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INTERMEDIATE ACCOUNTING - CHAPTERS 1-3 EXAM QUESTIONS AND ANSWERS
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INTERMEDIATE ACCOUNTING - CHAPTERS 1-3 EXAM QUESTIONS AND ANSWERS
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INTERMEDIATE ACCOUNTING -CHAPTERS 1-3 EXAM QUESTIONS AND
ANSWERS
Conceptual framework - answer-the underlying concepts/ ideas of the generally
accepted accounting principles (gaap)
Consists of concepts and objectives
Statement of financial accounting concepts - answer-created by the financial accounting
standards board (fasb)
Concept statement 6 - answer-elements of financial statements
Non-business financial statement objectives
Concept statement 8 - answer-goals and purpose of financial accounting
Qualitative characteristics of accounting information
Concept statement 5 - answer-recognition and measurement in financial statements
Concept statement 8 objectives - answer-provides useful information about the
company
Financial statements are looked at by investors and creditors
Financial statements are used to asses cash flow
Qualitative characteristics
1. Relevance
2. Faithful representation
Relevance - answer-information that make a difference in decision making
all financial statements should be relevant
Predictive value - answer-forecast ultimate outcome
where is the company going
Confirmatory value - answer-confirm, correct expectations
Materiality - answer-assumes everyone is a reasonable person
Deals with significant money
Dollar amount that will alter your decision
How to determine what is material? - answer-seasoned judgement (experience)
Look at facts and circumstances of the industry
Why do we worry about materiality? - answer-"window dressing"
, Omission, misstatements, misleading
Zone of doubt - answer-anything below 5% of the company is immaterial
Between 5% and 10% is the "zone of doubt"
Anything above 10% of the company is material
Faithful representation - answer-can depend upon the information provided in decision
making
Two people are able to get similar results
Conflict between relevance and faithful representation - answer-relevance is current
cost
Faithful representation is historical costs
Securities and exchange commission (sec) - answer-help develop and standardize
financial information presented to stockholders
Administers the securities exchange act of 1934
Oversee public companies
Requires companies adhere to gaap
Relies of fasb to develop accounting standards
Helps insure the integrity of financial reporting for public companies
American institute of certified public accountants (aicpa) - answer-national professional
organization of practicing certified public accountants
Develops and grades the cpa exam
Created committee of accounting procedure
Created accounting principles board
Created financial accounting standards board
Committee of accounting procedure (cap) - answer-issued 51 accounting research
bulletins between 1939-1959 and dealt with a series of accounting problems
Failed from its lack of structure
Accounting principles board (apb) - answer-1. Advance the written expression of
accounting principles
2. Determine appropriate practices
3. Narrow the areas of difference and inconsistency in practice
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