Problem $1$

For each of the following situations, $(1)$ indicate whether you agree or disagree with the financial reporting practice employed and $(2)$ state the accounting concept that is applied $($if you agree$)$ or violated $($if you disagree$).$

$1.$ Brewed Awakenings did not disclose that it was the defendant in a material lawsuit because the trial was still in progress.

$2.$ Moody Brews files quarterly and annual financial statements with the SEC.

$3.$ Dark Side of the Spoon paid rent on its office building for the next two years and charged the entire expenditure to rent expense.

$4.$ Brew Ha$-$Ha$,$ a coffee wholesaler, records revenue only after products have been shipped even though customers pay Brew Ha$-$Ha $50\%$ of the sales price in advance.

$$

Problem $2$

Answer each of the following questions related to the fundamental and enhancing qualitative characteristics of accounting information.

$1.$ Which component would allow a large company to record the purchase of a $$120$ printer as an expense rather than capitalizing the printer as an asset?

$2.$ Donald Kirk, former chairman of the FASB, once noted that $...$there must be public confidence that the standard$-$setting system is credible, that selection of board members is based on merit and not the influence of special interests...$$ Which characteristic is implicit in Mr$.$ Kirk$$s statement?

$3.$ Olive or Twist, Inc. changed its revenue recognition policies. Which characteristic is jeopardized by this change?

$4.$ Bar Celona, a publicly traded company, files quarterly and annual financial statements with the SEC. Which characteristic is relevant to the timing of these periodic filings?

$5.$ When there is agreement between a measure or description and the phenomenon it purports to represent, information possesses which characteristic?

$6.$ Catsy Cline is evaluating two companies for future investment potential. Catsy$$s task is made easier because both companies use the same accounting methods when preparing their financial statements. Which characteristic does the information Catsy will be using possess?

$$

Problem $3$

$1.$ Which of the following is not a qualitative characteristic of accounting information according to the FASB$$s conceptual framework?

a$.$ Predictive value

b$.$ Neutrality

c$.$ Timeliness

d$.$ Auditor independence

$2.$ The Financial Accounting Standards Board $($FASB$)$

a$.$ Is a division of the Securities and Exchange Commission $($SEC$)$

b$.$ Is responsible for setting auditing standards that all auditors must follow

c$.$ Consists entirely of members of the American Institute of Certified Public Accountants

d$.$ Is a private body that helps set accounting standards in the United States

$3.$ Confirmatory value is an ingredient of the primary quality of

a$.$ Relevance only

b$.$ Faithful representation only

c$.$ Relevance and Faithful representation

d$.$ Neither Relevance nor Faithful representation

$4.$ Completeness is an ingredient of the primary quality of

a$.$ Verifiability

b$.$ Faithful representation

c$.$ Relevance

d$.$ Understandability

$5.$ The objective of financial reporting for business enterprises is based on

a$.$ Generally accepted accounting principles

b$.$ The need for conservatism

c$.$ The needs of the users of the information

d$.$ None of the above

$$

Problem $4$

Identify the accounting concept that was violated in each of the following:

$1.$ Tequila Mockingbird purchased land two years ago at a price of $$250,000.$ Because the value of the land has appreciated to $$400,000,$ the company has valued the land at $$400,000$ in its most recent balance sheet.

$2.$ Catcher in the Rye has not prepared financial statements for external users for over three years.

$3.$ Anchor Management Bar and Grill sells restaurant and bar equipment. Revenue from a large order of equipment from a new buyer was recorded the day the order was received.

$4.$ Cat Benatar is the sole owner of a company called Bar None. The company recently paid a $$150$ utility bill for Benatar$$s personal residence and recorded a $$150$ expense.

$5.$ Brews Brothers, Inc. purchased a large beer fermenter for $$1,000,000($a material amount$)$ and recorded the purchase as an expense.

$6.$ Wish You Were Beer is involved in a major lawsuit involving injuries sustained by some of its employees in the bar. The company is being sued for $$2,000,000,$ a material amount, and is not insured. The suit was not disclosed in the most recent financial statements because no settlement had been reached.