FAR 1A Flashcards
The operating procedure for issuing a new Financial Accounting Standards Board (FASB) statement…
A new statement is issued only after a majority vote by the members of the FASB. At least four of the seven members of the FASB must vote in favor of a proposed Statement of Financial Accounting Standards.
The FASB has maintained that:
New GAAP should be neutral and not favor any particular reporting objective.
Is collection on a note receivable from a related party is an investing activity?
Yes. The company is lending money to the related party and lending is not a primary business activity – the fact that the loan is in the form of a note implies that it is interest bearing.
The premium on a three-year insurance policy expiring on December 31, 2004 was paid in total on January 2, 2002. If the company has a six-month operating cycle, then on December 31, 2002, the prepaid insurance reported as a current asset would be for:
12 months. At the end of 2002, two years of coverage remains. The cost of coverage for 2003 is a current asset because it will be consumed within a year of the 2002 Balance Sheet.
What is the underlying concept governing the Generally Accepted Accounting Principles pertaining to recording gain contingencies?
Conservatism. This is a classic example of conservatism, which suppresses positive information under conditions of uncertainty but requires the reporting of negative information when the negative outcome is likely.
According to the conceptual framework, the usefulness of providing information in financial statements is subject to the constraint of:
Cost-benefit. Cost-benefit is the only constraint among the four answer alternatives. When the cost of information exceeds its benefit, it should not be reported, even if it might be useful.
On December 31, 2002, Brooks Co. decided to end operations and dispose of its assets within three months. At December 31, 2002, the net realizable value of the equipment was below historical cost. What is the appropriate measurement basis for equipment included in Brooks’ December 31, 2002, Balance Sheet?
Net realizable value.
Ande Co. estimates uncollectible accounts expense using the ratio of past actual losses from uncollectible accounts to past net credit sales, adjusted for anticipated conditions. The practice follows the accounting concept of:
Matching
According to the conceptual framework, the objectives of financial reporting for business enterprises are based on:
The needs of the users of the information.
According to the FASB conceptual framework, which of the following is not an enhancing qualitative characteristic?
Confirmatory value. Confirmatory value is an ingredient of relevance. It does not relate to faithful representation. Faithful representation can be broken down into completeness, free from material error, and neutrality.
Two ingredients of relevance are:
Predictive Value and Confirmatory Value. Predictive value is one of the primary characteristics of accounting information. The other ingredient of relevance is confirmatory value.
Which of the following characteristics of accounting information primarily allows users of financial statements to generate predictions about an organization?
Relevance. Predictive value along with confirmatory value is a component of relevance.
