Chapter 1 Standard Setting, income statement, and reporting requirements Flashcards
What chapter is this?
Chapter 1
According to FASB & IASB frameworks, useful informatio?
Faith full representation and relevance
According attribute to FASB, what can be used to measure long-term receivables or payables?
Present value of future cash flows.
Purpose of Financial reporting?
Provide financial information that is useful to primary users.
What is the underlying concept that supports the immediate recognition of a contingent loss?
Conservatism
Process of reporting an item in the financial statements of an entity is?
Recognition
What concept is “depreciated equipment was sold in exchange for a note receivable”
Realization
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?
Net realizable value
What are the characteristics that enhance the usefulness of information that is relevant and faithfully represented? (4)
Timeliness
Understandably
comparability
Venerability
The elements of present value measurement is identified by the mnemonic UVOTE. What does this stand for?
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
The rule of Conservatism?
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
What is the quality of information that helps users forecast future outcomes?
Predictive value
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?
Replacement cost. (Hint: Current market value is the price to sell (not Acquire) an asset).
To be relevant what must the information have?
Predictive value
Confirming value
Materiality
What are the fundamental qualitative characters of useful financial information?
Relevance and faithful representation
Neutrality is an ingredient in what?
Faithful representation
What is an operating procedure for issuing a new international financial reporting standard?
An exposure draft is issued after approval by at least nice members of the IASB
What characteristics make up relevance?
predictive value
confirming value
Materiality
Which characteristic of accounting information primarily allows users of FS to generate predictions?
Relevance
Comprehensive income includes?
Loss on discontinued operations
Excluded from comprehensive income?
Investments by owners.
Comprehensive income xcludes changes in equity resulting from?
Dividends paid to stockholders
Is unrealized holding gain on available-for-sale securities included in Comprehensive income?
Yes
What is included in other comprehensive income?
- changes in funded status of pension plan
- unrealized gains and losses on afs securities
- foreign currency items
- effective portion of cash flow hedges
Gains from extinguishment of debt are a component of what?
Net income
Where is accumulated other comprehensive income reported on the FS?
Stockholders equity section of balance sheet
How must comprehensive income be presented?
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.
Why must reclassification adjustments be shown in the financial statement that discloses comprehensive income?
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).
What is the purpose of reporting comprehensive income?
to summarize all changes in equity from nonowner sources.
What does changes in market value of inventory and unrealized G/L on trading securities affect?
There go directly to the income statement affecting Net Income
What is comprehensive income?
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.
