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I - A. Representational faithfulness is accomplished when transactions and events affecting
the entity are presented in financial statements in a manner that is in agreement with the
actual underlying transactions and events (CICA, Financial statement Concepts 1000.21
(a), 2003). It means that all of information in the financial statement such as numbers and
descriptions must be factual. The independent auditors checked the computer ID tags on
each piece of equipment to confirm the actual numbers, and for that reason Byrn Company
observes the representational faithfulness that is one of subsets of reliability.
I - B. The consistency principle states that businesses should use the same accounting
methods and procedures from period to period (Harrison, Horngren, Lemon, & Lemon,
2004, p. 279) Hence the financial statement of Carroll Company violates the consistency
principle.
I - C. The time-period concept ensures that accounting information is reported at regular
intervals (Harrison, Horngren, Lemon, & Lemon, 2004, p. 114). Still, the company
believes that quarterly financial information can be issued whenever it is convenient for
the accounting department, and they published its first three quarterly reports during the
10th month of the year.
Consequently the financial statement of Dawn Data Enterprises violates the timeliness that
is one of subsets of relevance.
I - D. The financial statement representation of a transaction or event is verifiable if
knowledgeable and independent observers would concur that it is in agreement with the
actual underlying transaction or event with a reasonable degree of precision. Verifiability
focuses on the correct application of a basis of measurement (CICA, Financial statement
Concepts 1000.21 (b), 2003). Even though the comptroller of the bank knows the electric
pencil sharpener may qualify as an asset by years of benefit expected, he decided that the
cost of the sharpener should be expensed. As a result, the financial statement of the bank
violates the verifiability that is one of subsets of reliability.
I - E. Information that helps users to predict an entity future income and cash flows has
predictive value (CICA, Financial statement Concepts 1000.20 (a), 2003). The company
financial statements show ten years successful operation,and it helps Bill to invest in the
company. The financial statement of Wilson Enterprises follows the predictive value and
feedback value which is one of subsets of relevance.
II - A. A dress shop purchases a $3,500 sewing machine to use for alterations.
A dress shop assets increase amount of $3,500 because assets mean all resources owned by
a business. For example, cash, account receivable, office supplies, inventory, equipments,
