Chapter 1 Standard Setting, income statement, and reporting requirements

Question 1

What chapter is this?

Answer 1

Chapter 1

Question 2

According to FASB & IASB frameworks, useful informatio?

Answer 2

Faith full representation and relevance

Question 3

According attribute to FASB, what can be used to measure long-term receivables or payables?

Answer 3

Present value of future cash flows.

Question 4

Purpose of Financial reporting?

Answer 4

Provide financial information that is useful to primary users.

Question 5

What is the underlying concept that supports the immediate recognition of a contingent loss?

Answer 5

Conservatism

Question 6

Process of reporting an item in the financial statements of an entity is?

Answer 6

Recognition

Question 7

What concept is “depreciated equipment was sold in exchange for a note receivable”

Answer 7

Realization

Question 8

How would a company measure its equipment on their balance sheet, if they plan to end operations and dispose of its assets within three months?

Answer 8

Net realizable value

Question 9

What are the characteristics that enhance the usefulness of information that is relevant and faithfully represented? (4)

Answer 9

Timeliness
Understandably
comparability
Venerability

Question 10

The elements of present value measurement is identified by the mnemonic UVOTE. What does this stand for?

Answer 10

U - the price of bearing Uncertainty
V- expectations about timing Variations of future cash F
O- Other factors
T- Time value of money
E- Estimate of future cash flow

Question 11

The rule of Conservatism?

Answer 11

The rule of conservatism states that revenuers and gains should be recognized when the earnings process is complete, but that expense and losses should be expended immediately. Reporting inventory at LCM is an example of this rule

Question 12

What is the quality of information that helps users forecast future outcomes?

Answer 12

Predictive value

Question 13

Certain assets are reported in FS at the amount of cash that would have to be paid if the same or equivalent asset were acquired currently. What is the name of this reporting concept?

Answer 13

Replacement cost. (Hint: Current market value is the price to sell (not Acquire) an asset).

Question 14

To be relevant what must the information have?

Answer 14

Predictive value
Confirming value
Materiality

Question 15

What are the fundamental qualitative characters of useful financial information?

Answer 15

Relevance and faithful representation

Question 16

Neutrality is an ingredient in what?

Answer 16

Faithful representation

Question 17

What is an operating procedure for issuing a new international financial reporting standard?

Answer 17

An exposure draft is issued after approval by at least nice members of the IASB

Question 18

What characteristics make up relevance?

Answer 18

predictive value
confirming value
Materiality

Question 19

Which characteristic of accounting information primarily allows users of FS to generate predictions?

Answer 19

Relevance

Question 20

Comprehensive income includes?

Answer 20

Loss on discontinued operations

Question 21

Excluded from comprehensive income?

Answer 21

Investments by owners.

Question 22

Comprehensive income xcludes changes in equity resulting from?

Answer 22

Dividends paid to stockholders

Question 23

Is unrealized holding gain on available-for-sale securities included in Comprehensive income?

Answer 23

Yes

Question 24

What is included in other comprehensive income?

Answer 24

• changes in funded status of pension plan
• unrealized gains and losses on afs securities
• foreign currency items
• effective portion of cash flow hedges

Question 25

Gains from extinguishment of debt are a component of what?

Answer 25

Net income

Question 26

Where is accumulated other comprehensive income reported on the FS?

Answer 26

Stockholders equity section of balance sheet

Question 27

How must comprehensive income be presented?

Answer 27

Comprehensive income may be shown in its own section on the income statement below net income or as a seperate statement of comprehensive income or as component of changes in stockholders equity.

Question 28

Why must reclassification adjustments be shown in the financial statement that discloses comprehensive income?

Answer 28

Reclassification entries may be necessary to avoid double counting an item previously reporteed as comprehensive income (ie. unrealized gain), which are now reported as part of net income (realized gain).

Question 29

What is the purpose of reporting comprehensive income?

Answer 29

to summarize all changes in equity from nonowner sources.

Question 30

What does changes in market value of inventory and unrealized G/L on trading securities affect?

Answer 30

There go directly to the income statement affecting Net Income

Question 31

What is comprehensive income?

Answer 31

It is the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.