Int. Acct. Ch.1 Pt. 4

A company purchases a building by signing a $200,000 10% interest-bearing note due at the end of five years. At what amount should the building be recorded?

$200,000

Hernandez Corporation purchases a building for $300,000 cash. The building was appraised at $310,000. The tax assessment on the building was $280,000. Three months after purchasing the building, Company Z offers Hernandez $320,000 for the building. At what amount should the building be reported in Hernandez's financial statements according to the historical cost principle?

$300,000

Which of the following items qualify for the fair value option? (Select all that apply.)

- financial liabilities - financial assets

Expense recognition is implemented by which of the following ways? (Select all that apply.)

- in period incurred - cause and effect relationship - susttematic and rational allocation - associating expenses and revenues in a specific period of time

The revenue/expense approach focuses on the income statement because it relies on which accounting principles? (Select all that apply.)

- matching - revenue recognition

Disclosure is the process of including additional pertinent information in (Select all that apply.)

- notes to the financial statements - financial statement

If there is accounting information not included in the primary financial statements that would benefit users, that information should be disclosed in (choose all correct answers):

- supplemental schedules and tables - parenthetical comments on the face of the statements - notes to the financial statement

Revenue should be recognized when the seller satisfies its performance obligation(s) to its customers. What is the accounting issue if the revenue recognition rule is not followed? (Select all that apply)

- the income statment would not report the accomplishments of the period - net income may be overstated or understated for the period

According to SFAC 5, the four criteria that must be met for an item to be recognized in the basic financial statements are

- the info abt the item is reliable - the item meets the definition of an element - the item has relevan attributes that are measurable - teh info abt the item is relevant to decision making

Criticisms of fair value accounting are that fair value estimates may not be ________________.

- verifiable - representationally faithful

The FASB recently issued a standard that requires companies recognize revenue (Select all that apply.)

-for the amount the company expects to be entitled to receive -at a point in time or over a period of time -when goods or services are transferred to customers

Matching cost of goods sold with the revenues generated during the period is an example of which approach to expense recognition?

Cause-and-effect relationship.

The historical cost of an asset is the what?

amt of consideration given for the asset at initial acquisition

If a company elects the fair value option for a financial asset or financial liability, how are the changes in fair value reported in the financial statements?

as gains or losses on the income statement

Recent standard-setting for revenue, investments, and income taxes has followed the ________ approach.

asset/ liability

Which approach to accounting uses the measurement of balance sheet accounts to drive revenue and expense recognition?

asset/ liability

Financial assets and liabilities can be reported

at fair value and historical cost

The --- approach determines fair value by estimating the amount that would be required to buy or construct an asset of similar quality and condition. (Enter one word per blank)

cost

The full-disclosure principle requires that financial reports should include any information that could affect the decisions made by external users, within the constraint that the benefits of that information should exceed the --- of providing the info

cost

Which approach to measuring fair value determines fair value by estimating the amount that would be required to buy or construct an asset of similar quality and condition?

cost approach

Schoene Company reports its inventory at replacement cost. This is an application of the measurement attribute of

current cost

The cost that would be incurred to purchase or reproduce an asset is referred to as

current cost

Select the four criteria used to determine if an item is recognized in the financial statements according to SFAC 5.

definition, relevance, measureability, reliability

The process of including additional pertinent information in the financial statements and accompanying notes is referred to as

disclosure

Measurement is the process of associating numerical amounts to the -- reported in financial statements

elements

--- --- bases measurements on the price that would be received in an orderly market transaction. (Only one word per blank.)

fair value

A standard setting focus on the asset/liability approach supports measurement of assets and liabilities at:

fair value

The price that would be received to sell assets or paid to transfer a liability in an orderly transaction between market participants at the measurement date is the

fair value

Notes to the financial statements are an example of the application of which accounting principle?

full- disclosure principle

Reporting assets at net realizable value helps predict:

future cash flows

The principle stating that asset and liability measurements should be based on the amount given or received in the original transaction is referred to as the--- --- principle

historical cost

What accounting principle states that an asset or liability should be recorded at the amount given or received in the exchange transaction?

historical cost

Which of the following are acceptable measurement attributes for certain financial statement items? (Select all that apply.)

historical value, net realizable value, fair value, and present value

the --- approach for measuring fair value estimates value by estimating future amounts of earnings or cash flows and then mathematically converting these amounts to a single present value.

income

What level of the fair value hierarchy includes quoted market prices in active markets for identical assets and liabilities?

level 1

What level of the fair value hierarchy includes inputs other than quoted prices that are observable for the asset or liability?

level 2

The fair value approach that uses current information from recent transactions or exchanges in active trading on stock exchanges is the -- apprach

market

Which approach to measuring fair value uses information from actively traded stock on the New York Stock Exchange?

market approach

The process of associating numerical amounts to the elements in the financial statements is called

measurement

What type of measurement model does U.S. GAAP currently employ? (choose only one answer)

mixed attribute

The amount of cash into which an asset is expected to be converted in the normal course of business is the asset's

net realizable value

An advantage of historical cost measurement is that it is

objective and verifiable

Revenue recognition criteria are designed to prevent companies from--- revenue and net income in one period and, consequently, ---revenue and net income in another period.

overstating, understating

The income approach for measuring fair value estimates future amounts of earnings or cash flows first and then mathematically converts these amounts to a single --- value

present

The measurement method based on future cash flows discounted for the time value of money is referred to as --- value

present

The measurement attribute that is based on future cash flows discounted for the time value of money is

present value

The process of admitting information into the financial statements is referred to as

recognition

Recognition refers to the process of ---

recording info in the basic financial statements

Proponents of fair value accounting point out that it will enhance the --- of the info provided

relevance

An emphasis is placed on proper income statement item recognition under what approach under US GAAP?

revenue/ expense approach

Expenses are matched to --- from the same transaction. (Enter only one word.)

revenues

A recently issued FASB standard requires that companies recognize revenue when goods or services are ---to customers for the amount the company expects to be entitled to receive in exchange for those goods or services. (Enter only one word.)

transferred