Chapter 2 Intermediate Accounting

Quality of information that assures users that information represents the economic phenomena that it purports to represent.

Information about an economic phenomenon that changes past or present expectations based on previous evaluations.

The extent to which information is accurate in representing the economic substance of a transaction.

Includes all the information that is necessary for a faithful representation of the economic phenomena that it purports to represent.

Quality of information that allows users to comprehend its meaning.

Quality of information that permits users to identify similarities in and differences between two sets of economic phenomena.

Having information available to users before it loses its capacity to influence decisions.

Information about an economic phenomenon that has value as an input to the processes used by capital providers to form their own expectations about the future.

Information that is capable of making a difference in the decisions of users in their capacity as capital providers.

Absence of bias intended to attain a predetermined result or to induce a particular behavior.

The annual reports of Best Buy Co. are audited by certified public accountants.

Black & Decker and Cannondale Corporation both use the FIFO cost flow assumption.

Starbucks Corporation has used straight-line depreciation since it began operations.

Motorola issues its quarterly reports immediately after each quarter ends.

Retained Earnings

Sales

Additional Paid-In-Capital

Inventory

Depreciation

Loss on sale of equipment

Interest Payment

Dividends

Gain on sale of investment

Issuance of Common Stock

The economic activities of FedEx Corporation are divided into 12-month periods for the purpose of issuing annual reports.

Solectron Corporation, Inc. does not adjust amounts in its financial statements for the effects of inflation.

Walgreen Co. reports current and noncurrent classifications in its balance sheet.

The economic activities of General Electric and its subsidiaries are merged for accounting and reporting purposes.

Norfolk Southern Corporation reports revenue in its income statement when the performance obligation is satisfied instead of when the cash is collected.

Yahoo! recognizes depreciation expense for a machine over the 2-year period during which that machine helps the company earn revenue.

Oracle Corporation reports information about pending lawsuits in the notes to its financial statements.

Eastman Kodak Company reports land on its balance sheet at the amount paid to acquire it, even though the estimated fair value is greater.

Target was involved in litigation over the last year. This litigation is disclosed in the financial statements.

Target allocates the cost of its depreciable assets over the life it expects to receive revenue from these assets.

Target records the purchase of a new Dell PC at its cash equivalent price.

T/F: Accounting rule-making that relies on a body of concepts will result in useful and consistent pronouncements.

T/F: General-purpose financial reports are most useful to company insiders in making strategic business decisions.

T/F: Accounting standards based on individual conceptual frameworks generally will result in consistent and comparable accounting reports.

T/F: Capital providers are the only users who benefit from general-purpose financial reporting.

T/F: Accounting reports should be developed so that users without knowledge of economics and business can become informed about the financial results of a company.

T/F: The objective of financial reporting is the foundation from which the other aspects of the framework logically result.

What is the quality of information that enables users to confirm or correct prior expectations?

Identify the pervasive constraint developed in the conceptual framework.

The chairman of the SEC at one time noted, "If it becomes accepted or expected that accounting principles are determined or modified in order to secure purposes other than economic measurement, we assume a grave risk that confidence in the credibility of our financial information system will be undermined." Which qualitative characteristic of accounting information should ensure that such a situation will not occur?

Muruyama Corp. switches from FIFO to average-cost to FIFO over a 2-year period. Which qualitative characteristic of accounting information is not followed?

Assume that the profession permits the savings and loan industry to defer losses on investments it sells because immediate recognition of the loss may have adverse economic consequences on the industry. Which qualitative characteristic of accounting information is not followed?

What are the two fundamental qualities that make accounting information useful for decision-making?

Watteau Inc. does not issue its first-quarter report until after the second quarter's results are reported. Which qualitative characteristic of accounting is not followed?

Predictive value is an ingredient of which of the two fundamental qualities that make accounting information useful for decision-making purposes?

Duggan, Inc. is the only company in its industry to depreciate its plant assets on a straight-line basis. Which qualitative characteristic of accounting information may not be followed?

Roddick Company has attempted to determine the replacement cost of its inventory. Three different appraisers arrive at substantially different amounts for this value. The president, nevertheless, decides to report the middle value for external reporting purposes. Which qualitative characteristic of information is lacking in these data?

Arises from peripheral or incidental transactions.

Obligation to transfer resources arising from a past transaction.

Increases ownership interest.

Declares and pays cash dividends to owners.

Increases in net assets in a period from nonowner sources.

Items characterized by service potential or future economic benefit.

Equals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners.

Arises from income statement activities that constitute the entity's ongoing major or central operations.

Residual interest in the assets of the enterprise after deducting its liabilities.

Increases assets during a period through sale of product.

Decreases assets during the period by purchasing the company's own stock.

Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners.

Allocates expenses to revenues in the proper period.

Indicates that fair value changes subsequent to purchase are not recorded in the accounts.

Ensures that all relevant financial information is reported.

Rationale why plant assets are not reported at liquidation value.

Indicates that personal and business record keeping should be separately maintained.

Separates financial information into time periods for reporting purposes.

Assumes that the dollar is the "measuring stick" used to report on financial performance.

A conceptual framework is necessary for which of the following reasons? It enables standard setters to issue more useful and consistent pronouncements over time. It increases financial statement users' understanding of and confidence in financial reporting. All of these answer choices are correct. It allows the profession to quickly solve new and emerging issues.

Companies and their auditors have adopted a general rule of thumb that anything under _____ of net income is considered not material. 10%. 5%. 2%. 15%.

Which of the following elements of financial statements describes amounts of resources and claims to resources at a moment in time? Comprehensive income. Investments by owners. Revenues. Equity.

With regard to fair value, which of the following measurements is considered the least subjective? Unobservable inputs. Inputs that are observable either directly or through corroboration with observable data. Observable inputs that reflect quoted prices for identical assets or liabilities. For purposes of fair value, all of the measures are considered equally subjective.