ACCT 301 Chapter Notes - Chapter 2: Accrual, Elizabeth Daily, Hire Purchase

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bronzealpaca588

25 Feb 2013

School

University of Calgary

Department

Accounting

Course

ACCT 301

Professor

All

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Just a basic summary of those little things that we always tend to forget. The going concern concept implies that a business is a going concern, i. e. that there is no reason to expect the liquidation of assets. Thus, the business may be valued at its historical, or current cost, rather than its break-up or replacement value. A further example to illustrate the application of the going concern concept, may be clearly seen, when stock is valued. It is a practice to value stock at the lower of its net realizable value or cost of purchase, this is because the going concern concept implies that the stock is held to be sold at a future date. It is for this reason, that we actually disclose the value of the creditors in the balance. Furthermore, although we may have paid rent of.

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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

P9-2 (Lower-of-Cost-or-Market) Garcia Home Improvement Companyinstalls replacement siding, windows, and louvered glass doors forsingle-family homes and condominium complexes in northern NewJersey and southern New York. The company is in the process ofpreparing its annual financial statements for the fiscal year endedMay 31, 2014, and Jim Alcide, controller for Garcia, has gatheredthe following data concerning inventory. At May 31, 2014, thebalance in Garciaâs Raw Material Inventory account was $408,000 andthe Allowance to Reduce Inventory to Market had a credit balance of$27,500 Alcide summarized the relevant inventory cost and marketdata at May 31, 2014, in the schedule below. Alcide assignedPatricia Devereaux, an intern from a local college, the task ofcalculating the amount that should appear on Garciaâs May 31, 2014,financial statements for inventory under thelower-of-cost-or-market rule as applied to each item in inventory.Devereaux expressed concern over departing from the cost principle.Cost "Replacement Cost" Sales Price "Net Realizable Value" NormalProfit Aluminum siding $70,000 $62,500 $64,000 $56,000 $5,100 Cedarshake siding 86,000 79,400 94,000 84,800 7,400 Louvered glass doors112,000 124,000 186,400 168,300 18,500 Thermal windows 140,000126,000 154,800 140,000 15,400 Total $408,000 $391,900 $499,200$449,100 $46,400 Instructions: (a) (1) Determine the proper balancein the Allowance to Reduce Inventory to Market at May 31, 2014.Calculations of Proper Balance on the Allowance to Reduce Inventoryto Market At May 31, 2014.

ACCT 301 Chapter Notes - Chapter 2: Accrual, Elizabeth Daily, Hire Purchase

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