Intermediate Accounting Exam #1 Questions With 100% Correct Answers

Intermediate Accounting Exam #1 Questions With 100% Correct Answers The process that culminates in the preparation of financial reports on the enterprise for use by both internal and external parties - answerFinancial accounting The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, control, and evaluate a company's operations - answerManagerial accounting What are the 4 types of financial statements? - answer1. Balance sheet 2. Income statement 3. Statement of cash flows 4. Statement of owners or stockholders equity Examples include the president's letter or supplementary schedules in the corporate annual report, prospectuses, reports filed with government agencies, news releases, management's forecasts, and social or environmental impact statements - answerFinancial reporting The financial information a company provides to help users with capital allocation decisions about the company - answerFinancial reporting Investors and creditors use financial reports to make their capital allocation decisions - answerUsers The process of determining how and at what cost is allocated among competing interests - answerCapital allocation What are the 3 steps of the Cost Allocation Process? - answer1. Financial reporting 2. Users 3. Capital allocation What is the objective of financial reporting? - answerTo provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors Provide financial reporting information to a wide variety of users - answerGeneral-purpose financial statements Provide at the least cost the most useful information possible - answerGeneral-purpose financial statements Identifies investors and creditors as the primary users for general-purpose financial statements - answerThe objective of financial reporting A perspective of general-purpose financial reporting where companies are viewed as separate and distinct from their owners or present shareholders - answerEntity perspective A perspective of general-purpose financial reporting that is focused only on the needs of the shareholders - answerProprietary perspective An approach used when investors are interested in financial reporting because it provides information that is careful for making decisions - answerDecision-usefulness approach Ensures that a company records events that change its financial statements in the periods in which the events occur, rather than only in the periods in which it receives or pays cash - answerAccrual-basis accounting Companies prepare these to meet the needs, and to satisfy the stewardship reporting responsibility of management - answerGeneral-purpose financial statements The common set of accounting standards and procedures - answerGenerally Accepted Accounting Principles (GAAP) Means either than an authoritative accounting rule-making body has established a principle or reporting in a given area or that over time a given practice has been accepted as appropriate because of its universal application - answer"Generally accepted" Who are the parties involved in standard-setting? - answer1. SEC 2. AICPA 3. FASB Established by the federal government to help develop and standardize financial information present to stockholders - answerSecurities and Exchange Commission (SEC) A federal agency that administers the Securities Exchange Act of 1934 - answerSEC The SEC requires registrants to adhere to _____. - answerGAAP The SEC relies on _____ to develop accounting standards. - answerFASB The national professional organization of practicing CPAs and an important contributor to the development of GAAP - answerAmerican Institute of Certified Public Accountants (AICPA) A group appointed by the AICPA that is composed to practicing CPAs who issued 51 Accounting Research Bulletins during the years of 1939 to 1959 - answerCommittee on Accounting Procedure (CAP) Dealt with a variety of accounting problems, but failed to provide the needed structured body of accounting principles - answerAccounting Research Bulletins Created by the AICPA in response to the failure of Accounting Research Bulletins - answerAccounting Principles Board (APB) Major purposes were to advance the written expression of accounting principles and determined appropriate practices, and narrow the areas of difference and inconsistent in practice - answerAPB The Board's official pronouncements intended to be based mainly on research studies and be supported by reason and analysis - answerAPB opinions The accounting professions's leaders, anxious to avoid governmental rule-making, appointed this Study Group on Establishment of Accounting Principles - answerWheat Committee This group examined the organization and operation of the APB and determined the necessary changes to attain better results - answerWheat Committee This group submitted its recommendations to the AICPA Council in the Spring of 1972 , which led to the replacement of the APB with the Financial Accounting Standards Board (FASB) in 1973 - answerWheat Committee When the FASB replaced the APB, the AICPA established _____ as the committee authorized to speak for the AICPA in the area of financial accounting and reporting. - answerAccounting Standards Executive Committee (AcSC) What written communications does the AcSEC use to speak for the AICPA in the area of financial accounting and reporting? - answer1. Audit and Accounting Guides 2. Statements of Position (SOPs) 3. Practice Bulletins Summarize the accounting practices of specific industries and provide specific guidance on matters not addressed by the FASB - answerAudit and Accounting Guides Provide guidance on financial reporting topics until the FASB sets standards on the issue in questions - answerSOPs