Chapter 2 HW - CA2-3: a) Indicate the basic objectives...

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CA2-3: a) Indicate the basic objectives established in Statement of Financial Accounting Concepts No. 1. The basic objectives in Statement of Financial Accounting Concepts No. 1 are to: a. Provide information useful in investment and credit decisions for individuals who have a reasonable understanding of business. b. Provide information useful in assessing future cash flows. c. Provide information about economic resources, claims to those resources, and changes in them. b) What do you think is the meaning of Kathy’s statement that the FASB needs a starting point to resolve accounting controversies? The purpose of this statement is to set forth fundamentals on which financial accounting and reporting standards may be based. Without some basic set of objectives that everyone can agree to, inconsistent standards will be developed. For example, some believe that accountability should be the primary objective of financial reporting. Others argue that prediction of future cash flows is more important. It follows that individuals who believe that accountability is the primary objective may arrive at different financial reporting standards than others who argue for prediction of cash flow. Only by establishing some consistent starting point can accounting ever achieve some underlying consistency in establishing accounting principles. CA2-5 a) List the various accepted times for recognizing revenue in the accounts and explain when the methods are appropriate. The various accepted times of recognizing revenue in the accounts are as follows: 1. Time of sale. This time is currently acceptable when the costs and expenses related to the particular transaction are reasonably determinable at the time of sale and when the collection of the sales price is reasonably certain. 2. At completion. This time is currently acceptable in extractive industries where the salability of the product at a quoted price is likely and in the agricultural industry where there is a quoted price for the product and only Iow additional costs of delivery to the market remain. 3. During production. This time is currently acceptable when the revenue is known from the contract and total cost can be estimated to determine percentage of completion. 4. At collection. This time is currently acceptable when collections are received in installments, when there are substantial "after costs" that unless anticipated would have the effect of overstating income on a sales basis in the period of sale, and when collection risks are high. (b) (1) The "crucial event"–that is, the most difficult task in the cycle of a complete transaction–in the process of earning revenue may or may not coincide with the rendering of service to the subscriber. The new director suggests that they do not coincide in the magazine business and that revenue from subscription sales and advertising should be recognized in the accounts when the difficult task of selling is accomplished and not when the magazines are published to fill the subscriptions or to carry the advertising. The director's view that there is a single crucial event in the process of earning revenue in the magazine business
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Chapter 2 HW - CA2-3: a) Indicate the basic objectives...

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