ACC 100 Chapter Notes - Chapter 4: Accrual, Net Income, Income Statement

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14 Mar 2012

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Recognition is the process of including an item in the financial statements of an entity. Recognition consists of the addition of the amount involved into statement totals together with a narrative description of the item (e. g. , inventory, sales, or donations ) in a statement. Measurement of an item in financial statements requires that two choices be made. First, the accountant must decide on the attribute to be measured. Second, a scale of measurement, or unit of measure, must be chosen. Historical cost: the amount paid for an asset and used as a basis for recognizing it on the balance sheet and carrying it on later balance sheets. Realizable value: is the amount of cash, or its equivalent, that could be received cur-rently from the sale of the asset. For the company"s piece of property, realizable value is the estimated selling price of the land, reduced by any commissions or other fees involved in making the sale.

Related Questions

The following independent situations occurred at the end of Year 2 and require an inventory report in the year-end financial statements. The dollar amounts provided in the table below are on a per-unit basis. In Situation 5., assume that the company is applying IFRS.

Situation	Historical cost	Estimated selling price	Cost of completion	Cost of disposal	Current replacement cost	Normal profit margin
1.	$60	$70	--	$5	$55	$7
2.	$50	$80	$20	$6	$53	$3
3.	$45	$44	$3	$2	$40	$4
4.	$29	$40	$4	$6	$28	$5
5.	$100	$110	$15	$5	$82	$5

Select from the option list provided the appropriate measurement attributes for reporting inventory in the year-end financial statements. Each choice may be used once, more than once, or not at all.

Situation	Answer
1. The company accounts for its inventory using the LIFO method.
2. The company accounts for its inventory using the average-cost method.
3. The company accounts for its inventory using the FIFO method.
4. The company accounts for its inventory using the LIFO method.
5. (Under IFRS) Answer Choices: ( Historical Cost, Net Realizable Value, Net Realizable Value minus Normal Profit Margin, Current Replacement Cost)

TRUE OR FALSE:

___ The most common point of revenue recognition is when thegoods or services are transferred or provided to the seller. (Ondelivery).

___ A change in the inventory accounting method would violatethe principle of consistency.

___ When transactions occur, we must decide when to recognizethe transactions in the financial statements and how to measurethem. The principles of recognition and measurement are:Objectivity, Recognition of Income, Principle of Congruence(Matching) and Consistency.

___ Inflation changes the purchasing power of monetary units, ifinflation is material, the stable dollar hypothesis is valid.

___ The purpose of accounting theory is to provide a coherentand general framework for assessing accounting practices so thatthey can guide the development of new practices and procedures.

___ A cash deposit at a bank or similar financial institution isa financial liability because it represents, for the depositor, acontractual right to obtain cash from the entity, to write a checkagainst the balance of the same in favor of a creditor in paymentof an asset financial.

amberhedgehog49

Governmental fund statements are prepared using:

	A.	Economic resources measurement focus and modified accrual basisof accounting.
	B.	Current financial resources measurement focus and modifiedaccrual basis of accounting.
	C.	Current financial resources measurement focus and accrual basisof accounting.
	D.	Economic resources measurement focus and accrual basis ofaccounting

ACC 100 Chapter Notes - Chapter 4: Accrual, Net Income, Income Statement

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