Question Details

ACCT 550
WEEK 1
CA1-3 (Financial Reporting and Accounting Standards) Answer the following multiple-
choice questions.
1.	GAAP stands for:
2.	Accounting standard-setters use the following process in establishing accounting 
3.	GAAP is comprised of:
4.	The authoritative status of the conceptual framework is as follows.
5.	The objective of financial reporting places most emphasis on:
6.	General-purpose financial statements are prepared primarily for:
7.	Economic consequences of accounting standard-setting means:
8.	The expectations gap is:
E2-5 (Elements of Financial Statements) Ten interrelated elements that are most directly related to measuring the performance and financial status of an enterprise are provided below.
Assets				Equity
Distributions to owners		Revenues
Expenses				Losses
Liabilities				Investments by owners
Comprehensive income		Gains
 
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 
e)	Increases in net assets in a period from non-owner sources.
(f)	Items characterized by service potential or future economic 
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- ongoing major or central operations
(i)	Residual interest in the assets of the enterprise after deducting its 
(j)	Increases assets during a period through sale of product
(k)	Decreases assets during the period by purchasing the company- own stock
(l)	Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners
E3-1 (Transaction Analysis—Service Company) Christine Ewing is a licensed CPA. During the first month of operations of her business (a sole proprietorship), the following events and transactions occurred.
April	2	Invested $30,000 cash and equipment valued at $14,000 in the business.
 	2	Hired a secretary-receptionist at a salary of $290 per week payable monthly.
 	3	Purchased supplies on account $700. (debit an asset account.)
 	7	Paid office rent of $600 for the month.
 	11	Completed a tax assignment and billed client $1,100 for services rendered. (Use Service Revenue account.)
 	12	Received $3,200 advance on a management consulting engagement.
 	17	Received cash of $2,300 for services completed for Ferengi Co.
 	21	Paid insurance expense $110.
 	30	Paid secretary-receptionist $1,160 for the month.
 	30	A count of supplies indicated that $120 of supplies had been used.
 	30	Purchased a new computer for $5,100 with personal funds. (The computer will be used exclusively for business purposes.)
Instructions 
Journalize the transactions in the general journal. (Omit explanations.)
E3-5 (Adjusting Entries) The ledger of Chopin Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared.
 						Debit		Credit
Prepaid Insurance				$3,600
Supplies					2,800
Equipment					25,000
Accumulated Depreciation-Equipment			$8,400
Notes Payable						20,000
Unearned Rent Revenue					6,300
Rent Revenue						60,000
Interest Expense				-0-
Salaries and Wages Expense		14,000

An analysis of the accounts shows the following.
1.	The equipment depreciates $250 per month.
2.	One-third of the unearned rent was earned during the quarter.
3.	Interest of $500 is accrued on the notes payable.
4.	Supplies on hand total $650.
5.	Insurance expires at the rate of $300 per month.
Instructions
Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are: Depreciation Expense, Insurance Expense, Interest Payable, and Supplies Expense. (Omit explanations.)
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. Any company claiming compliance with GAAP must comply with all standards and interpretations, including 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. In establishing financial accounting standards, the FASB relies on two basic premises: 
1) the FASB should be responsive to the needs and viewpoints of the entire economic community, not just the public accounting profession, 
2) it should operate in full view of the public through a “due process” system that gives interested people ample opportunities to make their view known.

E2-6 (Assumptions, Principles, and Constraints) Presented below are the assumptions, principles, and constraints used in this chapter.
    1. Economic entity assumption
    2. Going concern assumption
    3. Monetary unit assumption
    4. Periodicity assumption
    5. Historical cost principle
    6. Fair value principle
    7. Expense recognition principle
    8. Full disclosure principle
    9. Cost constraint
    10. Industry practices

Instructions

Identify by number the accounting assumption, principle, or constraint that describes each situation on the next page. Do not use a number more than once.

    (a) Allocates expenses to revenues in the proper period. 7
    (b) Indicates that fair value changes subsequent to purchase are not recorded in the accounts. (Do not use revenue recognition principle.) 5
    (c) Ensures that all relevant financial information is reported. 8
    (d) Rationale why plant assets are not reported at liquidation value. (Do not use historical cost principle.) 2
    (e) Indicates that personal and business record keeping should be separately maintained. 1
    (f) Separates financial information into time periods for reporting purposes. 4
    (g) Permits the use of fair value valuation in certain industries. (Do not use fair value principle.) 10
    (h) Assumes that the dollar is the “measuring stick” used to report on financial performance. 3

E2-7 (Assumptions, Principles, and Constraints) Presented below are a number of operational guidelines and practices that have developed over time