Test Bank For Intermediate Accounting 2nd Edition By
Michelle L. Hanlon; Leslie Hodder; Karen K. Nelson; Darren
Roulstone; Amie L. Dragoo 9781618533357 ALL Chapters .
Financial Accounting - ANSWER: is the process of identifying, measuring, and communicating financial
information about an economic entity to various users groups within the legal, economic, political,
and social environment.
Four major elements of financial accounting - ANSWER: Financial information, economic entity, user
groups and legal, economic, political, and social environment.
Financial information two categories - ANSWER: information that is or not governed by rules set forth
by the accounting standard setting bodies.
Demand for financial information - ANSWER: user groups>Decision regarding risks and rewards of
resource allocation>Information is required to aid in decision making>economic entities produce
financial information
Capitol - ANSWER: is a scarce resource
general-purpose financial statements - ANSWER: Published financial statements that provide
information to a wide spectrum of user groups: investors, creditors, financial analysts, customers,
employees, competitors, suppliers, unions, and government agencies.
Financial Accounting Standards Board (FASB) - ANSWER: which is the body responsible for
promulgating U.S. GAAP, identifies investors, lenders, and other creditors as the primary user of the
financial statements.
Four Basic Financial Statements - ANSWER: 1. Balance Sheet
2. Income Statement
3. Statement of Stockholder's Equity
4. Statement of Cash Flows
Related footnotes to financial statements - ANSWER: A letter to the shareholders, a formal discussion
and analysis of the firm by the management of the firm, management report, auditors' report,
financial summary
Who governs financial statements? - ANSWER: U.S. GAAP
Which items are included in the definition of financial information? (Select all that apply.) - ANSWER:
management report, financial statements, footnotes to the financial statements, auditor's report,
president's letter to the owner
Is this concept synonymous with the term financial statements? Explain. - ANSWER: Financial
information is not synonymous with the term financial statements because the financial statements
are a subset of the different types of financial information provided.
What is the purpose of generating financial statements and who are the primary users of this
information? - ANSWER: The purpose of generating financial statements is to provide useful
information to users to evaluate economic entities and make efficient resource allocation decisions
based on the risks and returns of a particular investment. The Financial Accounting Standards Board
(FASB) identifies investors, lenders and other creditors as the primary users of the financial
statements.
, How is the allocation of capital linked to the demand for financial reporting? - ANSWER: Capital is
a scarce resource
.
Investors and creditors have to make decisions as to
how much capital to invest in any given entity
;
therefore, they demand relevant and faithfully representative information about
the economic performance and financial position of a company
.
This information is provided in the financial statements.
What are the roles and responsibilities of an external auditor? - ANSWER: External auditors ensure
that the management of a company has prepared financial statements in accordance with Generally
Accepted Accounting Principles and fairly present the financial position and economic performance of
a company. In addition, external auditors must be an independent party and cannot be employees of
the company they are auditing.
What is the function of the accounting standard setters? - ANSWER: Standard setters create
accounting concepts, rules, and guidelines to ensure that financial statements accurately present the
economic performance and financial position of a firm.
Can U.S. companies listed on U.S. stock exchanges use IFRS? - ANSWER: No. U.S. companies do not
have the option to report under IFRS.
Who does the FASB consult in the standard-setting process? - ANSWER: The FASB seeks and welcomes
comments from all parties in the financial reporting process including managers, investors,
accountants, preparers, creditors, lenders, financial statement users, governmental agencies, financial
analysts, industry groups, and auditors. FASB also receives feedback from public roundtable
discussions, public meetings, the FASAC, the Private Company Council, and EITF.
Is the promulgation of financial accounting standards a political process? Explain. - ANSWER: Yes, the
promulgation of financial accounting standards is a political process. The standard setting process is
impacted by several lobbying groups. The SEC can exert pressure on the FASB to issue accounting
standards and veto the standards promulgated by the FASB. Many other groups, such as auditing
firms, the corporate sector, and investors can influence the FASB by written comments and
participation in public hearings regarding a proposed financial reporting standard.
How does a principles-based standard differ from a rules-based standard? - ANSWER: A principles-
based standard is consistent with a theoretical framework. In contrast, a rules-based standard does
not necessarily rely on a consistent theoretical framework. Rather, it contains more specific and
prescriptive rules.
In recent years, what has been the FASB's approach to standard setting? - ANSWER: The FASB has
taken an asset/liability approach in setting standards. With this approach, a transaction is recorded
based on whether an asset or liability is created. Another trend has been the movement toward the
use of fair value measurements as an alternative to historical cost. FASB has also focused on the
promulgation of principles-based standards instead of rules-based standards.
This year's reported earnings per share is $.50 below analysts' forecasts - ANSWER: fundamental
characteristics: relevance
Attribute: confirmatory value
Potential creditors review a company's long-term liabilities footnote to determine that entity's ability
to assume additional debt. - ANSWER: Fundamental characteristics:Faithful Representation
Attribute:Complete
Michelle L. Hanlon; Leslie Hodder; Karen K. Nelson; Darren
Roulstone; Amie L. Dragoo 9781618533357 ALL Chapters .
Financial Accounting - ANSWER: is the process of identifying, measuring, and communicating financial
information about an economic entity to various users groups within the legal, economic, political,
and social environment.
Four major elements of financial accounting - ANSWER: Financial information, economic entity, user
groups and legal, economic, political, and social environment.
Financial information two categories - ANSWER: information that is or not governed by rules set forth
by the accounting standard setting bodies.
Demand for financial information - ANSWER: user groups>Decision regarding risks and rewards of
resource allocation>Information is required to aid in decision making>economic entities produce
financial information
Capitol - ANSWER: is a scarce resource
general-purpose financial statements - ANSWER: Published financial statements that provide
information to a wide spectrum of user groups: investors, creditors, financial analysts, customers,
employees, competitors, suppliers, unions, and government agencies.
Financial Accounting Standards Board (FASB) - ANSWER: which is the body responsible for
promulgating U.S. GAAP, identifies investors, lenders, and other creditors as the primary user of the
financial statements.
Four Basic Financial Statements - ANSWER: 1. Balance Sheet
2. Income Statement
3. Statement of Stockholder's Equity
4. Statement of Cash Flows
Related footnotes to financial statements - ANSWER: A letter to the shareholders, a formal discussion
and analysis of the firm by the management of the firm, management report, auditors' report,
financial summary
Who governs financial statements? - ANSWER: U.S. GAAP
Which items are included in the definition of financial information? (Select all that apply.) - ANSWER:
management report, financial statements, footnotes to the financial statements, auditor's report,
president's letter to the owner
Is this concept synonymous with the term financial statements? Explain. - ANSWER: Financial
information is not synonymous with the term financial statements because the financial statements
are a subset of the different types of financial information provided.
What is the purpose of generating financial statements and who are the primary users of this
information? - ANSWER: The purpose of generating financial statements is to provide useful
information to users to evaluate economic entities and make efficient resource allocation decisions
based on the risks and returns of a particular investment. The Financial Accounting Standards Board
(FASB) identifies investors, lenders and other creditors as the primary users of the financial
statements.
, How is the allocation of capital linked to the demand for financial reporting? - ANSWER: Capital is
a scarce resource
.
Investors and creditors have to make decisions as to
how much capital to invest in any given entity
;
therefore, they demand relevant and faithfully representative information about
the economic performance and financial position of a company
.
This information is provided in the financial statements.
What are the roles and responsibilities of an external auditor? - ANSWER: External auditors ensure
that the management of a company has prepared financial statements in accordance with Generally
Accepted Accounting Principles and fairly present the financial position and economic performance of
a company. In addition, external auditors must be an independent party and cannot be employees of
the company they are auditing.
What is the function of the accounting standard setters? - ANSWER: Standard setters create
accounting concepts, rules, and guidelines to ensure that financial statements accurately present the
economic performance and financial position of a firm.
Can U.S. companies listed on U.S. stock exchanges use IFRS? - ANSWER: No. U.S. companies do not
have the option to report under IFRS.
Who does the FASB consult in the standard-setting process? - ANSWER: The FASB seeks and welcomes
comments from all parties in the financial reporting process including managers, investors,
accountants, preparers, creditors, lenders, financial statement users, governmental agencies, financial
analysts, industry groups, and auditors. FASB also receives feedback from public roundtable
discussions, public meetings, the FASAC, the Private Company Council, and EITF.
Is the promulgation of financial accounting standards a political process? Explain. - ANSWER: Yes, the
promulgation of financial accounting standards is a political process. The standard setting process is
impacted by several lobbying groups. The SEC can exert pressure on the FASB to issue accounting
standards and veto the standards promulgated by the FASB. Many other groups, such as auditing
firms, the corporate sector, and investors can influence the FASB by written comments and
participation in public hearings regarding a proposed financial reporting standard.
How does a principles-based standard differ from a rules-based standard? - ANSWER: A principles-
based standard is consistent with a theoretical framework. In contrast, a rules-based standard does
not necessarily rely on a consistent theoretical framework. Rather, it contains more specific and
prescriptive rules.
In recent years, what has been the FASB's approach to standard setting? - ANSWER: The FASB has
taken an asset/liability approach in setting standards. With this approach, a transaction is recorded
based on whether an asset or liability is created. Another trend has been the movement toward the
use of fair value measurements as an alternative to historical cost. FASB has also focused on the
promulgation of principles-based standards instead of rules-based standards.
This year's reported earnings per share is $.50 below analysts' forecasts - ANSWER: fundamental
characteristics: relevance
Attribute: confirmatory value
Potential creditors review a company's long-term liabilities footnote to determine that entity's ability
to assume additional debt. - ANSWER: Fundamental characteristics:Faithful Representation
Attribute:Complete
