CA1-1 (FASB and Standard-Setting) Presented below are four statements which you are to identify as true or false. If false, explain why the statement is false. 1.GAAP is the term used to indicate the whole body of FASB authoritative literature. True 2.Any company claiming compliance with GAAP must comply with most standards and interpretations but does not have to follow the disclosure requirements. False (all companies must comply to all standards and all disclosure requirements). 3.The primary governmental body that has influence over the FASB is the SEC. True 4.The FASB has a government mandate and therefore does not have to follow due process in issuing a standard. False
CA1-3 (Financial Reporting and Accounting Standards) Answer the following multiple-choice questions. 1.GAAP stands for:
(d) generally accepted accounting principles.
2.Accounting standard-setters use the following process in establishing accounting standards: (d) Research, discussion paper, exposure draft, standard.
3.GAAP is comprised of:
(d) any accounting guidance included in the FASB Codification. 4.The authoritative status of the conceptual framework is as follows. (a) It is used when there is no standard or interpretation related to the reporting issues under consideration. 5.The objective of financial reporting places most emphasis on: (a) Reporting to capital providers.
6.General-purpose financial statements are prepared primarily for: (b) External users.
7.Economic consequences of accounting standard-setting means: (d) Accounting standards can have detrimental impacts on the wealth levels of the providers of financial information. 8.The expectations gap is:
(b) What the public thinks accountants should do and what accountants think they can do. Chapter 2
(a)Arises from peripheral or incidental transactions. Gain / Losses (b)Obligation to transfer resources arising from a past transaction. Liabilities (c)Increases ownership interest. Investment by Owner / Comprehensive Income (d)Declares and pays cash dividends to owners. Distribution to owners (e)Increases in net assets in a period from nonowner sources. Comprehensive Income / Comprehensive Income (f)Items characterized by service potential or future economic benefit. Assets (g)Equals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners. Comprehensive Income (h)Arises from income statement activities that constitute the entity’s ongoing major or central operations. Revenue / Expense (i)Residual interest in the assets of the enterprise after deducting its liabilities. Equity (j)Increases assets during a period through sale of product. Revenue (k)Decreases assets during the period by purchasing the company’s own stock. Distribution to owners (l)Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners. Comprehensive Income
(a)Fair value changes are not recognized in the accounting records. Historical cost principle (b)Financial information is presented so that investors will not be misled. Full disclosure principle (c)Intangible assets are capitalized and amortized over periods benefited. Expense recognition principle (d)Repair tools are expensed when purchased. Materiality
(e)Agricultural companies use fair value for purposes of valuing crops. Industry practices or fair value assumption (f)Each enterprise is kept as a unit distinct from its owner or owners. Economic entity assumption (g)All significant post balance sheet events are reported. Full disclosure principle (h)Revenue is recorded at point of sale. Revenue recognition principle (i)All important aspects of bond indentures are presented in financial statements. Full disclosure principle (j)Rationale for accrual accounting. Economic Entity assumption (k)The use of consolidated statements...