General Purpose Financial Statements - Notes to Financial Statements

Question 1

29. What is typically included in the Summary of Significant Accounting Policies footnote?

Answer 1

a) The chosen depreciation method
b) The chosen method of valuing inventory
c) The securities classified as cash and cash equivalents
d) The basis for consolidation:
- Amortization policies
- Revenue recognition policies

Question 2

29. Neely Co. disclosed in the notes to its financial statements that a significant number of its unsecured trade account receivables are with companies that operate in the same industry. This disclosure is required to inform financial statement users of the existence of

• Concentration of credit risk.
• Concentration of market risk.
• Risk of measurement uncertainty.
• Off-balance sheet risk of accounting loss.

Answer 2

-Concentration of credit risk

Note: Market risk is not industry specific. All companies have market risk so disclosure is not providing any additional information to the user. What is risky is all the receivables in the same industry.

Question 3

30. what are the five sources of risk and uncertainty for which disclosures are required by GAAP?

Answer 3

1. Nature of Operations
2. Use of estimates in the f/s’s
3. certain significant estimates
4. vulnerability to significant concentrations
5. NEW - going concern assessment

**disclosures required when event is reasonably possible

Question 4

31. When are contingent liabilities accrued and recognized?

Answer 4

Contingencies are accrued and recognized as a liability when the occurrence of the liability is probable and the amount can be reasonably estimated.

**note - later chapters go over this in more detail i.e. lesson #’s 129-131