ACC 310 Final Exam || 100% Detailed Answers.
Explain the roles of the SEC and the FASB in the setting of accounting standards (CH 1) correct
answers In 1934, Congress created the SEC and gave it the job of setting accounting and
reporting standards for companies whose securities are publicly traded. The SEC has retained the
power, but has delegated the task to private sector bodies. The first such body was the CAP;
followed by the APB, and now the FASB. (Q1-8)
Describe or identify various elements of the Conceptual framework (CH 1) correct answers The
purpose of the conceptual framework is to guide the Board in developing accounting standards
by providing an underlying foundation and basic reasoning on which to consider merits of
alternatives. The framework does not prescribe GAAP.
*QUALITATIVE CHARACTERISTICS*
*FUNDAMENTAL:*
Relevance- Predictive Value, Confirmatory Value, Materiality
Faithful Representation- Completness, neutrality, free from error
*ENHANCING:*
Comparability (including consistency)
Verifiability
Timeliness
Understandability
*ELEMENTS:*
Assets
Liabilities
Equity
Investments by owners
Distributions to owners
,Revenues
Expenses
Gains
Losses
Comprehensive Income
*RECOGNITION, MEASUREMENT, AND DISCLOSURE*
*ASSUMPTIONS:*
Economic entity
Going concern
Periodicity
Monetary unit
PRINCIPLES:
Revenue recognition
Expense recognition
Mixed Attribute measurement
Full Disclosure
*CONTRAINTS:*
cost effectiveness
*FINANCIAL STATEMENTS:*
Balance Sheet
Income Statement
Statement of Comprehensive Income
Statement of cash flows
Statement of shareholders' equity
, Related disclosures
Identify or describe appropriate journal entries to record transactions. (CH 2) correct answers See
pg. 58 in book
Identify or describe appropriate adjusting entries. (CH 2) correct answers Adjusting entries
record the effect on financial position of internal events, those that do not involve an exchange
transaction with another entity. They must be recorded at the end of any period when financial
statements are prepared to properly reflect financial position and results of operations according
to the accrual accounting model.
Adjusting entries for:
1) Prepaid expense- debit to an expense and credit to an asset
2) Deferred Revenues: debit to a liability and a credit to revenue
3) Accrued Liabilities: debit an expense, credit a liability
4) Accrued Receivables: debit an asset, credit a revenue
5) Estimates
Accruals involve transactions where cash inflows or outflows takes place in a period subsequent
to expense or revenue recognition
Explain the difference between permanent and temporary accounts and why an accounting
system has both types. (CH 2) correct answers Permanent accounts represent the financial
position of a company—assets, liabilities and owners' equity—at a particular point in time.
Temporary accounts represent the changes in shareholders' equity, the retained earnings
component of equity for a corporation, caused by revenue, expense, gain, and loss transactions. It
would be cumbersome to record revenue/expense, gain/loss transactions directly into the
permanent retained earnings account. Recording these transactions in temporary accounts
facilitates the preparation of the financial statements.
Define or calculate working capital, current ratio, and/or acid-test (quick) ratio (CH 3) correct
answers *Working Capital:* Current Assets - Current Liabilities
Explain the roles of the SEC and the FASB in the setting of accounting standards (CH 1) correct
answers In 1934, Congress created the SEC and gave it the job of setting accounting and
reporting standards for companies whose securities are publicly traded. The SEC has retained the
power, but has delegated the task to private sector bodies. The first such body was the CAP;
followed by the APB, and now the FASB. (Q1-8)
Describe or identify various elements of the Conceptual framework (CH 1) correct answers The
purpose of the conceptual framework is to guide the Board in developing accounting standards
by providing an underlying foundation and basic reasoning on which to consider merits of
alternatives. The framework does not prescribe GAAP.
*QUALITATIVE CHARACTERISTICS*
*FUNDAMENTAL:*
Relevance- Predictive Value, Confirmatory Value, Materiality
Faithful Representation- Completness, neutrality, free from error
*ENHANCING:*
Comparability (including consistency)
Verifiability
Timeliness
Understandability
*ELEMENTS:*
Assets
Liabilities
Equity
Investments by owners
Distributions to owners
,Revenues
Expenses
Gains
Losses
Comprehensive Income
*RECOGNITION, MEASUREMENT, AND DISCLOSURE*
*ASSUMPTIONS:*
Economic entity
Going concern
Periodicity
Monetary unit
PRINCIPLES:
Revenue recognition
Expense recognition
Mixed Attribute measurement
Full Disclosure
*CONTRAINTS:*
cost effectiveness
*FINANCIAL STATEMENTS:*
Balance Sheet
Income Statement
Statement of Comprehensive Income
Statement of cash flows
Statement of shareholders' equity
, Related disclosures
Identify or describe appropriate journal entries to record transactions. (CH 2) correct answers See
pg. 58 in book
Identify or describe appropriate adjusting entries. (CH 2) correct answers Adjusting entries
record the effect on financial position of internal events, those that do not involve an exchange
transaction with another entity. They must be recorded at the end of any period when financial
statements are prepared to properly reflect financial position and results of operations according
to the accrual accounting model.
Adjusting entries for:
1) Prepaid expense- debit to an expense and credit to an asset
2) Deferred Revenues: debit to a liability and a credit to revenue
3) Accrued Liabilities: debit an expense, credit a liability
4) Accrued Receivables: debit an asset, credit a revenue
5) Estimates
Accruals involve transactions where cash inflows or outflows takes place in a period subsequent
to expense or revenue recognition
Explain the difference between permanent and temporary accounts and why an accounting
system has both types. (CH 2) correct answers Permanent accounts represent the financial
position of a company—assets, liabilities and owners' equity—at a particular point in time.
Temporary accounts represent the changes in shareholders' equity, the retained earnings
component of equity for a corporation, caused by revenue, expense, gain, and loss transactions. It
would be cumbersome to record revenue/expense, gain/loss transactions directly into the
permanent retained earnings account. Recording these transactions in temporary accounts
facilitates the preparation of the financial statements.
Define or calculate working capital, current ratio, and/or acid-test (quick) ratio (CH 3) correct
answers *Working Capital:* Current Assets - Current Liabilities
