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Novin-Adel-ACCT 3351-Homework 2-Grading Key.xlsx

Novin-Adel-ACCT 3351-Homework 2-Grading Key.xlsx - ACCT...

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Unformatted text preview: ACCT 3351- Homework 2 For grading, copy and paste columns E to H to your Excel file containing your answ Part I. Short Essay - provide a short answer but right to the point to each question in the space Q1 An attmept to define the nature and purpose of accounting. Most consider the theoretical and conceptual su Q2 Can be seen as a statement of GAAP to provide useful info as a basis for economic decision making will cr how transaction should be measured. Q3 The income statement help investors and credit understand whether the company is making. Q4 the balance sheet informs the investors and creditors of what the company owns what it iwes and the value a specific date. Q5 it explains that the informtion accountants need to provide need to be both relevant and reliable. Q6 expenses differ from losses in that they arise from the entity's on going major or central operational losses a dividends to owners differ from the both because they represent transfers by owners and don’t arise from ac Q7 investments by owners differ from revenue and gain in that they represent transsfer by owners to the entity intended to produce income revenue differ from gain because they arise from the entitiy's ongoing centeral transactions. Q8 according to GAAP most assets held on the balance sheet are to be recorded at the historical cost. Also kee with future assets purchase. Q9 selane eatery should recognize revenue when service is rendered. Q10 yes I agree he is correct the company has a right to gain the pres. Is talking about the profit that will arise if Q11.a Q11.b Q11.c Q12 I agree under the conservatism principle it is best to incurr the loss even if your not sure if it will be accurat Q13 I disagree this would be following the recognition principle Q14 I agree convertaism principle helps decide between two alternatives and the best solutions would be to reco Q15 I agree the conservatism principle is the foundation for the lower of cost or market value. Q16 most investors believe if the cashflow were positive in the past they will continue to do so or vice versa . W Part II. Multiple Choice - Select an answer from pull-down menu in each cell. 1 Materiality 2 Completeness 3 Going Concern Assumption 4 Monetary Unit Assumption 5 Expense Recognition Principle 6 Periodicity Assumption 7 Full Disclosure Principle 8 Economic Entity Assumption 9 Confirmatory Value 10 Periodicity Assumption 11 Expense Recognition Principle 12 Economic Entity Assumption 13 Historical Cost Principle 14 Faithfull Presentation 15 Confirmatory Value 16 Comparability 17 Fair Value Principle 18 Materiality 19 Neutrality 20 Full Disclosure Principle 21 Full Disclosure Principle 22 Periodicity Assumption 23 Revenue Recognition Principle 24 C 25 D 26 D 27 D 28 D 29 D 30 A 31 D 32 A 33 A 34 B 35 B 36 C 37 C 38 C 39 A 40 A 41 C 42 D 43 B 44 B 45 D 46 C 47 D 48 A 49 B 50 C END Do Not touch the following section Predictive Value Faithfull Presentation Confirmatory Value Materiality Completeness Neutrality Free from Error Conservatism Comparability Verifiability Timeliness Understandability Economic Entity Assumption Going Concern Assumption Monetary Unit Assumption Periodicity Assumption Historical Cost Principle Fair Value Principle Revenue Recognition Principle Expense Recognition Principle Full Disclosure Principle A B C D E aste columns E to H to your Excel file containing your answers. e a short answer but right to the point to each question in the space provided nature and purpose of accounting. Most consider the theoretical and conceptual surrounding. ent of GAAP to provide useful info as a basis for economic decision making will create a theortical basis for determinig be measured. elp investors and credit understand whether the company is making. ms the investors and creditors of what the company owns what it iwes and the value of the business to it's stockholders as of mtion accountants need to provide need to be both relevant and reliable. ses in that they arise from the entity's on going major or central operational losses arise from incidental transaction er from the both because they represent transfers by owners and don’t arise from activities intended to produce income differ from revenue and gain in that they represent transsfer by owners to the entity and they don’t arise from activites ome revenue differ from gain because they arise from the entitiy's ongoing centeral operations gsins come from indentical st assets held on the balance sheet are to be recorded at the historical cost. Also keeping accurate records of an asset help ase. ognize revenue when service is rendered. the company has a right to gain the pres. Is talking about the profit that will arise if the machine is sold $150000 vatism principle it is best to incurr the loss even if your not sure if it will be accurate. following the recognition principle ciple helps decide between two alternatives and the best solutions would be to record the higher of the two losses principle is the foundation for the lower of cost or market value. f the cashflow were positive in the past they will continue to do so or vice versa . Which can be looked t as going concern elect an answer from pull-down menu in each cell. Score: 60% Points Assigned Points Earned 3 2 3 3 3 1 3 3 3 2 3 3 3 3 3 3 3 3 3 3 1 3 1 3 1 3 3 3 3 2 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 0 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 0 1 0 1 1 1 0 1 0 1 1 1 0 1 0 1 0 1 1 1 1 1 1 1 1 104 62 Correct Answer A conceptual framework establishes the concepts that form financial reporting. A conceptual framework is necessary in financial accounting for the following reasons: (1) It will enable the FASB to issue more useful and consistent standards in the future. (2) New issues will be more quickly solvable by reference to an existing framework of basic theory. (3) will increase financial statement users’ and confidence in financial reporting. TheItincome statement provides investors andunderstanding creditors with of information that helps them predict the (4) It will enhance comparability among companies’ financial statements. amount, timing, and uncertainty of future cash flows. It helps investors and creditors predict future cash flows in a number of different ways. First, investors and creditors can use the information on the to evaluate the pastabout performance ofand the amounts enterprise. the income Theincome balancestatement sheet provides information the nature ofSecond, assets, liabilities, and statement helps users of the financial statements to determine the risk (level of uncertainty) of owners' equity in the business. Financial flexibility is the ability of an enterprise to take effective income—revenues, expenses, gains, andoflosses—and highlights the relationship among theseand actions to alter the amounts and timing cash flows so it can respond to unexpected needs various components. It should be emphasized that the income statement is used by parties other opportunities. An enterpriseof with a high degree of financial flexibility is better able to survive badto “Qualitative characteristics accounting information” areuse those characteristics which contribute than investors and creditors. For example, customers can the income statement to determine times, to recover from unexpected setbacks, and to takequalitative advantagecharacteristic of profitable of andaccounting unexpected a the quality or value of the information. The overriding company’s ability to provide needed goods or services, unionsflexibility, examine earnings investment opportunities. Generally, themaking. greater the financial the lowerclosely the riskasofa basis infor¬mation is usefulness for decision for salary dis¬cussions, and the government uses the income statements of companies as a basis for enterprise failure. formulating tax and economic policy. Expenses arise from activities intended to produce income. Losses arise from incidental transactions and events that results in expiration of assets without taking the intended benefit from the expired assets. Expenses differ from losses in that they refer to consumed assets that help to generate revenues during the entity’s major operations, butthat losses not. Dividends Investments by owners differongoing from revenues and gains in theydo represent transfersare by distribution owners to of profits to the owners. the entity, and they do not arise from activities intended to produce income. Revenues differ from gains in that they arise from the entity’s ongoing major or central operations. Gains arise from peripheral orarguments incidental which transactions. Some of the might be used are outlined below: (1) Cost is definite and reliable; other values would have to be determined somewhat arbitrarily and there would be considerable disagreement as to the amounts to be used. (2) Amounts determined by otherwhen basesthey would toand be revised Revenues should be recognized are have earned realizedfrequently. or realizable. The most common (3) withtwo other companies aided if cost employed. timeComparison at which these conditions are ismet is when theis product or merchandise is delivered or (4) The costs of obtaining replacement values could outweigh the benefits derived raise major services are rendered to customers. Therefore, revenue for Selane Eatery should beand recognized at questions about reliability of the inforamtion the the luncheon is served. Thetime president means that the “gain” should be recorded in the books. This item should not be entered in the accounts, however, because it has not been realized (the $150,000 is not certain until a transaction is taken). According to the FASB's Concepts Statement No. 5, companies usually meet two and conditions for recognizing revenue/gain – when the revenue/gain realized or Underthe cause effect relationship concept when an expense is associated withisparticular revenue, realizable and being earned. Revenues are realizable when company receives assets in of exchange the expense is recognized and recorded upon the recognition of the revenue. Examples expenses that convertible to known amounts of cash claims to cash. Revenues aregoods earned when that are are readily recognized by associating cause and effect are or sales commissions and cost of sold or aservices company has substantially accomplished what it must do to be entitled to the benefits represented provided. Systematic and rationalis,allocation where the asset is provides benefits for several periods. Under by the revenues—that when theisearnings process complete or virtually complete. these situations, the asset cost should be allocated to the periods in a systematic and rational manner. Examples of expenses that are recognized in a systematic and rational manner are depreciation of immediately plant assets, amortization of intangible andvisible allocation ofbenefits rent andorinsurance. Some costs are expensed because the costsassets, have no future the allocation among several accounting periods is not considered to serve any useful purpose. Examples include officers’ salaries, most selling costs, amounts paid to settle lawsuits, and reserach and development costs. Acceptable if reasonably accurate estimation is possible. To the extent that warranty costs can be estimated accurately, they should be matched against the related sales revenue. Not acceptable. Most accounts are collectible or the company will be out of business very soon. Hence sales can be recorded when made. Also, other companies record sales when made rather than when collected, so if accounts for Landowska Co. are to be compared with other companies, they must be kept on For a comparable However,atestimates accounts be and Not acceptable. the loss to basis. be recognized this point,fortheuncollectible loss would have to beshould probable recorded if there is a reasonably accurate basis for estimating bad debts reasonably estimable. Note disclosure is required if the chance to lose the law suit is even; however, conservatism is not part of the conceptual framework. Acceptable because lower of cost or market is in accordance with generally accepted accounting principles. Information on past transactions can be used to identify important trends that, if continued, provide information about future performance. If a reasonable correlation exists between past and future performance, predictions about future earnings and cash flows can be made. For example, a loan analyst can develop a prediction of future performance by estimating the rate of growth of past income over the past several periods and project this into the next period. Additional information about current economic and industry factors can be used to adjust the trend rate based on historical information. Materiality Comparability Expense Recognition Principle Monetary Unit Assumption Expense Recognition Principle Periodicity Assumption Full Disclosure Principle Economic Entity Assumption Comparability Periodicity Assumption Expense Recognition Principle Economic Entity Assumption Historical Cost Principle Faithfull Presentation Confirmatory Value Comparability Fair Value Principle Materiality Comparability Conservatism Full Disclosure Principle Periodicity Assumption Revenue Recognition Principle C D C D D D A D A A A B C C A D A B B B A B D D A B C ...
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