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Question 1E

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Intermediate Accounting (Kieso)
Found in: Page 65
Intermediate Accounting (Kieso)

Intermediate Accounting (Kieso)

Book edition 16th
Author(s) Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Pages 1552 pages
ISBN 9781118743201

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Short Answer

(Usefulness, Objective of Financial Reporting) Indicate whether the following statements about the conceptual framework are true or false. If false, provide a brief explanation supporting your position.

  1. Accounting rule-making that relies on a body of concepts will result in useful and consistent pronouncements.
  2. General-purpose financial reports are most useful to company insiders in making strategic business decisions.
  3. Accounting standards based on individual conceptual frameworks generally will result in consistent and comparable accounting reports.
  4. Capital providers are the only users who benefit from general-purpose financial reporting.
  5. Accounting reports should be developed so that the users without knowledge of economics and business can become informed about the financial results of a company.
  6. The objective of financial reporting is the foundation from which the other aspects of the framework logically result.

Indication for all the given options are as follows:

  • True
  • False
  • False
  • False
  • False
  • true
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Step by Step Solution

TABLE OF CONTENTS :
TABLE OF CONTENTS

Meaning of Financial Reporting

The term financial reporting refers to the process whereby the information gathered by the accountant while recording and bookkeeping are presented to the final users who can be either internal users like managers or external users like the government.

Explanation for Statement ‘a’

The primary reasons for developing an agreed conceptual framework are that it provides a basis for establishing accounting standards, a basis for resolving accounting disputes, fundamental principles which need to be repeated in accounting standards.

Thus, the statement is true.

Explanation for Statement ‘b’

General-purpose financial reports reflect all of the financial reporting information that is required by a business.

General-purpose financial reports are beneficial not only to the company insiders but also to a wide variety of users, consisting of shareholders, creditors, suppliers, employees, and regulators.

Thus, the statement is false.

Explanation for Statement ‘c’

Accounting standards are generally accepted accounting principles that provide the basis for accounting policies and for the preparation of financial statements.

Accounting standards are based on the individual conceptual frameworks will result in different conclusions about similar problems. Therefore, the standards will not be consistent with one another, and decisions related to the past may not be indicative of future ones.

Thus, the statement is false.

Explanation for Statement ‘d’

Capital providers are individuals who provide capital or extend credit to a provider or an affiliate of the provider to provide certain tax benefits from the systems to such individuals in interest.

Information that is beneficial for the capital providers might also be beneficial to the users of financial reporting other than the capital providers.

Thus, the statement is false.

Explanation for Statement ‘e’

Accounting reports are the collection of accounting information that is obtained from the accounting records of a business.

It is assumed that the users of the accounting reports possess adequate knowledge of the business and the economic activities.

Thus, the statement is false.

Explanation for Statement ‘f’

Financial reporting is inclusive of all the financial statements such as income statement, balance sheet, statement of cash flows, and statement of stockholder’s equity.

The purpose of financial reporting is to examine the usage of cash flow, the performance of the business, and its financial health.

Thus, the statement is true.

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In January 2018, Jane way Inc. doubled the amount of its outstanding stock by selling on the market an additional 10,000 shares to finance an expansion of the business. You propose that this information be shown by a footnote on the balance sheet as of December 31, 2017. The president objects, claiming that this sale took place after December 31, 2017, and therefore should not be shown. Explain your position.

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Assets Distributions to owners Expenses Liabilities Comprehensive Income Gains Equity Revenues Losses Investments by owners

Instructions

Identify the element or elements associated with the 12 items below.(a) Arises from peripheral or incidental transactions.

(b) Obligation to transfer resources arising from a past transaction.

(c) Increases ownership interest.

(d) Declares and pays cash dividends to owners.

(e) Increases in net assets in a period from nonowner sources.

(f) Items characterized by service potential or future economic benefit.

(g) Equals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners.

(h) Arises from income statement activities that constitute the entity’s ongoing major or central operations.

(i) Residual interest in the assets of the enterprise after deducting its liabilities.

(j) Increases assets during a period through sale of product.

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BE2-9 (L05) If the going concern assumption is not made in accounting, discuss the differences in the amounts shown in thefinancial statements for the following items.

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ETHICS (Expense Recognition Principle) Anderson Nuclear Power Plant will be "mothballed" at the end of its useful life (approximately 20 years) at great expense. The expense recognition principle requires that expenses be recognized as assets are used up or liabilities are incurred. Accountants Ana Alicia and Ed Bradley argue whether it is better to allocate the expense of mothballing over the next 20 years or ignore it until mothballing occurs.

Instructions

Answer the following questions.

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(c) What alternatives should be considered?

(d) Assess the consequences of the alternatives.

(e) What decision would you recommend?
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