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Question 1E

Expert-verified
Intermediate Accounting (Kieso)
Found in: Page 65

Short Answer

(Usefulness, Objective of Financial Reporting) Indicate whether the following statements about the conceptual framework are true or false. If false, provide a brief explanation supporting your position.

  1. Accounting rule-making that relies on a body of concepts will result in useful and consistent pronouncements.
  2. General-purpose financial reports are most useful to company insiders in making strategic business decisions.
  3. Accounting standards based on individual conceptual frameworks generally will result in consistent and comparable accounting reports.
  4. Capital providers are the only users who benefit from general-purpose financial reporting.
  5. Accounting reports should be developed so that the users without knowledge of economics and business can become informed about the financial results of a company.
  6. The objective of financial reporting is the foundation from which the other aspects of the framework logically result.

Indication for all the given options are as follows:

  • True
  • False
  • False
  • False
  • False
  • true
See the step by step solution

Step by Step Solution

Meaning of Financial Reporting

The term financial reporting refers to the process whereby the information gathered by the accountant while recording and bookkeeping are presented to the final users who can be either internal users like managers or external users like the government.

Explanation for Statement ‘a’

The primary reasons for developing an agreed conceptual framework are that it provides a basis for establishing accounting standards, a basis for resolving accounting disputes, fundamental principles which need to be repeated in accounting standards.

Thus, the statement is true.

Explanation for Statement ‘b’

General-purpose financial reports reflect all of the financial reporting information that is required by a business.

General-purpose financial reports are beneficial not only to the company insiders but also to a wide variety of users, consisting of shareholders, creditors, suppliers, employees, and regulators.

Thus, the statement is false.

Explanation for Statement ‘c’

Accounting standards are generally accepted accounting principles that provide the basis for accounting policies and for the preparation of financial statements.

Accounting standards are based on the individual conceptual frameworks will result in different conclusions about similar problems. Therefore, the standards will not be consistent with one another, and decisions related to the past may not be indicative of future ones.

Thus, the statement is false.

Explanation for Statement ‘d’

Capital providers are individuals who provide capital or extend credit to a provider or an affiliate of the provider to provide certain tax benefits from the systems to such individuals in interest.

Information that is beneficial for the capital providers might also be beneficial to the users of financial reporting other than the capital providers.

Thus, the statement is false.

Explanation for Statement ‘e’

Accounting reports are the collection of accounting information that is obtained from the accounting records of a business.

It is assumed that the users of the accounting reports possess adequate knowledge of the business and the economic activities.

Thus, the statement is false.

Explanation for Statement ‘f’

Financial reporting is inclusive of all the financial statements such as income statement, balance sheet, statement of cash flows, and statement of stockholder’s equity.

The purpose of financial reporting is to examine the usage of cash flow, the performance of the business, and its financial health.

Thus, the statement is true.

Most popular questions for Business-studies Textbooks

GROUPWORK (Accounting Principles and Assumptions—Comprehensive) Presented below are a number of business transactions that occurred during the current year for Gonzales, Inc.

Instructions

In each of the situations, discuss the appropriateness of the journal entries in terms of generally accepted accounting principles.

(a) The president of Gonzales, Inc. used his expense account to purchase a new Suburban solely for personal use. The following journal entry was made.Miscellaneous Expense 29,000Cash 29,000

(b) Merchandise inventory that cost $620,000 is reported on the balance sheet at $690,000, the expected selling price less estimated selling costs. The following entry was made to record this increase in value.Inventory 70,000Sales Revenue 70,000

(c) The company is being sued for $500,000 by a customer who claims damages for personal injury apparently caused by a defective product. Company attorneys feel extremely confident that the company will have no liability for damages resulting from the situation. Nevertheless, the company decides to make the following entry.Loss from Lawsuit 500,000Liability for lawsuit 500,000

(d) Because the general level of prices increased during the current year, Gonzales, Inc. determined that there was a $16,000 understatement of depreciation expense on its equipment and decided to record it in its accounts. The following entryDepreciation Expense 16,000Accumulated Depreciation Equipment 16,000

(e) Gonzales, Inc. has been concerned about whether intangible assets could generate cash in case of liquidation. As a consequence, goodwill arising from a purchase transaction during the current year and recorded at $800,000 was written off as follows.

(f) Because of a “fire sale.” equipment obviously worth $200,000 was acquired at a cost of $155,000. The following entry was made.Equipment 2000Cash 155,000Sales Revenue 45,000

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