Homework LO: 1.2

To be​ useful, information must have which of the following fundamental qualitative​ characteristics?

Relevance and faithful representation

Identify the accounting concept, assumption, or principle that best applies to each of the following situations: c. Inflation has been around​ 5.5% for some time. Woodlake Realtors is considering measuring its land values in​ inflation-adjusted amounts.

Stable-monetary-unit assumption

Which of the following is a true statement about International Financial Reporting​ Standards?

They are converging gradually with U.S. standards

Accounting is moving in the direction of reporting more and more assets and liabilities at their fair values.

True

Another name for the continuity assumption is the going−concern assumption.

True

Assume that a business is headed for certain bankruptcy and it is evident that its liabilities greatly exceed its assets. Which principle would be violated if its financial statements were prepared using standard U.S.​ GAAP?

continuity assumption

Relevance is one of the four enhancing qualitative characteristics.

false

Assets are usually reported at their

historical cost

Anchor Enterprises buys a warehouse for $520,000 to use for its East Coast distribution operations. On the date of the​purchase, a professional appraisal shows a value of $610,000 for the warehouse. The seller had originally purchased the building for $490,000. Anchor has a similar warehouse on the West Coast that has a book value of $532,000. Under the historical cost​principle, Anchor should record the building for

$520,000

Fallon Osmond is chairperson of the board of Simple Treats​, Inc. Suppose Osmond has just founded Simple Treats​, and assume that she considers her home and other personal assets as part of Simple Treats. Answer these questions about the evaluation of Simple Treats​, Inc. 1. Which accounting assumption governs this​ situation? 2. Application of ________ will _______. This will help Osmond​, investors, and lenders ________, and this knowledge will help all parties evaluate the business realistically.

1. entity assumption 2. entity assumption- separate Osmond's personal assets from the assets of Simple Treats- know how much assets, liabilities and equity the business has

Identify the accounting​ concept, assumption, or principle that best applies to each of the following​ situations: b. General Motors wants to determine which division of the company —Chevrolet or GMC— is more profitable

Entity Assumption

Generally accepted accounting principles​ (GAAP) are the accounting guidelines formulated by the Securities and Exchange Commission

False

The SEC establishes International Financial Reporting Standards.

False

The fundamental qualitative characteristics of accounting information are relevance and reliability.

False

The historical cost principle is not used widely in the United States to value assets.

False

Identify the accounting​ concept, assumption, or principle that best applies to each of the following​ situations: a. Burger King​, the restaurant​ chain, sold a store location to McDonald​'s. How can Burger King determine the sale price of the store —by a professional​ appraisal, Burger King original​ cost, or the amount actually received from the​ sale?

Historical Cost Principle

Identify the accounting concept, assumption, or principle that best applies to each of the following situations: d. You get an especially good buy on a laptop​, paying only $300 when it normally costs $800. What is your accounting value for this laptop​?

Historical cost principle