Krupetskiy1ACC211

Krupetskiy1ACC211 - Tanya Krupetskiy Professor Turner...

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Unformatted text preview: Tanya Krupetskiy Professor Turner ACC-211 Week 1 Chapter 1 CA1-2 As presented in Statement of Financial Accounting Concepts No.1, the three objectives of financial repo a) useful in investment and credit decisions (the information should be clear and comprehensible to peo b) useful in assessing cash flow prospects from dividends, or interest and the proceeds from the sale, re c) about company resources, claims to those resources, and changes in them, that portray the economi Thus, the information provided in financial reporting is used by creditors, investors, and others and helps CA 1-5 a. The two committees of the AICPA that established accounting principles prior to the establishment of and the Accounting Principles Board (APB). CAP consisted of CPAs who issued 51 Accounting Researc 31 pronouncements, called APB Opinions, from 1959 and 1973. b. However, both CAP and APB failed. CAP's bulletins dealt with a variety of accounting problems, yet t principles. Therefore, it has been replaced by APB in 1959. APB consisted of 18 to 21 members who str to determine appropriate practices, and to narrow the areas of difference and inconsistency in practice. APB was accused of working to slowly and failing to recognize all the issues. Facing CPA industry oppo profession's leaders organized the Wheat Committee, that examined APB's operations and recommend of financial accounting and reporting. In contrast to APB, FASB had only 5 members on the board, that w for renewable 5-year terms. FASB also had greater autonomy and increased independence than APB, a representation. It also adopted due process that allows interested persons to show their views on a part c. The present role of the AICPA in the rule-making environment has diminished over time. The AICPA n responsibility of FASB. However, for decades before that, the AICPA established the Accounting Standa accounting guides, statements of position, and practice bulletins. While neither AICPA nor AcSEcC issu grades the CPA examinations. CA 1-6 a. The sponsoring organization of the FASB is the Financial Accounting Foundation (FAF), that selects m their activities. The process by which the FASB arrives at a decision and issues an accounting standard agenda, 2) research and analysis are conducted and preliminary views of pros and cons issued, 3) publ research and public response and issues exposure draft, 5) Board evaluates responses and changes ex members agree. b. The major types of pronouncements issued by the FASB are 1) standards, interpretations, and staff p task force statements. Financial accounting standards are considered GAAP. Interpretations help modify standards and interpretations. FASB has issued over 160 standards, 48 interpretations, and over 50 sta Accounting Concepts are not GAAP, but rather help develop future standards of financial accounting an reach a consensus on how to account for new and unusual financial transactions, such as pension plan companies, and the like. The EITF helps resolve short-term accounting problems as they arise. CA 1-13 a. The Securities and Exchange Commission (SEC) was established by the federal government by the S b. Because the SEC is a federal institution, it has the regulatory power in the development of financial a c. The SEC relies on the FASB to develop accounting standards. However, when SEC disagrees on pro its own rules and regulations. CA 1-14 a. The process by which a topic is selected or identified as appropriate for study by the FASB is as follow FASB or the expertise of the Financial Accounting Standards Council (FASAC), and also from public an b. Once a topic is considered appropriate for consideration by the FASB, research and analysis are con public hearing on proposed standard takes place, after which the Board evaluates research and public r and, if necessary, changes the exposure draft. After 3 out of 5 board members voted for it, the final stan c. Three other organizations that influence the setting of generally accepted accounting principles (GAA and Financial Executives Institute. 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 distribut h) Revenues and expenses arise from income statement activities that constitute the entity's ongoing m 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 expenses on its financial statem b. Weller, Inc. shouldn't have reported plant assets at $60,000. Instead, they should have reported asse $110,000 (notes payable). c. When reporting ending inventory, Weller, Inc. should have included what method has been used, suc 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 keep its activity separate 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 acqui 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 wo d. Gonzales, Inc. should not record understatement of depreciation expense just because the prices hav market value, but rather on a factual measurement of expired cost (.p84). e. Under going concern assumption, an enterprise will have a long life. Thus, good will is amortized duri f. A proper accounting entry would be to credit equipment in the amount of $155,000 and debit cash in t 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 pr 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 ass 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 rev 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. Concepts No.1, the three objectives of financial reporting are to provide information that is ormation should be clear and comprehensible to people with a reasonable understanding of business). idends, or interest and the proceeds from the sale, redemption, or maturity of securities or loans. rces, and changes in them, that portray the economic position of the company. is used by creditors, investors, and others and helps them make investment, credit, and business decisions. d accounting principles prior to the establishment of the FASB were the Committee on Accounting Procedures (CAP) onsisted of CPAs who issued 51 Accounting Research Bulletins during 1939 and 1959. the APB issued tins dealt with a variety of accounting problems, yet the approach lacked the organizational structure of accounting in 1959. APB consisted of 18 to 21 members who strived to advance the written expression of accounting principles, e areas of difference and inconsistency in practice. Yet, since the accounting issues were increasing in numbers, recognize all the issues. Facing CPA industry opposition and fearing governmental interference, the accounting e, that examined APB's operations and recommended to dismiss APB. Thus, FASB was created to improve standards APB, FASB had only 5 members on the board, that worked full-time and were well-paid. The members were appointed autonomy and increased independence than APB, and its members are not required to be CPA, thus it has broader ows interested persons to show their views on a particular situation. environment has diminished over time. The AICPA no longer issues guidance for public company. That is now the e that, the AICPA established the Accounting Standards Executive Committee (AcSEC) that issued audit and tice bulletins. While neither AICPA nor AcSEcC issue any guidance to public companies, AICPA still develops and inancial Accounting Foundation (FAF), that selects members of the FASB and the Advisory Council, funds and oversees ves at a decision and issues an accounting standard is as follows: 1) topics are identified and placed on Board's d preliminary views of pros and cons issued, 3) public hearing on proposed standard takes place, 4) Board evaluates draft, 5) Board evaluates responses and changes exposure draft, if necessary, 6) final draft is issued when 3 out of 5 e FASB are 1) standards, interpretations, and staff positions, 2) financial accounting concepts, and 3) emerging issues rds are considered GAAP. Interpretations help modify and extend existing standards. Staff positions help clarify the er 160 standards, 48 interpretations, and over 50 staff positions (formerly FASB Technical Bulletins). Financial develop future standards of financial accounting and reporting. Emerging Issues Task Force Statements (EITF) help unusual financial transactions, such as pension plan terminations, revenue from barter transactions by Internet ort-term accounting problems as they arise. ) was established by the federal government by the Securities Exchange Act of 1934. Thus, the SEC is a federal agency. e regulatory power in the development of financial accounting theory and practices and their implementations. ng standards. However, when SEC disagrees on pronouncements of the FASB, it has the power over FASB and will create ified as appropriate for study by the FASB is as follows: problems or issued may come from EITF, from research staff of tandards Council (FASAC), and also from public and businesses involved. The topics are then placed on the agenda. eration by the FASB, research and analysis are conducted and preliminary views of pros and cons are issued. Then, fter which the Board evaluates research and public response and issues exposure draft. The Board evaluates responses r 3 out of 5 board members voted for it, the final standard is issued. ng of generally accepted accounting principles (GAAP) are Securities and Exchange Commission (SEC), the AICPA, mployed when companies in the same industry are using the same accounting principles. irms users' earlier expectations. ons of a company from period to period. f a standard or rule. among individuals on a given measurement. this primary quality of information. e characteristics that are related to both relevance and reliability. ary quality of accounting information. that make accounting information useful for decision-making purposes. g from a past transaction. me increase ownership interest. ividends to owners. n a period from nonowner sources. or future economic benefit. s less liabilities during the year, after adding distributions to owners and subtracting investments by owners. ment activities that constitute the entity's ongoing major or central operations. rprise after deducting its liabilities. e period by purchasing the company's own stock. quity during the period, except those resulting from investments by owners and distributions to owners. s of goods sold, and expenses on its financial statements in order to comply with GAAP. at $60,000. Instead, they should have reported assets of $170,000 (plant equipment) and liabilities of uld have included what method has been used, such as FIFO, LIFO, weighted average, etc.) and the tory method to the other in order to avoid misleading financial information. sumption meaning that economic activity can be identified with a particular unit of accountability. A t from its owners and any other business unit. eport their assets and liabilities on the basis of acquisition price (historical cost principle). Thus, the ory of $620,000 and debited cash for $620,000. When the goods were sold, the revenue would have been should be recognized when occur. Thus, the loss would be recognized if it happens. t of depreciation expense just because the prices have increased. Depreciation is not based on fair of expired cost (.p84). will have a long life. Thus, good will is amortized during the next few years, rather then all in the first year. pment in the amount of $155,000 and debit cash in the same amount. Revenue would be recognized when h for recognizing costs as expenses at the time of product sale. The principle is implemented by matching ). For example, cost of goods sold. reating costs as expenses of a period instead of assigning the costs to an asset is that some costs have ey are called period costs. They include salaries and administrative costs. if that asset would contribute to the generation of revenue throughout its useful life. h revenue, companies use a "rational and systematic" allocation policy that approximates the expense otorola as examples. en no revenue is recognized. nd business decisions. n Accounting Procedures (CAP) tional structure of accounting ssion of accounting principles, were increasing in numbers, nterference, the accounting as created to improve standards id. The members were appointed to be CPA, thus it has broader lic company. That is now the C) that issued audit and ies, AICPA still develops and visory Council, funds and oversees ied and placed on Board's takes place, 4) Board evaluates l draft is issued when 3 out of 5 oncepts, and 3) emerging issues Staff positions help clarify the ical Bulletins). Financial k Force Statements (EITF) help r transactions by Internet Thus, the SEC is a federal agency. d their implementations. the power over FASB and will create from EITF, from research staff of are then placed on the agenda. ros and cons are issued. Then, ft. The Board evaluates responses ommission (SEC), the AICPA, vestments by owners. ue would have been be recognized when mented by matching ...
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This note was uploaded on 11/11/2009 for the course ACC 211 taught by Professor Weber during the Spring '09 term at Colorado Mountain.

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