Financial Reporting and Changing Prices

Question 1

Appreciation

Answer 1

historical cost ignores it; current cost acknowledges it

Question 2

change in inflation

Answer 2

nominal dollars ignores it; constant dollars adjust for it

Question 3

Adjustments

Answer 3

Historical cost/nominal dollars: no adjustment

Historical cost/constant dollars: adjust only for inflation

current cost/nominal dollars: adjust for appreciation

current cost/constant dollars: appreciation and inflation both adjusted

Question 4

historical cost

Answer 4

basis for gaap used in the primary financial statements

Question 5

monetary items

dollars receivable and payable

Answer 5

monetary assets and liabilities are fixed or denominated in dollars; holding monetary assets during periods of inflation will lead to a loss in purchasing power and holding monetary liabilities during periods of inflation will result in a gain or purchasing power

Question 6

Nonmonetary assets

Answer 6

assets and liabilities that fluctuate in value with inflation of deflation

1) affected by rise or fall in cpi or
2) rise or fall in fair value

Question 7

Monetary value
cash; bonds; a/r and allowance; long term receivables like bonds; accounts payable; accrued expenses; notes payable; bonds payable; long term debt

Answer 7

fixed only purchasing power changes with inflation
RE Neither usually a residualplug
sales is related to inventory

Question 8

nonmonetary value
common stock; inventory; ppe and acc depreciation; investment in subsidiary or equity; intangibles; deferred charges and credits; preferred stock; common stock

Answer 8

fluctuates with inflation or deflation and changes in fmv; if inv acquired evenly throughout the year and sales evenly throughout the year then w/a

Question 9

contra account

Answer 9

classified based on the classification of the related account

Question 10

bonds

Answer 10

fixed; pegged in dollars

Question 11

Holding monetary assets gain or losses

= money under mattress

Answer 11

purchasing power gain during periods of deflation; purchasing power losses during periods of inflation

Question 12

Holding monetary liabilities gain or losses

Answer 12

purchasing power losses during periods of deflation; purchasing power gains during periods of inflation