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Exercise 1–14
Statement Concept
1. d. Monetary unit assumption
2. h. Full-disclosure principle
Exercise 1–15
1. b
CPA / CMA REVIEW QUESTIONS
CPA Exam Questions
1. a. Auditor independence is not a qualitative characteristic.
5. d. Predictive value is an ingredient of relevance.
6. b. Completeness is an ingredient of faithful representation.
7. b. The objective of financial reporting is to provide information that is useful to
CMA Exam Questions
1. b. Accounting standards in the United States for nongovernmental entities
2. c. Verifiability implies a consensus among different measurers.
3. c. The four fundamental recognition criteria are (1) the item meets the
1–22 Intermediate Accounting, 8/e
Judgment Case 1–1
Requirement 1
In the 1934 Securities Act, Congress gave the SEC the job of setting accounting
and reporting standards for companies whose securities are publicly traded. However,
Requirement 2
1. SEC employees may not have the expertise necessary to set accounting
standards.
CASES
Research Case 1–2
Requirement 2
The 1933 Act has two basic objectives:
1. To require that investors be provided with material information concerning
Requirement 3
EDGAR:
EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system,
performs automated collection, validation, indexing, acceptance, and forwarding of
1–24 Intermediate Accounting, 8/e
Research Case 1–3
Requirement 1
The mission of the Financial Accounting Standards Board is to establish and
Requirement 2
Answers to these questions will vary depending on the date the research is
conducted.
Requirement 3
The FASB receives many requests for action on various financial accounting and
reporting topics from all segments of a diverse constituency, including the SEC. The
The Board turns to many other organizations and groups for advice and
information on various matters, including its agenda. Among the groups with which
liaison is maintained are the Financial Accounting Standards Advisory Council, the
Accounting Standards Executive Committee and Auditing Standards Board of the
.
Research Case 1–4
Requirement 1
The IASB is committed to developing, in the public interest, a single set of high-
Requirement 2
The IASB has 16 Board members, each with one vote.
Requirement 3
Requirement 4
London, United Kingdom
Research Case 1–5
Requirement 2
In 1978, China’s enterprise reform program was initiated. Prior to 1978, all
Requirement 3
The author feels that the accounting environment in China differs considerably
1–26 Intermediate Accounting, 8/e
Communication Case 1–6
In the long run, a company will be able to provide investors with a return only if
it can generate a profit. That is, it must be able to use the resources provided by
investors and creditors to generate cash receipts from selling a product or service that
exceed the cash disbursements necessary to provide that product or service. If this
excess cash can be generated, the marketplace is implicitly saying that society’s
resources have been efficiently allocated. The marketplace is assigning a value to the
product or service that exceeds the value assigned to the resources used to produce
that product or service. Pollution costs to society should be borne by the
company/individual causing the costs to be incurred. If they are, and the pollution-
Communication Case 1–7
Suggested Grading Concepts and Grading Scheme:
Content (70%)
_____ 30 Briefly outlines the standard setting process.
____ Role of FASB, SEC.
Writing (30%)
_____ 6 Terminology and tone appropriate to the audience of
a business journal.
_____ 12 Organization permits ease of understanding.
1–28 Intermediate Accounting, 8/e
Ethics Case 1–8
Discussion should include these elements.
Auditors' Role in Examining Financial Statements:
The function of the auditor is to assure the fairness of financial statements and
their compliance with GAAP, not the verification of account correctness. As some
Who is affected?
Auditors
Company management
Ethical Values:
Ethical values pertaining to auditor responsibility include honesty, integrity, and
Ethics Case 1–8 (concluded)
Ethical issues or challenges:
1. Pressure from management to bias the audit opinion by threatening to
withhold audit fee payment, to hire another audit firm, or to assign tax
preparation work to another audit firm.
2. Pressure from management to bias the audit opinion by providing an
Judgment Case 1–9
The two primary qualitative characteristics of accounting information are
relevance and faithful representation. However, these qualities often can conflict,
1–30 Intermediate Accounting, 8/e
Judgment Case 1–10
Requirement 1
Mary will be able to compare the financial statements due to the existence of
Requirement 2
Auditors examine financial statements to express an opinion on their compliance
with GAAP.
Judgment Case 1–11
Requirement 1
The desired benefit is that the new standard will provide a better set of
Requirement 2
The costs could include increased information-gathering, processing and
Requirement 3
The FASB undertakes a series of elaborate information gathering steps before
Judgment Case 1–12
Disagree. Wolf has been paid, so collectability is not a concern. However, Wolf
performs its rental service over time, and at the beginning of the period has not yet
1–32 Intermediate Accounting, 8/e
Analysis Case 1–13
Requirement 1
Expenses generally are recognized in the same period they are used to produce
revenues. The term matched with revenues means that an attempt is made to
Requirement 2
The four different approaches to implementing expense recognition are:
1. Recognizing an expense based on an exact cause-and-effect relationship
between a revenue and expense event. Cost of goods sold is an example of an
Requirement 3
a. The cost of producing a product - 1.
Judgment Case 1–14
Requirement 1
The key factor is whether or not the expenditure creates a benefit beyond the
current period. If it does, then the expenditure should be capitalized and expensed in
Requirement 2
Yes, the materiality constraint. If an expenditure creates a benefit beyond the
1–34 Intermediate Accounting, 8/e
Real World Case 1–15
Requirement 1
a. Total net revenues = $ 16,148 million
Requirement 2
The balance sheet reports 1,106 million shares of common stock issued as of
February 1, 2014.
Requirement 3
The presentation of more than one year facilitates the ability of investors and
Judgment Case 1–16
Requirement 1
Pro-convergence arguments include:
1. U.S. financial markets would be more attractive to companies with
uniform accounting standards.
2. More comparable financial statements are easier for users.
3. Less costly information systems to prepare financial statements for multi-
Requirement 2
Anti-convergence arguments include:
1. Regulatory requirements (like Sarbanes-Oxley) are more important than
accounting standards for discouraging use of U.S. capital markets.
2. Actual comparability depends on regulatory enforcement and how IFRS
is applied in particular countries; could make financial statements seem
1–36 Intermediate Accounting, 8/e
Air France–KLM Case
Requirement 1
a. Total revenues = € 25,530 million
Requirement 2
AF’s basic loss per share was €(6.17).
Requirement 3
AF’s note 4.1.1 indicates that “the consolidated financial statements as of December
31, 2013 have been prepared in accordance with International Financial Reporting
