Week 1 - Tanya Krupetskiy Professor Turner ACC-211 Week...

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Unformatted text preview: Tanya Krupetskiy Professor Turner ACC-211 Week Ending 8/31 Chapter 2 E 2-2 a) Comparability -- qualitative characteristic being employed when companies in the same industry are u b) Feedback value - quality of information that confirms users' earlier expectations. c) Consistency -- imperative for providing comparisons of a company from period to period. d) Neutrality ignores the economic consequences of a standard or rule. e) Verifiability requires a high degree of consensus among individuals on a given measurement. f) Relevance -- predictive value is an ingredient of this primary quality of information. g) Comparability and consistency are two qualitative characteristics that are related to both relevance an h) Reliability -- neutrality is an ingredient of this primary quality of accounting information. i) Relevance and reliability are two primary qualities that make accounting information useful for decision j) Timeliness -- issuance of interim reports, for example. E 2-3 a) Gains and losses arise from peripheral or incidental transactions. b) Liabilities -- obligation to transfer resources arising from a past transaction. c) Investments by owners and comprehensive income increase ownership interest. d) Distributions to owners declares and pays cash dividends to owners. e) Comprehensive income increases in net assets in a period from nonowner sources. f) Assets -- items characterized by service potential or future economic benefit. g) Comprehensive income equals increase in assets less liabilities during the year, after adding distributi h) Revenues and expenses arise from income statement activities that constitute the entity's ongoing ma i) Equity -- residual interest in the assets of the enterprise after deducting its liabilities. j) Revenues increase assets during a period through sale of product. k) Distributions to owners decrease assets during the period by purchasing the company's own stock. l) Comprehensive income includes all changes in equity during the period, except those resulting from in a-7 b-5 c-8 d-2 e - 12 f-1 g-4 h - 11 i - 10 j-3 E 2-4 E 2-6 a. Weller, Inc. should have reported revenues, costs of goods sold, and expenseson its financial stateme b. Weller, Inc. shouldn't have reported plant assets at $60,000. Instead, they should have reported asset $110,000 (notes payable). c. When reporting ending inventory, Weller, Inc. should have included what method has been used, such basis upon which the amounts are stated. d. Weller, Inc has to report changes from one inventory method to the other in order to avoid misleading E 2-7 a. This journal entry violates the economic entity assumption meaning that economic activity can be iden company must kee its activity seperate and distinct from its owners and any other business unit. b. GAAP requires that companies account for and report their assets and liabilities on the basis of acquis company should have credited merchandise inventory of $620,000 and debited cash for $620,000. Whe recognize at that time, and not at the time of acquisition. c. In the accrued accounting, losses and revenues should be recognized when occur. Thus, the loss wou d. Gonzales, Inc. should not record understatement of depereciation expense just because the prices ha market value, but rather on a factual measurement of expired cost (.p84). e. Under going concern assumption, an enetrprise will have a long life. Thus, good will is amortized durin f. A proper accounting entry would be to credit equipment in the amount of $155,000 and debit cash in th it is realized or realizable, and not at the time of acquisition. CA 2-7 a. The expense recognition principle is the approach for recognizing costs as expenses at the time of pro efforts (expenses) with accomplishments (revenues). For example, cost of goods sold. b. The rationale underlying the appropriateness of treating costs as expenses of a period instead of assi no direct relationship between cost and revenue. They are called period costs. They include salaries and c. It would be appropriate to treat cost as an asset if that asset would contribute to the generation of reve d. Because some costs are difficult to associate with revenue, companies use a "rational and systematic recognition principle. The textbook lists Intel and Motorola as examples. e. It would be appropriate to treat cost as a loss when no revenue is recognized. en companies in the same industry are using the same accounting principles. earlier expectations. pany from period to period. viduals on a given measurement. quality of information. stics that are related to both relevance and reliability. of accounting information. accounting information useful for decision-making purposes. ownership interest. rom nonowner sources. ties during the year, after adding distributions to owners and subtracting investments by owners. ties that constitute the entity's ongoing major or central operations. deducting its liabilities. purchasing the company's own stock. the period, except those resulting from investments by owners and distributions to owners. old, and expenseson its financial statements in order to comply with GAAP. Instead, they should have reported assets of $170,000 (plant equipment) and liabilities of cluded what method has been used, such as FIFO, LIFO, weighted average, etc.) and the to the other in order to avoid misleading financial information. eaning that economic activity can be identified with a particular unit of accountability. A ners and any other business unit. ssets and liabilities on the basis of acquisition price (historical cost principle). Thus, the ,000 and debited cash for $620,000. When the goods were sold, the revenue would have been cognized when occur. Thus, the loss would be recognized if it happens. iation expense just because the prices have increased. Depreciation is not based on fair ong life. Thus, good will is amortized during the next few years, rather then all in the first year. e amount of $155,000 and debit cash in the same amount. Revenue would be recognized when izing costs as expenses at the time of product sale. The principle is implemented by matching ple, cost of goods sold. ts as expenses of a period instead of assigning the costs to an asset is that some costs have ed period costs. They include salaries and administrative costs. would contribute to the generation of revenue throughout its useful life. companies use a "rational and systematic" allocation policy that approximates the expense ...
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