Chapter One Quiz/Homework

Question 1

the enhancing qualitative characteristic of understandability means that info should be understood by:

Answer 1

those who have reasonable understanding of business and economic activities

Question 2

Ford Motor Co. purchases services from suppliers on acct and sells its products to distributors on short term credit. as a result, do each of these events affect net income faster than they effect net operating cash flows?

Answer 2

purchase services: yes

sell products: yes

why: because revenues and expenses are being accounted on accrued basis - net income is affected faster because deals with accrued basis of rev/expenses, but net operating cash flow slower because on cash basis

Question 3

what is land reported at?

Answer 3

historical cost! ALWAYS (whatever it was to purchase/acquire it)

NOT recent firm offer for land with cash payment of ____

Question 4

capital markets focus on periodic profit may tempt company management to bend/break even acct rules to inflate reported net income. this is a _____

Answer 4

ethical dilemma

Question 5

Roy made poor investment as CPA. researches investment, examined FS but did not read the footnotes so he did not comprehend the broader context underlying those FS. What is true regarding understandability QC_______

Answer 5

this does not demonstrate a violation of understandability because he did not bother to read the footnotes because if he read them, he would have understood

so understandability is violated if maybe footnotes were not understandable. its always based on information - not person making a decision

Question 6

recognition

Answer 6

the process of admitting info into FS

Question 7

IBM co. purchased small tools for 800; even though tools will be used for a number of years, company records the purchase as an expense

Answer 7

materiality

Question 8

liquidation values are not normally reported in FS even though many companies do go out of business

Answer 8

the going concern assumption

Question 9

primary objective of financial reporting is to provide info

Answer 9

useful to capital providers

Question 10

Statements of Financial Accounting Concepts issued by the FASB

Answer 10

identify the conceptual framework within which acct standards are developed

Question 11

appraisal of land

Answer 11

relates to current cost - how much proceeds/to buy the land would be

Question 12

net realizable value of land

Answer 12

expected sale price (what could be sold for) - total sale/disposal costs

Question 13

current cost of land

Answer 13

referring to apprasal

Question 14

nearby piece of land sold for 128,000 is reffering to

Answer 14

market vaue (fair value)

looking at similar asset

fair value is what it would be to sell asset/land