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Unformatted text preview: Assumptions, Principles and Conventions: [1000a thru 4440a] 1. __b___ 2. _f ___ 3. __c__ 4. __e__ 5. _a or f_ 6. _J____ 7. __J___ 8. __d___ Assumptions, Principles and Conventions: [1003a] Listed below are some of the assumptions, broad principles and modifying conventions used in accounting: a. Relevance b. Revenue recognition principle c. Periodicity assumption d. Full disclosure principles e. Reliability f. Materiality g. Matching principle h. Economic entity assumption i. Going concern assumption j. Historic cost principle k. Accrual basis accounting l. Cash basis accounting Required: Select the letter corresponding appropriate item listed above that best supports each of the following statements. Place that letter in the space provided. Print clearly. Illegible letters will be incorrect. You may use a letter more than once, once or not at all. C Investors expect financial statements to be issued at predetermined time intervals rather than waiting until it would be convenient to issue the financial statements. The financial community assumes bad things when financial statements and related disclosures are delayed. G or K Most users would not want the company to charge all of the costs of a building to expense in the period the building was acquired. Investors think that reported income is most useful when it has been properly recognized. D Users expect to know the important details regarding the firms leases. Matters relating to the companys pension plans must be available to financial statement users. F User decisions would not likely be effected if the firm listed each of its separate checking account balances in the balance sheet. Decision-making by financial statement users will likely not be impacted if a Fortune 500 firm presents its financial statement values rounded to the nearest million dollars. G or K Subscriptions received in advance by magazine publishers are shown as liabilities until the magazines are published. Work performed before being collected will produce an asset in the balance sheet. A Users of financial statements occasionally want the financials for help in understanding what the firms prospects might be for the next year. [Predictive is one of the elements of Relevance] A The financial statements contain information regarding the results of prior management decisions. [Feedback is one of the ingredients of Relevance] Deriving Financial Statement Implications: [1010a] 1. ___+75,000_Total Assets __________Revenues ___+15,000_Total Liabilities __________Gains ___+60,000_Owners Equity __________Expenses __________Losses __________Income 2. __+630,000___Total Assets +600,000__Revenues ___+30,000___Total Liabilities __________Gains __+600,000___Owners Equity __________Expenses __________Losses _+600,000_Income 3....
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- Fall '06