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Intermediate Accounting

Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

Chapter 2

Conceptual framework Underlying Financial Accounting - all with Video Answers

Educators

Chapter Questions

00:00

Problem 1

What is a conceptual framework? Why is a conceptual framework necessary in financial accounting?

Jennifer Stoner
Jennifer Stoner
Numerade Educator
01:38

Problem 2

What are the primary objectives of financial reporting as indicated in Statement of Financial Accounting Concepts
No. $1 ?$

Prashant Bana
Prashant Bana
Numerade Educator
01:21

Problem 3

What is meant by the term "qualitative characteristics of accounting information"?

Ethan Fuhrman
Ethan Fuhrman
Numerade Educator
12:40

Problem 4

Briefly describe the two primary qualities of useful accounting information.

Paul A.
Paul A.
California State Polytechnic University, Pomona
01:47

Problem 5

According to the FASB conceptual framework, the objectives of financial reporting for business enterprises are based on the needs of the users of financial statements. Explain the level of sophistication that the Board assumes about the users of financial statements.

Jennifer Stoner
Jennifer Stoner
Numerade Educator
01:07

Problem 6

What is the distinction between comparability and consistency?

Ajay Singhal
Ajay Singhal
Numerade Educator
01:29

Problem 7

Why is it necessary to develop a definitional framework for the basic elements of accounting?

Alexander Cheng
Alexander Cheng
Numerade Educator
05:52

Problem 8

Expenses, losses, and distributions to owners are all decreases in net assets. What are the distinctions among them?

Puneet Prajapati
Puneet Prajapati
Numerade Educator
02:04

Problem 9

Revenues, gains, and investments by owners are all increases in net assets. What are the distinctions among them?

Ameer Said
Ameer Said
Numerade Educator
01:38

Problem 10

What are the four basic assumptions that underlie the financial accounting structure?

Prashant Bana
Prashant Bana
Numerade Educator
02:24

Problem 11

The life of a business is divided into specific time periods, usually a year, to measure results of operations for each such time period and to portray financial conditions at the end of each period.
(a) This practice is based on the accounting assumption that the life of the business consists of a series of time periods and that it is possible to measure accurately the results of operations for each period. Comment on the validity and necessity of this assumption.
(b) What has been the effect of this practice on accounting? What is its relation to the accrual system? What influence has it had on accounting entries and methodology?

Adriano Chikande
Adriano Chikande
Numerade Educator
01:13

Problem 12

What is the basic accounting problem created by the monetary unit assumption when there is significant inflation? What appears to be the FASB position on a stable monetary unit?

Prashant Bana
Prashant Bana
Numerade Educator
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Problem 13

The chairman of the board of directors of the company for which you are chief accountant has told you that he has little use for accounting figures based on cost. He believes that replacement values are of far more significance to the board of directors than "out-of-date costs." Present some arguments to convince him that accounting data should still be based on cost.

Donna Densmore
Donna Densmore
Numerade Educator
02:07

Problem 14

What is the definition of fair value?

Nathan Silvano
Nathan Silvano
Numerade Educator
01:04

Problem 15

What is the fair value option? Explain how use of the fair value option reflects application of the fair value principle.

Christopher Stanley
Christopher Stanley
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05:54

Problem 16

Briefly describe the fair value hierarchy.

Ameer Said
Ameer Said
Numerade Educator
01:39

Problem 17

When is revenue generally recognized? Why has that date been chosen as the point at which to recognize the revenue resulting from the entire producing and selling process?

Ameer Said
Ameer Said
Numerade Educator
03:09

Problem 18

Selane Eatery operates a catering service specializing in business luncheons for large corporations. Selane requires customers to place their orders 2 weeks in advance of the scheduled events. Selane bills its customers on the tenth day of the month following the date of service and requires that payment be made within 30 days of the billing date. Conceptually, when should Selane recognize revenue related to its catering service?

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
01:26

Problem 19

What is the difference between realized and realizable? Give an example of where the concept of realizable is used to recognize revenue.

Ameer Said
Ameer Said
Numerade Educator
04:42

Problem 20

What is the justification for the following deviations from recognizing revenue at the time of sale?
(a) Installment sales method of recognizing revenue.
(b) Recognition of revenue at completion of production for certain agricultural products.
(c) The percentage-of-completion basis in long-term construction contracts.

Puneet Prajapati
Puneet Prajapati
Numerade Educator
01:28

Problem 21

Mogilny Company paid $\$ 135,000$ for a machine in 2010 . The Accumulated Depreciation account has a balance of $\$ 46,500$ at the present time. The company could sell the machine today for $\$ 150,000 .$ The company president believes that the company has a "right to this gain." What does the president mean by this statement? Do you agree?

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
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Problem 22

Three expense recognition methods (associating cause and effect, systematic and rational allocation, and immediate recognition) were discussed in the text under the expense recognition principle. Indicate the basic nature of each of these expense recognition methods and give two examples of each.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
01:38

Problem 23

Statement of Financial Accounting Concepts No. 5 identifies four characteristics that an item must have before it is recognized in the financial statements. What are these four characteristics?

Prashant Bana
Prashant Bana
Numerade Educator
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Problem 24

Briefly describe the types of information concerning financial position, income, and cash flows that might be
provided: (a) within the main body of the financial statements, (b) in the notes to the financial statements, or
(c) as supplementary information.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
01:04

Problem 25

In January 2011 , Janeway 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 31,2010 . The president objects, claiming that this sale took place after December $31,2010,$ and, therefore, should not be shown. Explain your position.

Hossam Mohamed
Hossam Mohamed
Numerade Educator
01:38

Problem 26

Describe the two major constraints inherent in the presentation of accounting information

Prashant Bana
Prashant Bana
Numerade Educator
12:40

Problem 27

What are some of the costs of providing accounting information? What are some of the benefits of accounting information? Describe the cost-benefit factors that should be considered when new accounting standards are being proposed.

Paul A.
Paul A.
California State Polytechnic University, Pomona
00:03

Problem 28

How are materiality (and immateriality) related to the proper presentation of financial statements? What factors and measures should be considered in assessing the materiality of a misstatement in the presentation of a financial statement?

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
00:00

Problem 29

The treasurer of Landowska Co. has heard that conser-
vatism is a doctrine that is followed in accounting and, therefore, proposes that several policies be followed that are conservative in nature. State your opinion with respect to each of the policies listed below.
(a) The company gives a 2-year warranty to its customers on all products sold. The estimated warranty costs incurred from this year's sales should be entered as an expense this year instead of an expense in the period in the future when the warranty is made good.
(b) When sales are made on account, there is always uncertainty about whether the accounts are collectible. Therefore, the treasurer recommends recording the sale when the cash is received from the customers.
(c) Apersonal liability lawsuit is pending against the company. The treasurer believes there is an even chance that the company will lose the suit and have to pay damages of $\$ 200,000$ to $\$ 300,000 .$ The treasurer recommends that a loss be recorded and a liability created in the amount of $\$ 300,000$
(d) The inventory should be valued at "cost or market, whichever is lower" because the losses from price declines should be recognized in the accounts in the period in which the price decline takes place.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
03:02

Problem 30

What two assumptions are central to the iGAAP conceptual framework?

Kendrick Buford
Kendrick Buford
Numerade Educator
05:30

Problem 31

Do the iGAAP and U.S. GAAP conceptual frameworks differ in terms of the role of financial reporting? Explain.

Anas Venkitta
Anas Venkitta
Numerade Educator
02:52

Problem 32

What are some of the challenges to the FASB and IASB in developing a converged conceptual framework?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator