ADMS 3585 Lecture Notes - Lecture 2: Historical Cost, Financial Statement, Revenue Recognition

63 views5 pages

goldgiraffe33

24 Jan 2017

School

York University

Department

Administrative Studies

Course

ADMS 3585

Professor

Liona Lai

For unlimited access to Class Notes, a Class+ subscription is required.

ADMS 3585 – Solutions to Class review questions.

Class 2

EXERCISE 2-3

(a) Comparability

(b) Feedback value

(d) Neutrality

(e) Verifiability

(f) Relevance

(g) 1. Comparability

2. Verifiability

3. Timeliness

4. Understandability

(h) Representational faithfulness

(i) Relevance and Representational faithfulness

(j) Timeliness

EXERCISE 2-4

(a)

1. Gains, Losses

2. Liabilities

3. Equity (increase)

4. Equity (decrease

5. Assets

6. Expenses

7. Revenues (inflows of net assets) or expenses (outflows of net assets)

8. Equity

9. Revenues, if it is the sale of a product sold in the normal course of business;

otherwise it would be a gain

10. Equity (decrease)

(b)

1. Asset – the contract represents a potential future economic benefit to which the

entity is entitled and has control over. However, the transaction that will

generate the benefit has yet to occur (the music has yet to be written). Once the

probability threshold has been surpassed the asset would be recognized.

2. Asset – consignment inventory belongs to ReadyMart until it is sold to the final

customer. It represents a benefit as

find more resources at oneclass.com

Unlock document

This preview shows pages 1-2 of the document.
Unlock all 5 pages and 3 million more documents.

Already have an account? Log in

it can be sold. The company still controls/has access

(through legal title) even though physical possession is with the local retailer.

Liability – this contract represents an obligation that will result in the future outflow of

resources, subject to the sale of the recordings. However, a liability will not occur

until the recordings are sold.

EXERCISE 2-8

(a) A conceptual framework is useful for standard setters since having an established

body of concepts and objectives helps them to develop additional useful and

consistent standards. This results in a coherent set of standards that are built upon

the same foundation. An understanding of the underlying concepts helps the

preparer and the auditor ensure consistent and meaningful application of the

principles. Such a framework also increases the financial statement user’s

understanding of, and provides confidence in, financial reporting. It also enhances

comparability of different companies’ financial statements.

(b) Foundational principle or characteristic violated:

Periodicity; relevance (predictive and feedback value); timeliness

Historical cost; verifiability; relevance

Historical cost or matching; comparability; representational faithfulness;

relevance

Revenue recognition and realization; representational faithfulness

Full disclosure; representational faithfulness; relevance

Economic entity; free from material error, representational faithfulness

Control; comparability; representational faithfulness

Matching; free from error; relevance

Full disclosure and representational faithfulness (neutrality)

(Note that other principles/characteristics may also be discussed. There is rarely a

single right and wrong answer to these types of questions.)

P2-5

1. Agree. This is a change in how Sheridan does business. The revenue recognition

principle requires that the risks and rewards of ownership be transferred to the

purchaser in order for the sale to be recognized. While the shipping terms have been

changed, further investigation should be undertaken to ensure that customer business

practices are aligned with this changed policy. For example, if the company will continue

to replace items lost or damaged in transit, the risks have not passed, irrespective of the

change in shipping terms, and the timing of revenue recognition should not change.

(further discussed in Chapter 6).

find more resources at oneclass.com

Unlock document

This preview shows pages 1-2 of the document.
Unlock all 5 pages and 3 million more documents.

Already have an account? Log in

Related Questions

Unit 6 GAAP Application-Conceptual Framework of Accounting TheConceptual Framework allows for the systematic adaptation ofaccounting standards to a changing business environment. The FASBuses the conceptual framework to aid in an organized and consistentdevelopment of new accounting standards. The conceptual frameworkoutlines the objectives of financial reporting and the qualities ofgood accounting information, precisely defines commonly used termssuch as asset and revenue, and provides guidance about appropriaterecognition, measurement, and reporting. Understanding theterminology associated with the framework is imperative. Match thenumbered statements below with the lettered terms. An answer(letter) may used more than once, and some terms require more thanone answer (letter). 1. Key ingredients in quality of relevance. 2.Traditional assumptions that influence the FASB's conceptualframework. 3. The idea that information should represent what itpurports to represent. 4. An important constraint relating to costsand benefits. 5. An example of conservatism 6. The availability ofinformation when it is needed. 7. Recording an item in theaccounting records. 8. Determines the threshold for recognition. 9.Implies consensus. 10. Transactions between independent parties. a)Cost-effectiveness b) Representational faithfulness c) Recognitiond) Verifiability e) Time periods f) Unrealized g) Completeness h)Timeliness i) Materiality j) Predictive value k) Economic entity l)Lower-of-cost-or-market rule m) Phrenology n) Arm's-lengthtransactions Now that you have reviewed the terminology, for eachsituation listed below, indicate by letter the appropriatequalitative characteristic(s) or accounting concept(s) applied. Aletter may be used more than once, and more than one characteristicor concept may apply to a particular situation. Explain why youchose your answer.

1. Goodwill is recorded in the accounts only when it arises fromthe purchase of another entity at a price higher than the fairmarket value of the purchased entity's identifiable assets. 2. Landis valued at cost. 3. All payments out of petty cash are debited toMiscellaneous Expense. 4. Plant assets are classified separately asland or buildings, with an accumulated depre-ciation account forbuildings. 5. Periodic payments of $1,500 per month for services ofH. Hay, who is the sole propri-etor of the company, are reported aswithdrawals. 6. Small tools used by a large manufacturing firm are^recorded as expenses when purchased. 7. Investments in equitysecurities are initially recorded at cost. 8. A retail storeestimates inventory rather than taking a complete physical countfor purposes of preparing monthly financial statements. 9. A notedescribing the company's possible liability in a lawsuit isincluded with the financial statements even though no formalliability exists at the balance sheet date. 10. Depreciation onplant assets is consistently computed each year by thestraight-line method. a) Understandability b) Verifiability c)Timeliness d) Representational faithfulness e) Neutrality f)Relevance g) Going concern h) Economic entity i) Historical cost j)Measurability k) Materiality l) Comparability Type your answers ina Word Document, and submit to the Drop Box.

maroonoyster77

GAAP Application-Conceptual Framework of Accounting the ConceptualFramework allows for the systematic adaptation of accountingstandards to a changing business environment. The FASB uses theconceptual framework to aid in an organized and consistentdevelopment of new accounting standards. The conceptual frameworkoutlines the objectives of financial reporting and the qualities ofgood accounting information, precisely defines commonly used termssuch as asset and revenue, and provides guidance about appropriaterecognition, measurement, and reporting. Understanding theterminology associated with the framework is imperative. Match thenumbered statements below with the lettered terms. An answer(letter) may used more than once, and some terms require more thanone answer (letter). 1. Key ingredients in quality of relevance. 2.Traditional assumptions that influence the FASB's conceptualframework. 3. The idea that information should represent what itpurports to represent. 4. An important constraint relating to costsand benefits. 5. An example of conservatism 6. The availability ofinformation when it is needed. 7. Recording an item in theaccounting records. 8. Determines the threshold for recognition. 9.Implies consensus. 10. Transactions between independent parties. a)Cost-effectiveness b) Representational faithfulness c) Recognitiond) Verifiability e) Time periods f) Unrealized g) Completeness h)Timeliness i) Materiality j) Predictive value k) Economic entity l)Lower-of-cost-or-market rule m) Phrenology n) Arm's-lengthtransactions Now that you have reviewed the terminology, for eachsituation listed below, indicate by letter the appropriatequalitative characteristic(s) or accounting concept(s) applied. Aletter may be used more than once, and more than one characteristicor concept may apply to a particular situation. Explain why youchose your answer.

1. Goodwill is recorded in the accounts only when it arises fromthe purchase of another entity at a price higher than the fairmarket value of the purchased entity's identifiable assets. 2. Landis valued at cost. 3. All payments out of petty cash are debited toMiscellaneous Expense. 4. Plant assets are classified separately asland or buildings, with an accumulated depreciation account forbuildings. 5. Periodic payments of $1,500 per month for services ofH. Hay, who is the sole proprietor of the company, are reported aswithdrawals. 6. Small tools used by a large manufacturing firm are^recorded as expenses when purchased. 7. Investments in equitysecurities are initially recorded at cost. 8. A retail storeestimates inventory rather than taking a complete physical countfor purposes of preparing monthly financial statements. 9. A notedescribing the company's possible liability in a lawsuit isincluded with the financial statements even though no formalliability exists at the balance sheet date. 10. Depreciation onplant assets is consistently computed each year by thestraight-line method. a) Understandability b) Verifiability c)Timeliness d) Representational faithfulness e) Neutrality f)Relevance g) Going concern h) Economic entity i) Historical cost j)Measurability k) Materiality l) Comparability

redtoad313

A fire destroyed your firmâs ending balance sheet and income statement after the year-end
but before the financial statements are released. However, you have been successful in obtaining the
numbers for the beginning balance sheet and the statement of cash flows, which are provided to you and
your team members in Excel format. Fields representing the missing balance sheet and income statement
are End of year2 in the Excel sheet

CONSOLIDATED BALANCE SHEETS (USD $)	End of year 2	End of year 1
In Thousands, unless otherwise specified	End of year 2	End of year 1
Current assets:
Cash and cash equivalents	ã	598
Receivables, net	ã	230
Inventories, net	ã	2309
Other current assets	ã	47
Total current assets	ã	3184
Property and equipment, net of accumulated depreciation	ã	1292
Assets held for sale	ã	1
Goodwill	ã	76
Intangible assets, net	ã	29
Other assets, net	ã	32
Assets, Total	ã	4614
Current liabilities:	ã	0
Current portion of long-term debt	ã	0
Accounts payable	ã	2030
Accrued expenses	ã	380
Other current liabilities	ã	150
Total current liabilities	ã	2560
Long-term debt	ã	604
Other long-term liabilities	ã	239
Commitments and Contingencies	ã	0
Stockholders Equity Attributable to Parent [Abstract]	ã	0
Preferred stock, nonvoting, $00001 par value	ã	0
Common stock, voting, $00001 par value	ã	0
Additional paid-in capital	ã	520
Treasury stock, at cost	ã	-27
Accumulated other comprehensive income (loss)	ã	3
Retained earnings	ã	715
Total stockholders equity	ã	1210
Liabilities and Stockholders Equity, Total	ã	4613


CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	12 Months Ended
In Thousands, except Per Share data, unless otherwise specified	Year 2
Net sales	ã
Cost of sales, including purchasing and warehousing costs	ã
Gross profit	ã
Selling, general and administrative expenses	ã
Operating income	ã
Interest expense	ã
Other income, net	ã
Total other, net	ã
Income before provision for income taxes	ã
Provision for income taxes	ã
Net income	ã


CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	12 Months Ended
In Thousands, unless otherwise specified	Year 2
Cash flows from operating activities:
Net income	$392
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	208
Share-based compensation	13
Loss on property and equipment, net	1
Other	2
Provision for deferred income taxes	-2
Excess tax benefit from share-based compensation	-16
Increase Decrease in Operating Capital
Receivables, net	-32
Inventories, net	-204
Other assets	11
Accounts payable	113
Accrued expenses	63
Other liabilities	-4
Net cash provided by operating activities	545
Cash flows from investing activities:
Purchases of property and equipment	-196
Payments to Acquire Businesses, Gross	-186
Sale of certain assets of acquired business	19
Proceeds from sales of property and equipment	1
Net cash used in investing activities	-362
Cash flows from financing activities:
(Decrease) increase in bank overdrafts	-3
Decrease in financed vendor accounts payable	0
Issuance of senior unsecured notes	449
Payment of debt related costs	-9
Borrowings under credit facilities	0
Payments on credit facilities	0
Dividends paid	-18
Proceeds from the issuance of common stock, primarily exercise of stock options	4
Tax withholdings related to the exercise of stock appreciation rights	-22
Excess tax benefit from share-based compensation	16
Repurchase of common stock	-81
Contingent payment accrued on acquisitions	5
Other	-1
Net cash provided by (used in) financing activities	331
Net increase (decrease) in cash and cash equivalents	514
Cash and cash equivalents, beginning of period	598
Cash and cash equivalents, end of period	1,112
Supplemental cash flow information:
Interest paid	35
Income tax payments	219
Non-cash transactions:
Accrued purchases of property and equipment	21
Retirement of common stock	0
Contingent consideration accrued on acquisitions	0
Changes in other comprehensive income	1
Declared but unpaid cash dividends	$4

brownwoodchuck820

ADMS 3585 Lecture Notes - Lecture 2: Historical Cost, Financial Statement, Revenue Recognition

Get access

Related Documents

ADMS 3585 Study Guide - Bobolink, Issued Shares, Debt Service Coverage Ratio

ADMS 3585 Chapter Notes - Chapter 2: Accounts Payable, Livent, Cash Flow

ADMS 3585 Lecture Notes - Lecture 2: Valuation Of Options, Historical Cost, Conceptual Framework

Related Questions