Sample Questions and Solutions - Chapter 1 CA1- 2 (...

Sample Questions and Solutions
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Unformatted text preview: Chapter 1 CA1- 2 ( Objectives of Financial Reporting) Karen Sepan, a recent graduate of the local state university, is presently employed by a large manufacturing company. She has been asked by Jose Martinez, controller, to prepare the company's response to a current Preliminary Views published by the Financial Accounting Standards Board ( FASB). Sepan knows that the FASB has issued seven Statements of Financial Accounting Concepts, and she believes that these concept statements could be used to support the company's response to the Preliminary Views. She has prepared a rough draft of the response citing Statement of Financial Accounting Concepts No. 1, " Objectives of Financial Reporting by Business Enterprises." Instructions ( a) Identify the three objectives of financial reporting as presented in Statement of Financial Accounting Concepts No. 1 ( SFAC No. 1). ( b) Describe the level of sophistication expected of the users of financial information by SFAC No. 1. ( CMA adapted) CA1- 9 ( GAAP Terminology) Wayne Rogers, an administrator at a major university, recently said, " I've got some CDs in my IRA, which I set up to beat the IRS." As elsewhere, in the world of accounting and finance, it often helps to be fluent in abbreviations and acronyms. Instructions Presented below is a list of common accounting acronyms. Identify the term for which each acronym stands, and provide a brief definition of each term. ( a) AICPA ( e) FAF ( i) CPA ( b) CAP ( f) FASAC ( j) FASB ( c) ARB ( g) SOP ( k) SEC ( d) APB ( h) GAAP ( l) IASB SOLUTIONS CA 1-2 (a) In accordance with Statement of Financial Accounting Concepts No. 1, "Objectives of Financial Reporting by Business Enterprises," the objectives of financial reporting are to provide information to investors, creditors, and others 1. that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions. The information should be comprehensible to those who have a reasonable understanding of business and economic activities and are willing to study the information with reasonable diligence. 2. to help present and potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts from dividends or interest and the proceeds from the sale, redemption, or maturity of securities or loans. Since investors' and creditors' cash flows are related to enterprise cash flows, financial reporting should provide information to help investors, creditors, and others assess the amounts, timing, and uncertainty of prospective net cash inflows to the related enterprise. 3. about the economic resources of an enterprise, the claims to those resources (obligations of the enterprise to transfer resources to other entities and owners' equity), and the effects of trans-actions, events, and circumstances that change its resources and claims to those resources....
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