E2-4 E2-6 E2-7

Exercise 2-4 Identify the appropriate qualitative characteristic(s)

Exercise 2-6 Identify the accounting assumption, principle, or constraint

Exercise 2-7 Presented below are a number of operational guidelines

Exercise 2-4

Identify the appropriate qualitative characteristic(s) to be used for given the information provided below.
(a) Qualitative characteristic being employed when companies in the same industry are using the same accounting principles.

(b) Quality of information that confirms users’ earlier expectations.

(c) Imperative for providing comparisons of a company from period to period.

(d) Ignores the economic consequences of a standard or rule.

(e) Requires a high degree of consensus among individuals on a given measurement.

(f) Predictive value is an ingredient of this fundamental quality of information.

(g) Four qualitative characteristics that are related to both relevance and faithful representation.

(h) An item is not recorded because its effect on income would not change a decision.

(i) Neutrality is an ingredient of this fundamental quality of accounting information.

(j) Two fundamental qualities that make accounting information useful for decision-making purposes.

(k) Issuance of interim reports is an example of what enhancing quality of relevance?

Exercise 2-6

Identify the accounting assumption, principle, or constraint that describes each situation. Do not use an answer more than once.

(a) Allocates expenses to revenues in the proper period.

(b) Indicates that fair value changes subsequent to purchase are not recorded in the accounts.

(c) Ensures that all relevant financial information is reported.

(d) Rationale why plant assets are not reported at liquidation value.

(e) Indicates that personal and business record keeping should be separately maintained.

(f) Separates financial information into time periods for reporting purposes.

(g) Assumes that the dollar is the “measuring stick” used to report on financial performance.

Exercise 2-7

Presented below are a number of operational guidelines and practices that have developed over time. Select the assumption, principle, or constraint that most appropriately justifies these procedures and practices.

(a) Fair value changes are not recognized in the accounting records.

(b) Financial information is presented so that investors will not be misled.

(c) Intangible assets are capitalized and amortized over periods benefited.

(d) Agricultural companies use fair value for purposes of valuing crops.

(e) Each enterprise is kept as a unit distinct from its owner or owners.

(f) All significant post-balance-sheet events are reported.

(g) Revenue is recorded at point of sale.

(h) All important aspects of bond indentures are presented in financial statements.

(i) Rationale for accrual accounting.

(j) The use of consolidated statements is justified.

(k) Reporting must be done at defined time intervals.

(l) An allowance for doubtful accounts is established.