FINA 4358-CHAPTER 1 QUIZ

FINA 4358-CHAPTER 1 QUIZ Chapter 1 Introduction to Financial Reporting Homework Q 1-1. Discuss the role of each of the following in the formulation of accounting principles: a. American Institute of Certified Public Accountants – important role in the private sector in establishing GAAP b. Financial Accounting Standards Board – a basis for evaluating the existing standards of financial accounting and reporting c. Securities and Exchange Commission – regulate securities trading in national exchanges, determine GAAP and regulate accounting profession. Q 1-3. The president of your firm, Lesky and Lesky, has little background in accounting. Today, he walked into your office and said, “A year ago we bought a piece of land for $100,000. This year, inflation has driven prices up by 6%, and an appraiser just told us we could easily resell the land for $115,000. Yet our balance sheet still shows it at $100,000. It should be valued at $115,000. That’s what it’s worth. Or, at a minimum, at $106,000.” Respond to this statement with specific reference to the accounting principles applicable in this situation. Historical cost concept because the valuation of the asset doesn’t change the balance sheet value