What is conservatism in accounting? What is an example of conservatism in accounting practice?
> What is the current numerical materiality standard in accounting?
> Income as determined by income tax regulations is not necessarily the same as income reported to external users. Why might there be differences?
> Of what value is consistency in financial reporting?
> What different measurement methods may be applied to net assets in arriving at income under the capital maintenance approach?
> Define comparability.
> After the necessary definitions and assumptions that support the determination of income have been made, what are the two methods of income measurement that may be used to determine income? How do they differ?
> Accounting is sometimes characterized as dealing only with the past. Give examples of how accounting information can be of value in dealing with the future.
> You are the controller for Cam-Ry Industries. Your company has recently received a large amount of unfavorable publicity because an SEC investigation uncovered a systematic 2-year effort by Cam-Ry’s management to manipulate reported earnings. The primary
> Does reliability imply absolute accuracy? Explain.
> Under IASB standards, how is a change in accounting principle reported?
> Distinguish between the qualities of relevance and reliability.
> Explain briefly the difference in accounting treatment of (a) A change in accounting principle and (b) A change in accounting estimate.
> Why is it so difficult to measure the cost effectiveness of accounting information?
> Which of the following would not normally qualify as an extraordinary item? (a) The write-down or write-off of receivables. (b) Major devaluation of foreign currency. (c) Loss on sale of plant and equipment. (d) Gain from early extinguishment of debt. (e
> One objective of financial reporting is understandability. Understand able to whom?
> Pop-Up Company has decided to sell its lid manufacturing division even though the division is expected to show a small profit this year. The division’s assets will be sold to another company at a loss of $10,000. What information (if any) should Pop-Up d
> Identify the major objectives of financial reporting as specified by the FASB.
> What are restructuring charges, and why do they generate controversy?
> Distinguish between (a) Real and nominal accounts, (b) General journal and special journals, and (c) General ledger and subsidiary ledgers.
> What are the main similarities and differences between a manual and an automated accounting system?
> List and explain the main reasons why a conceptual framework of accounting is important.
> Define comprehensive income. How does it differ from net income?
> What is the IASB? What is the SEC position regarding IASB standards?
> What is the general practice in reporting earnings per share?
> Why are differing national accounting standards converging to a common global standard?
> One of your clients overheard a computer manufacturer sales representative saying that the computer will make the accountant obsolete. How would you respond to this comment?
> What are the major types of notes attached to the financial statements?
> What are the major advantages of computers as compared with manual processing of accounting data?
> Why is standard setting such a difficult and complex task?
> Refer to the 2009 balance sheet for Consolidated Edison. 1. Compute the following financial ratios for Consolidated Edison for 2008: (a) Debt ratio (total liabilities/total assets) (b) Current ratio (current assets/current liabilities) (c) Long-term debt
> What has academic research shown with respect to earnings-based bonus thresholds?
> Is greater accuracy achieved in financial statements prepared from double-entry accrual data as compared with cash data? Explain.
> How does the fact that there are limited resources in the world relate to accounting information?
> Explain the relationship between financial accounting rules and tax accounting rules.
> Distinguish between accrual and cash-basis accounting.
> What is the best long-run business practice?
> According to the AICPA Code of Professional Conduct, what precept should guide members of the AICPA as they encounter conflicting pressures among their clients, investors, the business community, the government, and so forth?
> How do accounting standards impact the cost of capital?
> The text of the chapter includes discussion of seven stages in an earnings management meltdown. At what stage does the earnings management meltdown become public knowledge?
> What economic incentives do financial analysts sometimes have for overlooking a company’s glaring deficiencies and continuing to recommend it to investors as a “buy”?
> What costs and risks is an auditor balancing when signing an audit opinion?
> As indicated in the case at the beginning of this chapter, Xerox was manipulating income between the years 1997 through 1999. Below are revenue, gross profit, net income, and operating cash flow data for Xerox for the years 1997 through 2000. The secur
> A manager being pressured to meet expectations in the face of a downturn in operating performance can be tempted to turn to an accounting solution and use accrual estimates and judgments to manage reported earnings. How else might the manager respond to
> What are the seven elements of an earnings management meltdown?
> What is the AICPA? The AAA?
> What user careers require a knowledge of intermediate accounting issues?
> In what sense is financial reporting part of a company’s general public relations effort?
> Identify the criteria that an item must meet to qualify for recognition.
> With respect to pro forma earnings numbers, what recommendation made by the Financial Executives International (FEI) and the National Investor Relations Institute did the SEC endorse?
> Describe the process one should use in forecasting depreciation expense.
> Refer to Practice 3-9. Net income for the year totaled $3,600. Compute return on assets. In Practice 3-9 Current Assets: Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> Diageo is a United Kingdom (UK) consumer products firm, best known in the United States for the following brand names: Smirnoff, Johnnie Walker, J&B, Gordon’s, Seagram’s, and Guinness. Diageo’s 20
> What is the starting point for the preparation of forecasted financial statements?
> Refer to Practice 3-9. Sales for the year totaled $50,000. Compute asset turnover. In Practice 3-9 Current Assets: Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> In 1998, then-SEC Chairman Arthur Levitt gave a speech in which he identified five techniques of accounting hocus-pocus. List those five techniques.
> Identify the major sections (components of income) that are included in a multiple-step income statement.
> Refer to Practice 3-9. As of the end of the year, the total market value of shares outstanding was $10,000. Compute the book-to-market ratio. In Practice 3-9 Current Assets: Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> What are two potential causes of non-GAAP accounting?
> Use the information in Practice 3-9 to compute the proportion of total assets in each of the following asset categories. (a) Inventory (b) Property, Plant, and Equipment In Practice 3-9 Current Assets: Cash. . . . . . . . . . . . . . . . . . . . . . . .
> What is the meaning of “intraperiod” income tax allocation?
> What are some examples of supplementary information included in the notes to financial statements?
> What are some possible disadvantages of a multiple-step income statement?
> In the press release announcing Disney’s results for the first fiscal quarter of 2008 ending December 29, 2007, the company stated the following: The Walt Disney Company today reported earnings for its first fiscal quarter ended December 29, 2007. Dilute
> Refer to Practice 3-9. Net income for the year totaled $2,000. Compute return on equity. In Practice 3-9 Current Assets: Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> What does the term income smoothing mean?
> What constitutes authoritative GAAP in the United States?
> Under double-entry accounting, what are the debit/credit relationships of accounts?
> How does the SEC influence the setting of accounting standards?
> What one financial ratio summarizes everything about the performance of a company? How is it computed?
> What are the four factors that might motivate a manager to attempt to manage earnings?
> Explain how the asset turnover ratio provides a measure of a company’s overall efficiency.
> What types of reports are generated from the accounting system?
> What are financial ratios?
> Safeway operates 1,775 supermarkets in the United States and Canada. In the United States, Safeway is located principally in the Western, Southwestern, Rocky Mountain, Midwestern, and Mid-Atlantic regions. Kroger operates 2,468 stores in Northeastern, We
> You are the chief financial officer (CFO) of Clarke Company, which is publicly traded. At the annual shareholders’ meeting you discussed the company’s recent reported results. As part of your presentation, you illustrated the minimum and maximum values f
> In what order are assets usually listed in the balance sheet?
> Jacob Marley is the controller for Dickens Company. Marley has been with Dickens for more than 30 years. Marley is a dedicated employee and prides himself on the efficiency of his accounting department staff. Over the years, Marley has received many inqu
> How do the Equity sections of proprietorships, partnerships, and corporations differ from one another?
> Worthington Company and Millward Company both reported pro forma earnings numbers in conjunction with their release of results for the most recent quarter. Both announcements included a reconciliation to GAAP earnings. These reconciliations are reproduce
> What effect, if any, does the use of a work sheet have on the sequence of the reporting phase of the accounting process?
> What five items make up the general-purpose financial statements?
> The H.K. Clark Health Club sells lifetime memberships for $5,000 each. These memberships entitle a person to unlimited access to the club’s weight room, exercise equipment, swimming pool, and sauna. Once a lifetime membership fee is paid, it is not refun
> “Liabilities are obligations denominated in precise monetary terms.” Do you agree or disagree? Explain.
> Lily Company has historically reported a bad debt expense amount of between 1% and 4% of sales. The percentage for any given year is a function of both the business conditions for the year and whether recent experience suggests that the estimates in past
> Joseph Han has $10 million that he wishes to invest. He has identified two candidate companies: Company A and Company B. Both companies are privately held and have never yet released external financial statements. Joseph Han has some familiarity with the
> What is the importance of the term probable in the definition of an asset?
> Refer back to the section of the chapter entitled “Preparing Adjusting Entries.” Who determines how long buildings and furniture and equipment are to last? Who determines the dollar amount of accounts receivable that are doubtful? Suppose we were to chan
> The financial position of St. Charles Ranch is summarized in the following letter to the corporation’s accountant. Dear Dallas: The following information should be of value to you in preparing the balance sheet for St. Charles Ranch as of December 31, 20
> Some accounting students feel that the mechanics of accounting (journal entries and T-accounts) are for bookkeepers. Because these students are training to be accountants, they see no need to spend a great deal of time studying these mechanics. In one pa
> The following balance sheet was prepared by the accountant for Midway Company. Instructions: Prepare a corrected classified balance sheet using appropriate account titles. Midway Company Balance Sheet June 30, 2013 Assets Cash 2$ 44,500 Investment
> Locate the 2009 financial statements for Lockheed Martin Corporation on the Internet. Reconstruct the company’s adjusted trial balance as of December 31, 2009.
> (a) What role does the EITF play in establishing accounting standards? (b) Why can it meet this role more efficiently than the FASB?
> The accountant for Sierra Corp. prepared the following schedule of liabilities as of December 31, 2013. Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85,000 Notes
> Julie is successful in her position as a consultant for Worldwide Enterprises. She has selectively invested her money in stocks of several companies. She receives the annual reports and faithfully analyzes them as she was taught in her university account
> Adjusted account balances and supplemental information for Brockbank Research Corp. as of December 31, 2013, are as follows: Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> The Boston Celtics are the most successful team in professional basketball history. Teams led by Bill Russell, Larry Bird, and Kevin Garnett have won a total of 17 NBA championships. The Celtics are also an unusual professional sports team because owners
> Computers have drastically altered the way accounting records are maintained. Almost all businesses now keep the bulk of their accounting records on computers. However, the financial statements are still prepared methodically on only a quarterly and annu
> Following is a list of account titles and balances for Pennington Investment Corporation as of January 31, 2013. Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,
> Alice Guth operates a low-impact aerobics studio. Alice has been in business for three years and has always had her financial statements prepared on a cash basis. This year, Alice’s accountant has suggested that accrual-based financial statements would g
> Denton Equipment Inc. furnishes you with the following list of accounts. Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,000 Accounts Receivable . . . .
