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INTERMEDIATE ACCOUNTING 1 (CHAPTER 2) EXAM GUIDE QUESTIONS WITH COMPLETE ANSWERS
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INTERMEDIATE ACCOUNTING 1 (CHAPTER 2) EXAM GUIDE QUESTIONS WITH COMPLETE ANSWERS
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INTERMEDIATE ACCOUNTING 1(CHAPTER 2) EXAM GUIDE QUESTIONS
WITH COMPLETE ANSWERS
Conceptual Framework - Answer-Establishes the concepts that underlie financial
reporting. It is a coherent system of concepts that flow from an objective.
Objective - Answer-Identifies the purpose of financial reporting.
identifying the boundaries of financial reporting
selecting the transactions, other events, and circumstances to be represented
how they should be recognized and measured
how they should be summarized and reported - Answer-Other concepts that provide
guidance on financial reporting.
Standard-setting based on personal conceptual frameworks will lead to different
conclusions about identical or similar issues than it did previously. As a result,
standards will not be consistent with one another, and past decisions may not be
indicative of future ones. - Answer-Why do we need a conceptual framework?
to issue more useful and consistent pronouncements over time would lead to a coherent
set of standards resulting. - Answer-A soundly developed conceptual framework thus
enables FASB
standard-setting ends up being based on individual concepts developed by each
member of the standard-setting body. - Answer-Without the guidance provided by a
soundly developed framework,
and emerging practical problems by referring to an existing framework of basic theory. -
Answer-As a result of soundly developed conceptual framework, the profession should
be able to more quickly solve new
setting accounting rules and for resolving financial reporting controversies. - Answer-In
1976, FASB began to develop a conceptual framework that would be a basis for
SFAC No. 1 Objectives of Financial Reporting by Business Enterprises presents the
goals and purposes of accounting (superseded by SFAC No. 8, Chapter 1).
SFAC No. 2 Qualitative Characteristics of Accounting Information examines the
characteristics that make accounting information useful (superseded by SFAC No. 8,
Chapter 3).
, SFAC No. 3 Elements of Financial Statements of Business Enterprises provides
definitions of items in financial statements, such as assets, liabilities, revenues, and
expenses (superseded by SFAC No. 6).
SFAC No. 5 Recognition and Measurement in Financial Statements of Business
Enterprises sets forth fundamental recognition and measurement criteria and guidance
on what information should be formally incorporated into financial statements and when.
SFAC No. 6 Elements of Financial Statements replaces SFAC No. 3 and expands its
scope to include not-for-profit organizations.
SFAC No. 7 Using Cas - Answer-FASB has issued seven Statements of Financial
Accounting Concepts that relate to financial reporting for business enterprises.
First Level (The "why- purpose of accounting) or Objective of financial reporting
Second Level (Bridge between levels 1 and 3) or Qualitative Characteristics of
accounting information (why they are useful) and Elements of financial statements
(assets, liabilities, and so on).
Third level (The how implementation) or Assumptions, Principles, Constraint
(Recognition, Measurement, and Disclosure Concepts) - Answer-Overview of the
Conceptual Framework
Objective of Financial Reporting - Answer-is the foundation of the conceptual
framework. Other aspects of the framework -qualitative characteristics, elements of
financial statements, recognition, measurement, and disclosure - flow logically from the
objective. Those aspects of the framework help to ensure that financial reporting
achieves its objective.
Objective of general-purpose financial reporting - Answer-is to provide financial
information about the reporting entity that is useful to present and potential equity
investors, lenders, and other creditors in making decisions about providing resources to
the entity. Those decisions involve buying, selling, or holding equity and debt
instruments, and providing or settling loans and other forms of credit. To make effective
decisions, these parties need information to help them assess a company's prospects
for future net cash flows, which will support payments and/or provide a return to existing
and potential investors, lenders, and other creditors.
decision-useful - Answer-Information that is __ to capital providers may also be useful to
other users of financial reporting, who are not capital providers.
General Purpose Financial Reporting - Answer-helps users who lack the ability to
demand all the financial information they need from an entity and therefore must rely, at
least partly, on the information provided in financial reports. However, an implicit
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