Solutions for Intermediate Accounting
A Graded material with correct examinable
question and answer.
Explain from where the Securities and Exchange Commission receives its authority. -
CORRECT ANSWERS--The Securities and Exchange Commission (SEC) is an
independent federal agency that receives its authority from federal legislation enacted
by Congress. The Securities and Exchange Act of 1934 created the SEC.
Describe the official role of the Securities and Exchange Commission in the
development of financial accounting theory and practices. - CORRECT ANSWERS--As
a result of the Securities and Exchange Act of 1934, the SEC has legal authority relative
to accounting practices. The U.S. Congress has given the SEC broad regulatory power
to control accounting principles and procedures in order to fulfill its goal of full and fair
disclosure.
Discuss the interrelationship between the Securities and Exchange Commission and the
Financial Accounting Standards Board with respect to the development and
establishment of financial accounting theory and practices. - CORRECT ANSWERS--
There is no direct relationship as the SEC was created by Congress and the Financial
Accounting Standards Board (FASB) was created by the private sector. However, the
SEC historically has followed a policy of relying on the private sector to establish
financial accounting and reporting standards known as generally accepted accounting
principles (GAAP). The SEC does not necessarily agree with all of the pronouncements
of the FASB. In cases of unresolved differences, the SEC rules take precedence over
FASB rules for companies within SEC jurisdiction.
IFRS stands for: - CORRECT ANSWERS--International Financial Reporting Standards.
The major key players on the international side are the: - CORRECT ANSWERS--IASB
and IOSCO.
IFRS is comprised of: - CORRECT ANSWERS--International Financial Reporting
Standards, International Accounting Standards, and International Accounting
Interpretations
The authoritative status of the Framework for the Preparation and Presentation of
Financial Statements is as follows: - CORRECT ANSWERS--It is used when there is no
standard or interpretation related to the reporting issues under consideration.
,Which of the following statements is true? - CORRECT ANSWERS--The IASB structure
is quite similar to the FASB's, except the IASB has a larger number of board members
Norfolk Southern Corporation reports revenue in its income statement when the
performance obligation is satisfied instead of when the cash is collected. - CORRECT
ANSWERS--revenue recognition
Yahoo! recognizes depreciation expense for a machine over the 2-year period during
which that machine helps the company earn revenue. - CORRECT ANSWERS--
expense recognition
Oracle Corporation reports information about pending lawsuits in the notes to its
financial statements. - CORRECT ANSWERS--full disclosure
Gap, Inc. reports land on its balance sheet at the amount paid to acquire it, even though
the estimated fair value is greater. - CORRECT ANSWERS--Measurement (historical
cost)
Allocates expenses to revenues in the proper period. - CORRECT ANSWERS--expense
recognition principle
Indicates that fair value changes subsequent to purchase are not recorded in the
accounts. (Do not use revenue recognition principle.) - CORRECT ANSWERS--
measurement principle historical cost
Ensures that all relevant financial information is reported. - CORRECT ANSWERS--full
disclosure
Rationale why plant assets are not reported at liquidation value. (Do not use historical
cost principle.) - CORRECT ANSWERS--going concern
Indicates that personal and business record keeping should be separately maintained. -
CORRECT ANSWERS--economic entity
Separates financial information into time periods for reporting purposes. - CORRECT
ANSWERS--periodicity
Assumes that the dollar is the "measuring stick" used to report on financial performance
- CORRECT ANSWERS--monetary unit
A common set of accounting standards and procedures is called - CORRECT
ANSWERS--generally accepted accounting principles.
What is the relationship between the Securities and Exchange Commission and
accounting standard setting in the United States? - CORRECT ANSWERS--The SEC
has a mandate to establish accounting standards for enterprises under its jurisdiction.
,Which of the following organizations has been responsible for setting U.S. accounting
standards? - CORRECT ANSWERS--The Accounting Principles Board.
The Committee on Accounting Procedure.
The Financial Accounting Standards Board.
*All of the answer choices are correct.
A soundly developed conceptual framework of concepts and objectives should -
CORRECT ANSWERS--increase financial statement users' understanding of and
confidence in financial reporting.
enhance comparability among companies' financial statements.
allow new and emerging practical problems to be more quickly solved.
*all of these answer choices are correct.
The underlying theme of the conceptual framework is - CORRECT ANSWERS--
decision usefulness.
If the LIFO inventory method was used last period, it should be used for the current and
following periods because of - CORRECT ANSWERS--consistency
Which of the following is a fundamental quality of useful accounting information? -
CORRECT ANSWERS--Relevance
Which of the following is a nominal (temporary) account? - CORRECT ANSWERS--
Salaries and Wages Expense
The failure to properly record an adjusting entry to accrue an expense will result in an -
CORRECT ANSWERS--understatement of expenses and an understatement of
liabilities.
Adjusting entries are necessary to
1. obtain a proper matching of revenue and expense.
2. achieve an accurate statement of assets and equities.
3. adjust assets and liabilities to their fair market value. - CORRECT ANSWERS--1&2
When converting from cash-basis to accrual-basis accounting, which of the following
adjustments should be made to cash receipts from customers to determine accrual-
basis service revenue? - CORRECT ANSWERS--Add ending accounts receivable.
At the end of 2017, Drew Company made four adjusting entries for the following items:
1. Depreciation expense, $25,000.
2. Expired insurance, $2,200 (originally recorded as prepaid insurance.)
3. Interest payable, $6,000.
4. Rent receivable, $10,000.
, In the normal situation, to facilitate subsequent entries, the adjusting entry or entries
that may be reversed is (are) - CORRECT ANSWERS--Entry No. 3 and No. 4.
Each of the following are true of the Securities and Exchange Commission except that -
CORRECT ANSWERS--the FASB relies on the SEC to develop accounting standards.
The major distinction between the Financial Accounting Standards Board (FASB) and
its predecessor, the Accounting Principles Board (APB), is - CORRECT ANSWERS--all
members of the FASB are fully remunerated, serve full time, and are independent of
any companies or institutions.
The following are part of the "due process" system used by the FASB in the evolution of
a typical FASB Accounting Standards Update:
1. Exposure Draft
2. FASB Accounting Standards Update
3. Preliminary Views
The chronological order in which these items are released is as follows: - CORRECT
ANSWERS--3,1,2
The American Institute of Certified Public Accountants (AICPA) continues to be involved
in all of the following except - CORRECT ANSWERS--developing auditing standards for
public companies.
The purpose of the International Accounting Standards Board is to - CORRECT
ANSWERS--promote uniform accounting standards among countries of the world.
What would be an advantage of having all countries adopt and follow the same
accounting standards? - CORRECT ANSWERS--Comparability and lower preparation
costs.
The economic activities of FedEx Corporation are divided into 12-month periods for the
purpose of issuing annual reports. - CORRECT ANSWERS--periodicity
Solectron Corporation, Inc. does not adjust amounts in its financial statements for the
effects of inflation - CORRECT ANSWERS--monetary unit
Walgreen Co. reports current and noncurrent classifications in its balance sheet. -
CORRECT ANSWERS--going concern
The economic activities of General Electric and its subsidiaries are merged for
accounting and reporting purposes - CORRECT ANSWERS--economic entity
A Graded material with correct examinable
question and answer.
Explain from where the Securities and Exchange Commission receives its authority. -
CORRECT ANSWERS--The Securities and Exchange Commission (SEC) is an
independent federal agency that receives its authority from federal legislation enacted
by Congress. The Securities and Exchange Act of 1934 created the SEC.
Describe the official role of the Securities and Exchange Commission in the
development of financial accounting theory and practices. - CORRECT ANSWERS--As
a result of the Securities and Exchange Act of 1934, the SEC has legal authority relative
to accounting practices. The U.S. Congress has given the SEC broad regulatory power
to control accounting principles and procedures in order to fulfill its goal of full and fair
disclosure.
Discuss the interrelationship between the Securities and Exchange Commission and the
Financial Accounting Standards Board with respect to the development and
establishment of financial accounting theory and practices. - CORRECT ANSWERS--
There is no direct relationship as the SEC was created by Congress and the Financial
Accounting Standards Board (FASB) was created by the private sector. However, the
SEC historically has followed a policy of relying on the private sector to establish
financial accounting and reporting standards known as generally accepted accounting
principles (GAAP). The SEC does not necessarily agree with all of the pronouncements
of the FASB. In cases of unresolved differences, the SEC rules take precedence over
FASB rules for companies within SEC jurisdiction.
IFRS stands for: - CORRECT ANSWERS--International Financial Reporting Standards.
The major key players on the international side are the: - CORRECT ANSWERS--IASB
and IOSCO.
IFRS is comprised of: - CORRECT ANSWERS--International Financial Reporting
Standards, International Accounting Standards, and International Accounting
Interpretations
The authoritative status of the Framework for the Preparation and Presentation of
Financial Statements is as follows: - CORRECT ANSWERS--It is used when there is no
standard or interpretation related to the reporting issues under consideration.
,Which of the following statements is true? - CORRECT ANSWERS--The IASB structure
is quite similar to the FASB's, except the IASB has a larger number of board members
Norfolk Southern Corporation reports revenue in its income statement when the
performance obligation is satisfied instead of when the cash is collected. - CORRECT
ANSWERS--revenue recognition
Yahoo! recognizes depreciation expense for a machine over the 2-year period during
which that machine helps the company earn revenue. - CORRECT ANSWERS--
expense recognition
Oracle Corporation reports information about pending lawsuits in the notes to its
financial statements. - CORRECT ANSWERS--full disclosure
Gap, Inc. reports land on its balance sheet at the amount paid to acquire it, even though
the estimated fair value is greater. - CORRECT ANSWERS--Measurement (historical
cost)
Allocates expenses to revenues in the proper period. - CORRECT ANSWERS--expense
recognition principle
Indicates that fair value changes subsequent to purchase are not recorded in the
accounts. (Do not use revenue recognition principle.) - CORRECT ANSWERS--
measurement principle historical cost
Ensures that all relevant financial information is reported. - CORRECT ANSWERS--full
disclosure
Rationale why plant assets are not reported at liquidation value. (Do not use historical
cost principle.) - CORRECT ANSWERS--going concern
Indicates that personal and business record keeping should be separately maintained. -
CORRECT ANSWERS--economic entity
Separates financial information into time periods for reporting purposes. - CORRECT
ANSWERS--periodicity
Assumes that the dollar is the "measuring stick" used to report on financial performance
- CORRECT ANSWERS--monetary unit
A common set of accounting standards and procedures is called - CORRECT
ANSWERS--generally accepted accounting principles.
What is the relationship between the Securities and Exchange Commission and
accounting standard setting in the United States? - CORRECT ANSWERS--The SEC
has a mandate to establish accounting standards for enterprises under its jurisdiction.
,Which of the following organizations has been responsible for setting U.S. accounting
standards? - CORRECT ANSWERS--The Accounting Principles Board.
The Committee on Accounting Procedure.
The Financial Accounting Standards Board.
*All of the answer choices are correct.
A soundly developed conceptual framework of concepts and objectives should -
CORRECT ANSWERS--increase financial statement users' understanding of and
confidence in financial reporting.
enhance comparability among companies' financial statements.
allow new and emerging practical problems to be more quickly solved.
*all of these answer choices are correct.
The underlying theme of the conceptual framework is - CORRECT ANSWERS--
decision usefulness.
If the LIFO inventory method was used last period, it should be used for the current and
following periods because of - CORRECT ANSWERS--consistency
Which of the following is a fundamental quality of useful accounting information? -
CORRECT ANSWERS--Relevance
Which of the following is a nominal (temporary) account? - CORRECT ANSWERS--
Salaries and Wages Expense
The failure to properly record an adjusting entry to accrue an expense will result in an -
CORRECT ANSWERS--understatement of expenses and an understatement of
liabilities.
Adjusting entries are necessary to
1. obtain a proper matching of revenue and expense.
2. achieve an accurate statement of assets and equities.
3. adjust assets and liabilities to their fair market value. - CORRECT ANSWERS--1&2
When converting from cash-basis to accrual-basis accounting, which of the following
adjustments should be made to cash receipts from customers to determine accrual-
basis service revenue? - CORRECT ANSWERS--Add ending accounts receivable.
At the end of 2017, Drew Company made four adjusting entries for the following items:
1. Depreciation expense, $25,000.
2. Expired insurance, $2,200 (originally recorded as prepaid insurance.)
3. Interest payable, $6,000.
4. Rent receivable, $10,000.
, In the normal situation, to facilitate subsequent entries, the adjusting entry or entries
that may be reversed is (are) - CORRECT ANSWERS--Entry No. 3 and No. 4.
Each of the following are true of the Securities and Exchange Commission except that -
CORRECT ANSWERS--the FASB relies on the SEC to develop accounting standards.
The major distinction between the Financial Accounting Standards Board (FASB) and
its predecessor, the Accounting Principles Board (APB), is - CORRECT ANSWERS--all
members of the FASB are fully remunerated, serve full time, and are independent of
any companies or institutions.
The following are part of the "due process" system used by the FASB in the evolution of
a typical FASB Accounting Standards Update:
1. Exposure Draft
2. FASB Accounting Standards Update
3. Preliminary Views
The chronological order in which these items are released is as follows: - CORRECT
ANSWERS--3,1,2
The American Institute of Certified Public Accountants (AICPA) continues to be involved
in all of the following except - CORRECT ANSWERS--developing auditing standards for
public companies.
The purpose of the International Accounting Standards Board is to - CORRECT
ANSWERS--promote uniform accounting standards among countries of the world.
What would be an advantage of having all countries adopt and follow the same
accounting standards? - CORRECT ANSWERS--Comparability and lower preparation
costs.
The economic activities of FedEx Corporation are divided into 12-month periods for the
purpose of issuing annual reports. - CORRECT ANSWERS--periodicity
Solectron Corporation, Inc. does not adjust amounts in its financial statements for the
effects of inflation - CORRECT ANSWERS--monetary unit
Walgreen Co. reports current and noncurrent classifications in its balance sheet. -
CORRECT ANSWERS--going concern
The economic activities of General Electric and its subsidiaries are merged for
accounting and reporting purposes - CORRECT ANSWERS--economic entity
