Intermediate Accounting Exam 1 Review Questions With 100% Correct Answers

Intermediate Accounting Exam 1 Review Questions With 100% Correct Answers Essential characteristics of accounting - answerthe identification, measurement, and communication of financial information about economic entities to interested parties Financial accounting - answerprep financial reports on entity for internal and external parties Managerial accounting - answeridentify, measure, analyze financial info needed by management to plan, control, and evaluate comp operations What are examples of financial reporting other than financial statements, why are they used - answerPresidents letters, reports to gov agencies, news release, prospectuses. Used because of authoritative pronouncement, regulatory rule, or mgmt wants to What determines if business thrives - answerEfficient use of limited resources What does capital allocation promote - answerProductivity, innovation, efficient and liquid mkt for buying and selling securities and obtaining and granting credit Objective of general purpose financial reporting - answerprovide financial info about entity useful to equity investors, lenders, and creditors General purpose financial statements - answerMost useful info at least possible cost Who are primary users of financial reporting - answerEquity investors and creditors Investors interested in assessing comps - answerability to generate net cash inflows and mgmts ability to protect and enhance the capital providers investment Why is accrual basis preferred to cash basis - answerIndicates comps ability to generate cash flows, long run rev and exp more meaningful Parties involved in standard setting (3) - answerSEC, AICPA, FASB SEC - answerHelp develop and standardize financial info to stockholders, broad powers of oversight and authority, public adhere to GAAP How have accounting standards developed in the private sector - answerthru AICPA or FASB, SEC encouraged these Who develops accounting standards - answerFASB Private sector relationship with SEC - answerformulator and implementer of standards, when they are slowly addressing problems, relationship with priv sector and sec strained AICPA - answerNational professional organization of CPA, contributes to GAAP Committee on accounting procedure - answerSEC urged AICPA to create, research bulletins, problem by problem approach failed and APB was created APB - answerwritten expression of accounting principles determined right practices and narrow inconsistency APB mission - answerdevelop conceptual framework to solve probs and research issues before AICPA pronouncements What did Wheat recommendations result in - answerFAF, FASB, FASAC FASB - answerestablish and improve financial accounting and reporting standards for public guidance FASB difs from APB - answerFASB has smaller meberships, full time renewable for 5 yr terms, more autonomy, independence, and representation FASAC - answerconsults with FASB on major policy and tech issues FAF - answerselect members of FASB and counsil, fund, oversight FASB premises - answerrespond to view and needs of whole econ community and operates in due process FASB staff purpose - answerassist board on reporting issues by doing research and analysis FASB pronouncements - answerASU and FAC ASU - answerupdates codification, EITF - answerreduce diversity in practice in timely basis, min FASB time spent on probs FAC - answerobjectives and concepts board uses to develop future standards, doesn't establish GAAP How has AICPA role changed - answernot a standard setter, use finrec to make public statements of probs GAAP sources - answerAPB opinion, FASB standards, AICPA research bulletins, FASB and APB interpretations and FASB staff positions FASB codification - answerone place for all authoritative literature on topic, allow users to all GAAP, eliminates GAAP redundancy If FASBC doesn't cover a topic - answerlook at other financial literature, (FASB concept statements, international standards) Expectations Gap - answerwhat public thinks accountants should do vs what the accountants think they should do Challenges in financial reporting - answernonfinancial measures, forward looking info, soft assets, timeliness, understandability International standards - answerIFRS and IASB Conceptual framework - answercoherent system of concepts, purpose of reporting, more useful and consistent pronouncements, coherent standards, solve emerging probs faster Conceptual framework levels - answer1st - objectives, 2nd - qualities and elements, 3rd - assumptions, principles, and constraints Qualities - answerbetter info from inferior, fundamental or enhancing Relevance - answermake difference in decision making, predictive and confirmatory value and materiality Assess materiality - answerrelative size and importance, good judgment and expertise to make decision Faithful representation - answerneutral, complete, free from error Enhancing qualities - answercomparability, verifiability, understandability, timeliness Financial accounting concepts no. 5 - answerassumptions, recognition and measurement Econ entity assumption - answerEntity separate from owners, doesn't refer to a legal entity Going concern assumption - answercompany will have a long life, justifies depreciation and amortization policies, inapplicable only where liquidation immanent Liquidation approach - answerstate assets at net realizable value than acquisition cost Monetary unit assumption - answermoney is common denominator of economic activity, relevant, simple, available, understandable, useful Does US acct principles inflation/ deflation - answerno it assumed the dollar remains stable