CA1-1 (FASB and Standard-Setting) (TRUE) 1.

GAAP is the term used to indicate the whole body of FASB authoritativ e literature. (FALSE) 2. Any company claiming compliance with GAAP must comply with most stand ards and interpretations but does not have to follow the disclosure requirements . (TRUE) 3. The primary governmental body that has influence over the FASB is the SEC. (TRUE) 4. The FASB has a government mandate and therefore does not have to follo w due process in issuing a standard. CA1-3 (Financial Reporting and Accounting Standards) 1. GAAP stands for: (d) generally accepted accounting principles. 2. Accounting standard-setters use the following process in establishing accoun ting standards: (d) Research, discussion paper, exposure draft, standard. 3. GAAP is comprised of: (d) any accounting guidance included in the FASB Codifi cation. 4. The authoritative status of the conceptual framework is as follows: (a) It is used when there is no standard or interpretation related to the reporting issue s under consideration. 5. The objective of financial reporting places most emphasis on: (a) reporting t o capital providers. 6. General-purpose financial statements are prepared primarily for: (b) external users. 7. Economic consequences of accounting standard-setting means: (d) accounting st andards can have detrimental impacts on the wealth levels of providers of financ ial information. 8. The expectations gap is: (b) what the public thinks accountants should do and what accountants think they can do. E2-5 (Elements of Financial Statements) (a) Arises from peripheral or incidental transactions : Losses. (b) Obligation to transfer resources arising from a past transaction: Liabilitie s. (c) Increases ownership interest: Comprehensive income. (d) Declares and pays cash dividends to owners: Distribution to owners. (e) Increases in net assets in a period from nonowner sources: Comprehensive inc ome. (f) Items characterized by service potential or future economic benefit: Assets. (g) Equals increase in assets less liabilities during the year, after adding dis tributions to owners and subtracting investments by owners: Comprehensive income . (h) Arises from income statement activities that constitute the entitys ongoing m ajor or central operations: Expenses. (i) Residual interest in the assets of the enterprise after deducting its liabil ities: Equity. (j) Increases assets during a period through sale of product: Revenue. (k) Decreases assets during the period by purchasing the companys own stock: Dist ribution to owners. (l) Includes all changes in equity during the period, except those resulting fro m investments by owners and distributions to owners: Comprehensive income. E2-7 (Assumptions, Principles, and Constraints) (a) Fair value changes are not recognized in the accounting records: Historical cost principle. (b) Financial information is presented so that investors will not be misled: Ful l disclosure principle. (c) Intangible assets are capitalized and amortized over periods benefited: Expe nse recognition principle. (d) Repair tools are expensed when purchased: Materiality.

(e) Agricultural companies use fair value for purposes of valuing crops: Industr y practices or fair value principle. (f) Each enterprise is kept as a unit distinct from its owner or owners: Economi c entity assumption. (g) All significant postbalance sheet events are reported: Full disclosure princ iple. (h) Revenue is recorded at point of sale: Revenue recognition principle. (i) All important aspects of bond indentures are presented in financial statemen ts: Full disclosure principle. (j) Rationale for accrual accounting: Revenue and expense recognition principle (k) The use of consolidated statements is justified: Economic entity assumption. (l) Reporting must be done at defined time intervals: Periodicity assumption. (m) An allowance for doubtful accounts is established: Expense recognition princ iple. (n) Goodwill is recorded only at time of purchase: Historical cost principle. (o) A company charges its sales commission costs to expense: Expense recognition principle. E3-1 (Transaction Analysis - Service Company) April 2 DR Cash $30,000 DR Equipment $14,000 CR Owners capital $44,000 April 3 DR Supplies $ 700 CR Accounts payable $ 700 April 7 DR Rent expense $ 600 CR Cash $ 600 April 11 DR Accounts receivable $ 1,100 CR Revenue $ 1,100 April 12 DR Cash $ 3,200 CR Unearned revenue $ 3,200 April 17 DR Cash $ 2,300 CR Revenue $ 2,300 April 21 DR Insurance expense $ 110 CR Cash $ 110 April 30 DR Salaries expense $ 1,160 CR Cash $ 1,160 DR Supplies expense $ 120 CR Supplies $ 120 DR Equipment $ 5,100 CR Capital $ 5,100 E3-5 (Adjusting Entries) 1. DR Depreciation expense $ CR Accu. Depreciation-Equip 2. DR Unearned rent revenue $ CR Rent revenue $ 3. DR Interest expense CR Interest payable 4.

750 $ 2,100 2,100 $ $

750

500 500

DR CR 5. DR CR

Supplies expense Supplies Insurance expense Prepaid insurance

$ $ $ $

2,150 2,150 900 900

P3-1 (Transactions, Financial Statements - Service Company)