Intermediate accounting and kieso 12th edition

Supplementary information may include details or amounts that present a different perspective from that adopted in the financial statements. Companies consider only quantitative factors in determining whether an item is material. Conservatism in accounting means the accountant should attempt to understate assets and income when possible. Generally accepted accounting principles a. A soundly developed conceptual framework of concepts and objectives should a.

Which of the following a-c are not true concerning a conceptual framework in accounting? It should be a basis for standard-setting. It should allow practical problems to be solved more quickly by reference to it. It should be based on fundamental truths that are derived from the laws of nature. All of the above a-c are true.

Practical problems should be more quickly solvable by reference to an existing conceptual framework. A coherent set of accounting standards and rules should result. Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply. Measurement and recognition concepts such as assumptions, principles, and constraints b.

Qualitative characteristics of accounting information c. Elements of financial statements d. The underlying theme of the conceptual framework is a. Which of the following is not an objective of financial reporting?

To provide information about economic resources, the claims to those resources, and the changes in them. To provide information that is helpful to investors and creditors and other users in assessing the amounts, timing, and uncertainty of future cash flows. To provide information that is useful to those making investment and credit decisions. All of these are objectives of financial reporting. The objectives of financial reporting include all of the following except to provide information that a.

Decision makers vary widely in the types of decisions they make, the methods of decision making they employ, the information they already possess or can obtain from other sources, and their ability to process information. Consequently, for information to be useful there must be a linkage between these users and the decisions they make. This link is a. The overriding criterion by which accounting information can be judged is that of a.

The two primary qualities that make accounting information useful for decision making are a. Accounting information is considered to be relevant when it a. The quality of information that gives assurance that it is reasonably free of error and bias and is a faithful representation is a.

Materiality b. Understandability c. Usefulness d. All of these. Yes Yes b. No Yes c. Yes No d. No No. Yes No b. Yes Yes c. No No d. No Yes. Information is neutral if it a. The characteristic that is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement methods is a.

Financial information does not demonstrate consistency when a. Financial information exhibits the characteristic of consistency when a. Information about different entities and about different periods of the same entity can be prepared and presented in a similar manner. Comparability and consistency are related to which of these objectives?

Comparability Consistency a. Entities Entities b. Entities Periods c. Periods Entities d. Periods Periods. When information about two different enterprises has been prepared and presented in a similar manner, the information exhibits the characteristic of a. The elements of financial statements include investments by owners.

In classifying the elements of financial statements, the primary distinction between revenues and gains is a. A decrease in net assets arising from peripheral or incidental transactions is called a n a. One of the elements of financial statements is comprehensive income. Which of the following elements of financial statements is not a component of comprehensive income?

Revenues b. Distributions to owners c. Losses d. It is more inclusive than the traditional notion of net income. This concept is not yet being applied in practice. It excludes prior period adjustments transactions that relate to previous periods, such as corrections of errors.

According to the FASB conceptual framework, earnings a. Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy? Going-concern assumption. During the lifetime of an entity accountants produce financial statements at artificial points in time in accordance with the concept of a. Under current GAAP, inflation is ignored in accounting due to the a. The economic entity assumption a.

Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the a. During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with which basic accounting concept?

Periodicity assumption c. Conservatism constraint d. What accounting concept justifies the usage of accruals and deferrals? Going concern assumption b.

Materiality constraint c. Consistency characteristic d. The assumption that a business enterprise will not be sold or liquidated in the near future is known as the a. Which of the following is an implication of the going concern assumption? The historical cost principle is credible. Depreciation and amortization policies are justifiable and appropriate.

The current-noncurrent classification of assets and liabilities is justifiable and signifycant. Proponents of historical cost ordinarily maintain that in comparison with all other valuation alternatives for general purpose financial reporting, statements prepared using historical costs are more a.

Valuing assets at their liquidation values rather than their cost is inconsistent with the a. Revenue is generally recognized when realized or realizable and earned. This statement describes the a. Generally, revenue from sales should be recognized at a point when a. Revenue generally should be recognized a. Which of the following is not a time when revenue may be recognized?

At time of sale b. At receipt of cash c. However, to determine the amount and timing of future benefits is so difficult that a conservative approach—expensing these costs as incurred—is required.

There are 30 40 — 10 remaining years for amortization purposes. No entry is necessary. The loss is the difference between the recorded goodwill and the implied goodwill. Becausethe usefullife is indefinite, copyrightNo.

Long-term investments in the balancesheet. Property,plant,and equipmentin the balance sheet. Researchand developmentexpense in the income statement. Currentasset prepaidrent in the balance sheet. Charge asexpensein the income statement. Operatinglosses in the income statement. Not recorded; any costs relatedto creating goodwillincurred internally mustbe expensed. Long-term investments,or other assets,in the balance sheet.

Expensedin the income statement. EXERCISE 10—15 minutes The following items would be classified as an intangible asset: Cable television franchises Film contractrights Music copyrights Customerlists Goodwill Covenants notto compete Internetdomain name Brand names Cash, accounts receivable, notes receivable, and prepaid expenses would be classified as current assets.

Property,plant,and equipment,and land would be classified as non-current assets in the property, plant, and equipment section. Research and development costs would be classified as an operating expense.

Discount on notes payable is shown as a deduction from the related notes payable on the balance sheet. Organizationcosts are start-up costs and should be expensed as incurred. Advertising costs in general are expensed when incurred or when first used. The computation of accumulated amortization is as follows. Alatorre should amortize the franchise over its estimated useful life. Becauseitis uncertainthatAlatorrewillbe able to retainthe franchiseat the end of , it should be amortized over 10 years.

These costs should be expensed as incurred. Because the license can be easily renewed atnominalcost , it has an indefinite life. Thus, no amortization will be recorded. The license will be tested for impairment in future periods. Restoration of any impairment loss is not permitted for assets held for use. Therefore,an impairmenthasoccurred. Todeterminethe impair- ment amount, we first find the implied goodwill. We then compare this implied fair value to the carrying value of the goodwill to determine the amount of the impairment to record.

After a goodwillimpairmentloss is recognized,the adjusted carrying amount of the goodwill is its new accounting basis. Note to instructor:It is importantthat before conductingthe goodwill impairmenttest that all other long-lived assets are evaluated and adjusted for any impairments. Payable, etc The student must also be alert to the fact that several transactions require that an adjustment of Retained Earnings be made.

The problem provides a good summary of accounting for intangibles. Problem Time 20—30 minutes Purpose—to provide the student with an opportunity to compute the carrying value of a patent at three balance sheet dates.

Computation of amortization is slightly complicated by additions to the account and a change in the estimated useful life of the patents. Problem Time 20—30 minutes Purpose—the student determines the cost and amortization of a franchise, patent, and trademark and shows how they are disclosed on the balance sheet. The student prepares a schedule of expenses resulting from the intangibles transactions.

Problem Time 15—20 minutes Purpose—to provide the student with an opportunity to determine income statement and balance sheet presentation for costs related to research and development of patents. The problem calls on the student to determine whether costs incurred are properly capitalized or expensed.

Problem Time 25—30 minutes Purpose—to provide the student with an opportunity to determine the amount of goodwill in a business combination and to determine the goodwill impairment. Problem Time 30—35 minutes Purpose—to provide the student with an opportunity to determine carrying value of intangible assets limited life, indefinite life, and goodwill at two balance sheet dates.

The problem also requires students to determine impairments, if necessary on the intangible assets. The patentwas acquired for manufacturing rights rather than for usein research and development activities. Consequently, the cost of the patentcan be capitalizedas an intangible assetand amortized over its useful life. There is no amor- tization for the goodwill or the trade name, both of which are considered indefinite life intangible assets. Thereis no amortization for the goodwill or the trade name, which are considered an indefinite life intangibles.

The student is required to deal with such issues as costs incurred for interest expense during construction, the cost of promotional advertising, and expenditures related to obtaining tenants for a shopping center. Classification of these items is complicated due to a postponement in the starting of business operations. A challenging and interesting case which should provide good background for a discussion of the theoretical support for capitalizing organization costs. CA Time 25—30 minutes Purpose—to present an opportunity for the student to discuss accounting for patents from a theoretical and a practical viewpoint.

The student is also required to commenton the theoretical basis of patent amortization. Finally the student must determine proper disclosure in the financial statements for a patent infringement suit which is in progress at the balance sheet date.

This casechallenges the student to present theoretical support and practical application beyond that presented in the text. A good case to thoroughly cover research and development costs. CA Time 20—25 minutes Purpose—to provide the student with an opportunity to examine the ethical issues related to expensing research and development costs. The decision to use debt capital to finance the shopping center was made with full knowledge that interest would accrue during the construction period and add to the total cost of building the center, bringing it to the point at which it would produce revenue.

The future income to be generated by the shopping center must have been estimated to be more than sufficient to recover all of the expected costs of building the center and preparing it for occupancy, including interest during the construction period. In lieu of treating interest during construction as an element of the cost of the physical assets, it can be argued that it represents an element of the general cost of bringing the business to the point of revenue production and should therefore be treated as an organization expense.

This view regards interest during construction as just another of the many expenditures that are necessary to acquire and organize the physical assets of a new business but do not attach to any specific assets. Note that interest must be capitalized in this situation see chapter 10 because the building requires a period of time to get it ready for its intended use. The amount of interest cost for the first nine months of is the measure of the loss resulting from the tornado. The extension of the construction period to October because of the tornado does not warrant its capitalization as construction period interest.

It is in effect an uninsured loss resulting from the tornado. Had it not been for the tornado, the entire amount would have been a normal operating expense chargeable against the rental revenue that would have been earned during the first nine months of Cost of obtaining tenants. Both the and costs of obtaining tenants should be expensed as incurred.

The cost of obtaining tenants is a start-up cost. However, to determine the amount and timing of future benefits is so difficult that a conservative approach— expense these costs as incurred—is required. Promotional advertising. The profession has concluded that, except in limited situations, future benefits from advertising are not sufficiently defined or measurable with a degree of reliability that is required to recognize these costs as an asset. As a result, the costs should be expensed as incurred or the first time the advertising takes place.

The advertising costs incurred in might be reported as a loss to indicate that an unusual event caused this additional expense. CA a A dollar to be received in the future is worth less than a dollar received today because of an interest or discount factor—often referred to as the time value of money. The discounted value of the expected royalty receipts can be thought of either in terms of the present value of an annuity of 1 or in terms of the sum of several present values of 1.

On the other hand, if receipts are expected to be irregular in amount or if they are to occur at irregular In each case some interest rate discount factor per period must be assumed and used.

Evidently the cartons were developed and the patents obtained directly by the client corporation. Those costs related to the research and development of the cartons must be expensed in accordance with GAAP. The costs of securing the patent should be capitalized. Intermediate Accounting, 12th Edition, Volume 2, continues to be the number one intermediate accounting resource in the Canadian market. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Leave a Reply Cancel reply You must be logged in to post a comment.

Click to Chat! WhatsApp us if you need any help :. Irene has been involved in professional accounting education for over 25 years, sitting on various provincial and national professional accounting organization committees as well as developing and directing the CICA IFRS Immersion Programs for practising accountants. Irene is on the editorial board for Accounting Perspectives. Bruce J. McConomy , Ph. Bruce has co-authored three editions of the Canadian edition of the Intermediate Accounting Kieso, et.

The Team for Success authors are dedicated to ensuring that all of their Accounting titles are accessible to students, current, accurate, and have a consistent voice and pedagogy from introductory accounting to the intermediate level. Hear from our Authors. The Accounting Cycle Is Continually Reinforced Assignable Chapter 0, a review of the accounting cycle, allows students to refresh their knowledge with reading content, interactive tutorials, and adaptive practice questions.

New Data Analytics prepares students for the changing profession To highlight examples where accounting information is used to support business decision making using data analytics, we have introduced a new Analytics in Action End of Chapter Activity.