Extra Help

Question 1

Ingredients of Relevance

Answer 1

• Predictive Value
• Confirming value
• Materiality

Question 2

Ingredients of Faithful Representation

Answer 2

• Completeness
• Neutrality
• Freedom of Error

Question 3

Relating to Contingent Gains/Losses

Answer 3

Conservatism is a prudent reaction to uncertainty to try to ensure that uncertainty and risks inherent in business situations are adequately considered. Recognition of a contingent loss is the recording of an amount representing uncertainty and risk in a business situation.

Question 4

Relating to Realization

Answer 4

Revenues and gains are realized when assets are exchanged for cash or claims to cash

Question 5

Characteristics that enhance the usefulness of information that is relevant and faithfully represented

Answer 5

• Timeliness
• Understandability
• Comparability
• Verifiability

Question 6

Elements of Present Value Measurement Identified by the Mnemonic UVOTE

Answer 6

(U) the price for bearing Uncertainty

(V) expectations about timing Variations of future cash flows

(O) Other factors (e.g., liquidity issues and market imperfections)

(T) Time value of money (the risk-free rate of interest)

(E) Estimate of future cash flow

Question 7

Rule of Conservatism

Answer 7

The rule of conservatism states that revenues and gains should be recognized when the earnings process is complete, but that expenses and losses should be expensed immediately

Question 8

Mniemotic IDA

Answer 8

I-Income (or loss) from continuing operations
D-income (or loss) from Discontinued operations
A-cumulative effect of change in Accounting principle

Question 9

When there is an unlimited right of return, nothing should be recorded as sales revenue unless four conditions are satisfied. These conditions are the following:

Answer 9

1. The sales price is substantially fixed (it seems like it is in this question).
2. The buyer assumes all risk of loss (no information).
3. The buyer has paid some form of consideration (no information).
4. The amount of returns can be reasonably estimated (which they can in this question).