ACG 2021 Study Guide - Midterm Guide: Revenue Recognition, Matching Principle, Accrual

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emeraldalpaca271

7 Dec 2013

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Document Summary

Accounting: a system of maintaining records of a company"s operations and communicating that information to decision makers. Accounting equation : equation that shows a company"s resources (assets) equal creditors" and owners" claims to those resources (liabilities and stockholders" equity). Auditors: trained individuals hired by a company as an independent party to express a professional opinion of the accuracy of that company"s financial statements. Balance sheet: a financial statement that presents the financial position of the company on a particular date. Comparability: the ability of users to see similarities and differences between two different business activities. Consistency: the use of similar accounting procedures either over time for the same company, or across companies at the same point in time. Corporation: an entity that is legally separate from its owners. Cost effectiveness: financial accounting information is provided only when the benefits of doing so exceed the costs. Decision usefulness: the ability of the information to be useful in decision making.

Related Questions

1. The budget informationprepared by a company must be a part of financial statementsincluded in form 10-k.

A. True B. False

2. MD&A ( included in form 10-k) stands for:

A. Minor disclosure and Analysis

B. Management's disclosure and Analysis

C. Management's discussion and Analysis

3. The statement of cash flows can provide statement users withinformation about which of the following:

A. how a company is generating its cash

B. whether the income reported on the income statement isrealized as cash

C. how the company used its cash resources.

D. All of the above

4. A process cost accounting system is best suited to accumlatethe manfacturing costs for which of the following products?

A. Construction of an electric power generation facility

B. a house

C. Paper clips

D. an automobile

5. The statement of cash flows focuses only on what happenedto:

A. revenues and expenses

B. fixed asset purchases

C. the issuance of stock and bonds

D. cash

6. The balance sheet equation ( the accounting equation) can bedefined as which of the following:

A. Assets - liabilities = stock holder equity

B. Assets + liabilities = stockholders equity

C. Assets= liabilities - stockholders equity

D. Assets + stockholders equity= Liabilities

7. One of the major criticisms aimed at financial accountants isthat their information is not

A. accurate

B. timely

C.proper

D. Added correctly

8. Which of the following provides the greatest level ofdetail?

A. general ledger system

B. balance sheet

C. income statement

D. cost accounting system

9. Which audit opinion states " The financial statements followGAAP except in the following sentences..."?

A. Unqualifed

B. Qualified

C. Adverse

D. Disclaimer of Opinion

10. Which of the following management functions orcharacteristics are most enhanced by the budget process?

A. timeliness and responsiveness

B. planning and accuracy

C. control and accountability

D. focus and accountability

salmondeer221

Following are two independent situations.

A. Grinner and Greeter, CPAs, were engaged to perform an audit ofthe financial statements of Happy, Inc. Happy's management wouldnot allow Grinner and Greeter to confirm any of the accountsreceivable. All other auditing procedures were performed asconsidered necessary by Grinner and Greeter and no issues wereencountered. However, Grinner and Greeter were unable to satisfythemselves with regard to the balance in accounts receivable.

B. Tick and Tie, CPAs, were performing their annual audit ofJohnson Manufacturing Company. Johnson is currently being sued for$2,000,000 related to an alleged defective product that they soldto a customer. Johnson's legal counsel has told Tick and Tie thatit is probable that Johnson will lose the suit and have to pay theentire $2,000,000. Johnson's management has included information inthe footnotes about the lawsuit. However, they have not recordedany loss or liability in the income statement or balancesheet.

Required:

For each of the two independent situations, state what type ofopinion should be issued on the company's financial statements.Briefly explain your rationale. Finally, state which paragraphs, ifany, of the standard report would be modified.

Note : I have the answer but I want to paraphraseit.

âTha answer is :

A. The company has imposed a scope limitationon Grinner and Greeter. Although it is possible to issue aqualified opinion for a less material scope limitation, disclaimersof opinion are more appropriately issued for client-imposed scopelimitations than for circumstance-imposed scope limitations. Forthe disclaimer of opinion, (1) the introductory paragraph would bemodified to state that auditors were engaged to audit thefinancial statements and delete the sentence referring to theauditors' responsibility for the financial statements, (2) thescope paragraph would be omitted, (3) an additional paragraph wouldbe added to describe the scope limitation, and, (4) the opinionparagraph would be modified to express a disclaimer ofopinion.

B. Because Johnson Manufacturing has not properlyrecorded a loss and a liability, the financial statements are notin conformity with generally accepted accounting principles.Therefore, depending on the overall materiality and pervasivenessof the misstatement, Tick and Tie should issue either a qualifiedor adverse opinion. In each case, a third paragraph would be addedto the report to explain the departure from GAAP and the opinionparagraph would be modified to express either a qualified opinionor an adverse opinion.