Acct321Sum09MidtermSolution

Acct321Sum09MidtermSolution - SUMMER 2009 MIDTERM SOLUTION...

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Unformatted text preview: SUMMER 2009 MIDTERM SOLUTION I. A. Financial accounting measures, classifies, and summarizes in report form those activities and that information which relate to the enterprise as a whole for use by parties both internal and external to a business enterprise. Managerial accounting also measures, classifies, and summarizes in report form enterprise activities, but the communication is for the use of internal, managerial parties, and relates more to subsystems of the entity. Managerial accounting is management decision oriented and directed more toward product line, division and profit center reporting. B. A common body of theory applied by all businesses and entities minimizes the danger of bias, misinterpretation, and misrepresentation, and renders financial statements which are reasonably comparable. Without a common body of theory, each accountant and each enterprise could, and would, develop its own theory structure and set of practices, resulting in noncomparability among enterprises. C. Some of the major challenges facing the accounting profession relate to the following items: Non-financial measurement – how to report significant key performance measurements such as customer satisfaction indexes, backlog information and reject rates on goods purchased. Forward-looking information – how to report more future oriented information. Soft assets – how to report on intangible assets, such as market know-how, market dominance, and well-trained employees. Timeliness – how to report more real-time information. D. General-purpose financial statements are not likely to satisfy the specific needs of all interested parties. Since the needs of all interested parties such as creditors, managers, owners, governmental agencies, and financial analysts vary considerably, it is unlikely that one set of financial statements is equally satisfying. II. A. 1. The machine should be valued at historical cost, less accumulated depreciation. Thus, there is no violation of accounting principles. 2. Recognition of contingent losses which are probable and can be reasonably estimated is required. The recognition of contingent gains is not permitted. Thus, there is no violation of accounting principles. 3. GAAP requires a minimum of annual reporting. Therefore, there is a violation of the periodicity assumption. B. Total Total Total Net Total Total Stk. Revenue Expenses Income Assets Liabilities Equity (1) NE NE NE NE NE NE (2) NE U O O NE O (3) U NE U NE O U (4) NE U O NE U O (5) NE NE NE NE NE NE III. A. Get-A-Life Corp....
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Acct321Sum09MidtermSolution - SUMMER 2009 MIDTERM SOLUTION...

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