14. Consistency

15. Cost effectiveness

16. Verifiability

a.Decreases in equity resulting from transfers to owners.

b.Requires consideration of the costs and value of information.

c.Important for making interfirm comparisons.

d.Applying the same accounting practices over time.

e.Users understand the information in the context of the decision being made.

f.Agreement between a measure and the phenomenon it purports to represent.

g.Information is available prior to the decision.

h.Pertinent to the decision at hand.

i.Implies consensus among different measurers.

j.Information confirms expectations.

k.The change in equity from nonowner transactions.

l.The process of admitting information into financial statements.

m.The absence of bias.

n.Increases in equity from peripheral or incidental transactions of an entity.

o.Information is useful in predicting the future.

p.Concerns the relative size of an item and its effect on decisions.

Answer Key:

1. C7.N13.L

2.O8.F14.D

3.G9.K15.B

4.A10.H16.I

5.J11.P

6.E12.M

E 1-14

Basic assumptions and principles

LO1-7 through LO1-9

Listed below are accounting concepts discussed in this chapter.

a.Economic entity assumption

b.Going concern assumption

c.Periodicity assumption

d.Monetary unit assumption

e.Historical cost principle

f.Conservatism

g.Matching

h.Full-disclosure principle

i.Cost effectiveness

j.Materiality

Identify by letter the accounting concept that relates to each statement or phrase below.

1. Inflation causes a violation of this assumption.

2. Information that could affect decision making should be reported. J-MATERIALITY

3. Recognizing expenses in the period they were incurred to produce revenue.G-MATCHING

4. The basis for measurement of many assets and liabilities.

5. Relates to the qualitative characteristic of timeliness.C-PERIODICITY ASSUMPTION

6. All economic events can be identified with a particular entity. A- ECONOMIC ENTITY ASSUMPTION

7. The benefits of providing accounting information should exceed the cost of doing so.

8. A consequence is that GAAP need not be followed in all situations.

9. Not a qualitative characteristic, but a practical justification for some accounting choices.

10. Assumes the entity will continue indefinitely. B-GOING CONCERN ASSUMPTIONBUS4062

Unit 1 - Assignment 1

E 1-2

Accrual accounting

LO1-2

Listed below are several transactions that took place during the second and third years of operations for the RPG Company.

Year 2

Year 3

Amounts billed to customers for services rendered

$350,000

$450,000

Cash collected from credit customers

260,000

400,000

Cash disbursements:

Payment of rent

80,000

-0-

Salaries paid to employees for services rendered during the year

140,000

160,000

Travel and entertainment

30,000

40,000

Advertising

15,000

35,000

In addition, you learn that the company incurred advertising costs of $25,000 in year 2, owed the advertising agency $5,000 at the end of year 1, and there were no liabilities at the end of year 3. Also, there were no anticipated bad debts on receivables, and the rent payment was for a two-year period, year 2 and year 3.

Required:

1.Calculate accrual net income for both years.

2.Determine the amount due the advertising agency that would be shown as a liability on RPG's balance sheet at the end of year 2.

E 1-5

Participants in establishing GAAP

LO1-3

Three groups that participate in the process of establishing GAAP are users, preparers, and auditors. These groups are represented by various organizations. For each organization listed below, indicate which of these groups it primarily represents.

1.Securities and Exchange Commission-Established in between 1934 to protect investors for stocks and bonds."The act monitors and regulates corporate financial reporting and disclosures, use of accounting principles, auditing practices and trading activities" per Dictionary of Accounting Terms, fifth edition, Jae K. ShimPH.D and Joel G. Siegal, PH.D, CPA.SEC represents the federal government agency since it appointed by the government to monitor the private sector to oversee accounting standards.

2.Financial Executives International

3.American Institute of Certified Public Accountants- "a professional organization of practicing Certified Public Accountants. The "Institute "develop standards of practice for it members and provides technical guidance and advice to both governmental agencies SEC and AICPA membership

4.

5.4. Institute of Management Accountants

6.

7.5.Association of Investment Management and Research

E 1-7

Concepts; terminology; conceptual framework

LO1-7

Listed below are several terms and phrases associated with the FASB's conceptual framework. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it.

List A

List B

1. Predictive value

2. Relevance

3. Timeliness

4. Distribution to owners

5. Confirmatory value

6. Understandability

7. Gain

8. Faithful representation

9. Comprehensive income

10. Materiality

11. Comparability

12. Neutrality

13. Recognition

14. Consistency

15. Cost effectiveness

16. Verifiability

a.Decreases in equity resulting from transfers to owners.

b.Requires consideration of the costs and value of information.

c.Important for making interfirm comparisons.

d.Applying the same accounting practices over time.

e.Users understand the information in the context of the decision being made.

f.Agreement between a measure and the phenomenon it purports to represent.

g.Information is available prior to the decision.

h.Pertinent to the decision at hand.

i.Implies consensus among different measurers.

j.Information confirms expectations.

k.The change in equity from nonowner transactions.

l.The process of admitting information into financial statements.

m.The absence of bias.

n.Increases in equity from peripheral or incidental transactions of an entity.

o.Information is useful in predicting the future.

p.Concerns the relative size of an item and its effect on decisions.

Answer Key:

1. C7.N13.L

2.O8.F14.D

3.G9.K15.B

4.A10.H16.I

5.J11.P

6.E12.M

E 1-14

Basic assumptions and principles

LO1-7 through LO1-9

Listed below are accounting concepts discussed in this chapter.

a.Economic entity assumption

b.Going concern assumption

c.Periodicity assumption

d.Monetary unit assumption

e.Historical cost principle

f.Conservatism

g.Matching

h.Full-disclosure principle

i.Cost effectiveness

j.Materiality

Identify by letter the accounting concept that relates to each statement or phrase below.

1. Inflation causes a violation of this assumption.

2. Information that could affect decision making should be reported. J-MATERIALITY

3. Recognizing expenses in the period they were incurred to produce revenue.G-MATCHING

4. The basis for measurement of many assets and liabilities.

5. Relates to the qualitative characteristic of timeliness.C-PERIODICITY ASSUMPTION

6. All economic events can be identified with a particular entity. A- ECONOMIC ENTITY ASSUMPTION

7. The benefits of providing accounting information should exceed the cost of doing so.

8. A consequence is that GAAP need not be followed in all situations.

9. Not a qualitative characteristic, but a practical justification for some accounting choices.

10. Assumes the entity will continue indefinitely. B-GOING CONCERN ASSUMPTION