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Financial accounting and reporting provide information that is useful for resource allocation decisions. In Statement of Financial Accounting Concepts No . 8, Chapter 1, “The Objective of General Purpose Financial Reporting,” the FASB rand the [ASH defined the following basic objectives of financial reporting: Financial reporting should provide understandable information to present and potential investors, lenders, and other creditors: that is useful in making rational capital allocation decisions that facilitates assessing the amounts, timing, and uncertainty' related to the company’s cash flows that is informative about the company’s economic resources, its claims to those resources, and the changes in its resources and obligations occurring from earnings and other operating activities The qualitative characteristics of useful accounting information were identified in the FASB’s and the IASB’s Statement of Financial Accounting Concepts No . 8 Chapter 3, “Qualitative Characteristics of Useful Accounting Information”. These characteristics distinguish better information (more useful) from inferior information (less useful). Required: 1. For the primary quality relevance, (a) define relevance and (b) explain the meaning and importance of each of the three ingredients of relevance. 2. For the primary quality faithful representation , (a) define faithful representation and (b) explain the meaning and importance of each of the three ingredients of faith fill representation. 3. Describe how relevance and faithful representation should be applied to determine useful accounting information. 4. Explain the following enhancing characteristics: a. comparability (including consistency) b. verifiability c. timeliness d. understandability 5. Explain the cost constraint.

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
Publisher: Cengage Learning
ISBN: 9781337788281
BuyFind

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
Publisher: Cengage Learning
ISBN: 9781337788281

Solutions

Chapter
Section
Chapter 2, Problem 4C
Textbook Problem

Financial accounting and reporting provide information that is useful for resource allocation decisions. In Statement of Financial Accounting Concepts No. 8, Chapter 1, “The Objective of General Purpose Financial Reporting,” the FASB rand the [ASH defined the following basic objectives of financial reporting:

Financial reporting should provide understandable information to present and potential investors, lenders, and other creditors:

  • that is useful in making rational capital allocation decisions
  • that facilitates assessing the amounts, timing, and uncertainty' related to the company’s cash flows
  • that is informative about the company’s economic resources, its claims to those resources, and the changes in its resources and obligations occurring from earnings and other operating activities

The qualitative characteristics of useful accounting information were identified in the FASB’s and the IASB’s Statement of Financial Accounting Concepts No. 8 Chapter 3, “Qualitative Characteristics of Useful Accounting Information”. These characteristics distinguish better information (more useful) from inferior information (less useful).

Required:

1. For the primary quality relevance, (a) define relevance and (b) explain the meaning and importance of each of the three ingredients of relevance.

2. For the primary quality faithful representation, (a) define faithful representation and (b) explain the meaning and importance of each of the three ingredients of faith fill representation.

3. Describe how relevance and faithful representation should be applied to determine useful accounting information.

4. Explain the following enhancing characteristics:

  1. a. comparability (including consistency)
  2. b. verifiability
  3. c. timeliness
  4. d. understandability

5. Explain the cost constraint.

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Chapter 2 Solutions

Intermediate Accounting: Reporting And Analysis
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Ch. 2 - What are the two primary qualities of useful...Ch. 2 - What is relevant accounting information? Identify...Ch. 2 - What is materiality, and how does it relate to...Ch. 2 - What is faithfully represented accounting...Ch. 2 - Identify the enhancing characteristics of useful...Ch. 2 - Compare and contrast comparability and...Ch. 2 - What is the cost constraint, and how does it...Ch. 2 - What is the reporting entity assumption? How does...Ch. 2 - What is the going-concern assumption, and why is...Ch. 2 - What is the period-of-time assumption, and why is...Ch. 2 - Why does financial reporting utilize a mixed set...Ch. 2 - Discuss the relationship among historical cost,...Ch. 2 - What is recognition in accounting?Ch. 2 - Describe accrual accounting. What are the...Ch. 2 - What drives the timing of revenue recognition?...Ch. 2 - What drives expense recognition? When should...Ch. 2 - What is conservatism? Why do accountants sometimes...Ch. 2 - Describe the financial reporting model within the...Ch. 2 - What are the primary sources of useful information...Ch. 2 - The information provided by financial reporting...Ch. 2 - Which of the following is considered a constraint...Ch. 2 - According to Statement of Financial Accounting...Ch. 2 - Which characteristic states that accounting...Ch. 2 - Under Statement of Financial Accounting Concepts...Ch. 2 - Under Statement of Financial Accounting Concepts...Ch. 2 - Accruing net losses on obsolete inventory is an...Ch. 2 - The valuation of a promise to receive cash in the...Ch. 2 - An accrued expense is an expense: a. incurred but...Ch. 2 - A company purchased a patent 4 years ago, and was...Ch. 2 - Qualitative Characteristics The following is a...Ch. 2 - Accounting Assumptions The following is a list of...Ch. 2 - Objectives of Financial Reporting The FASB has...Ch. 2 - A friend, who is not an accounting major, is not...Ch. 2 - A friend, who is not an accounting major, is...Ch. 2 - Financial accounting and reporting provide...Ch. 2 - An accountant must be familiar with the concepts...Ch. 2 - Relevance versus Faithful Representation You are...Ch. 2 - Conceptual Framework The FASBs Conceptual...Ch. 2 - Objectives, Users, and Stewardship The owners of...Ch. 2 - The concept of the reporting entity is a...Ch. 2 - Accruals and Deferrals Generally accepted...Ch. 2 - The following are brief descriptions of two...Ch. 2 - Violations of Assumptions and Principles The...Ch. 2 - You have been hired as an accounting consultant by...Ch. 2 - Inconsistent Statements on Accounting Principles...

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