Wk 1 - Apply: Homework [due Day 7] 2 Saved Help Save & Exit Submit The conceptual framework indicates the desired fundamental and enhancing qualitative characteristics of accounting information. Several constraints impede achieving these desired characteristics. Answer each of the following questions related to these characteristics and constraints. 8.33 points eBook References 3. 1. 2. 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? 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? Allied Appliances, Inc., changed its revenue recognition policies. Which characteristic is jeopardized by this change? National Bancorp, a publicly traded company, files quarterly and annual 4. financial statements with the SEC. Which characteristic is relevant to the timing of these periodic filings? 5. In general, relevant information possesses which qualities? When there is agreement between a measure or description and the 6. phenomenon it purports to represent, information possesses which characteristic? 7. 8 Jeff Brown is evaluating two companies for future investment potential. Jeff's task is made easier because both companies use the same accounting methods when preparing their financial statements. Which characteristic does the information Jeff will be using possess? A company should disclose information only if the perceived benefits of the disclosure exceed the costs of providing the information. Which constraint does this statement describe? Materiality Wk 1 - Apply: Homework [due Day 7] 3 Saved Help Save & Exit Submit Listed below are several statements that relate to financial accounting and reporting. Identify the accounting concept that applies to each statement. 8.33 points Jim Marley is the sole owner of Marley's Appliances. Jim borrowed 1. $100,000 to buy a new home to be used as his personal residence. This liability was not recorded in the records of Marley's Appliances. 2. Apple Inc. distributes an annual report to its shareholders. 3. eBook References Hewlett-Packard Corporation depreciates machinery and equipment over their useful lives. Crosby Company lists land on its balance sheet at $120,000, its 4. original purchase price, even though the land has a current fair value of $200,000. Honeywell International Inc. records revenue when products are 5. delivered to customers, even though the cash has not yet been received. 6. 7. Liquidation values are not normally reported in financial statements even though many companies do go out of business. IBM Corporation, a multibillion dollar company, purchased some small tools at a cost of $800. Even though the tools will be used for a number of years, the company recorded the purchase as an expense. Wk 1 - Apply: Homework [due Day 7] 4 GAAP includes which of the following pronouncements: 8.33 points Multiple Choice eBook Statements of Financial Accounting Standards. References Accounting Research Bulletins. Accounting Principles Board Opinions. All of the choices are correct. Saved Help Save & Exit Submit Wk 1 - Apply: Homework [due Day 7] 5 8.33 points eBook References Saved Help Save & Exit Submit The SEC exerts a continuing influence on the establishment of accounting standards. It does so primarily by: Multiple Choice Monitoring the development of GAAP within the accounting profession and using its stature to influence that development. Exercising its statutory authority to prescribe external financial reporting requirements. Allying with the AICPA to lobby the efforts of the FASB. Providing auxiliary funding to the FASB. Wk 1 - Apply: Homework [due Day 7] i 6 Saved The two primary decision-specific qualities that make accounting information useful are: Multiple Choice 8.33 points eBook References Verifiability and representational faithfulness. Predictive value and feedback value. Cost effectiveness and materiality. Relevance and faithful representation. Help Save & Exit Submit Wk 1 - Apply: Homework [due Day 7] 7 8.33 points eBook References Saved Help Save & Exit Submit In a recent annual report, Apple Computer reported the following in one of its disclosure notes: "Warranty Expense: The Company provides currently for the estimated cost for product warranties at the time the related revenue is recognized." This note exemplifies Apple's use of: Multiple Choice Conservatism. Matching. Revenue recognition. Economic entity. Wk 1 - Apply: Homework [due Day 7] 9 8.33 points eBook References Saved Of the following, the most important objective for financial reporting is to provide information useful for: Multiple Choice Making decisions. Determining taxable income. Providing accountability. Increasing future profits. Help Save & Exit Submit Wk 1 - Apply: Homework [due Day 7] 10 8.33 points eBook References Saved A constraint on qualitative characteristics of accounting information is: Multiple Choice Timeliness. Going concern. Neutrality. Cost-effectiveness. Help Save & Exit Submit Wk 1 - Apply: Homework [due Day 7] i Saved Recognizing expected losses immediately, but deferring expected gains, is an example of: 11 8.33 points eBook References Multiple Choice Materiality. Conservatism. Cost-effectiveness. Timeliness. Help Save & Exit Submit Wk 1 - Apply: Homework [due Day 7] Saved Help Save & Exit Submit 12 Which of the following Statements of Financial Accounting Concepts defines the 10 elements of financial statements? 8.37 points eBook References Multiple Choice SFAC 4. SFAC 3. SFAC 5. SFAC 6