5. The Churchill Pharmaceutical Company included a note in its financial statements that described a pending lawsuit against the company.
6. The Daily Corporation, a company whose securities are publicly traded, prepares monthly, quarterly, and annual financial statements for internal use but
disseminates to external users only the annual financial statements.
1. Disagree. This is a violation of the historical cost (original transaction value) principle.
2. Disagree. This is a violation of the economic entity assumption.
3. Disagree. The seller has not satisfied its obligation to deliver goods.
4. Disagree. This is a violation of matching.
5. Agree. The company is conforming to the full disclosure principle.
6. Disagree. This is a violation of the periodicity assumption.
References
Essay Difficulty: 2 Medium Learning Objective: 01-08 Describe the four basic assumptions
underlying GAAP.
141.
Award: 10.00 points
Identify or define the following terms: economic entity, going concern.
Economic entity: All economic events can be identified with a particular economic entity.
Going concern: In the absence of information to the contrary, it is anticipated that a business entity will continue to operate indefinitely.
References
Essay Difficulty: 2 Medium Learning Objective: 01-08 Describe the four basic assumptions
underlying GAAP.
142.
Award: 10.00 points
List the four financial statements most frequently provided to external users.
Balance sheet, Income statement, Statement of cash flows, Statement of shareholders' equity.
References
Essay Difficulty: 1 Easy Learning Objective: 01-01 Describe the function and primary focus
of financial accounting.
143.
Award: 10.00 points
Explain and show an example of how the FASB's conceptual framework is needed in formulating standards on controversial topics.
In order to provide consistency, a conceptual framework (a map clearly defining beliefs or structure) must be provided. This is the foundation for a strong,
logical, and fair system. For example, in debating accounting for stock-based compensation, the FASB's conceptual framework explains the rationale for
treating stock options as an expense. By relating the accounting for such compensation to the purpose of financial statements and their qualitative
characteristics, the FASB can defend its positions without the bias inherent in such controversial issues.
References
Essay Difficulty: 3 Hard Learning Objective: 01-06 Explain the purpose of the conceptual
framework.
144.
Award: 10.00 points
What is the SEC and how is it involved with accounting standard-setting?
The Securities and Exchange Commission is a federal agency that has the authority to set accounting standards. However, the SEC has always relied on a
private-sector body, such as the current FASB, to accomplish that task.
References
Essay Difficulty: 1 Easy Learning Objective: 01-03 Define generally accepted accounting
principles (GAAP) and discuss the historical development of
accounting standards, including convergence between U.S. and
international standards.
145.
Award: 10.00 points
What is the EITF and what is its purpose?
The Emerging Issues Task Force (EITF) acts as a filter for the FASB. It includes 15 individuals from public accounting and private industry along with a
representative from the FASB and an SEC observer. The task force focuses on emerging issues and attempts to reach a consensus, speeding up the
standard-setting process.
References
Essay Difficulty: 2 Medium Learning Objective: 01-03 Define generally accepted accounting
principles (GAAP) and discuss the historical development of
accounting standards, including convergence between U.S. and
international standards.
146.
Award: 10.00 points
Accounting standard-setting has been characterized as a political process. Discuss this proposition giving an example.
Changes in GAAP can have significant differential effects on companies, investors, creditors, and other interest groups. The FASB must gauge the
economic consequences of a change in accounting standards. The process by which financial accounting standards are created includes public comment
and sometimes hearings. Ultimately, a vote must be taken to pass a proposed change in GAAP. Accounting for stock-based compensations (options) and
postretirement health care benefits are examples where accounting practices have been affected by political influences on GAAP.
References
Essay Difficulty: 2 Medium Learning Objective: 01-04 Explain why establishing accounting
standards is characterized as a political process.
147.
Award: 10.00 points
What are the key provisions of the Public Company Accounting Reform and Investor Protection (Sarbanes-Oxley) Act of 2002?