According to the FASB conceptual framework, predictive value is an ingredient of:
Choice 'd' is correct. Yes - No. Predictive value is an ingredient of relevance but not of reliability.
Memorize:
Bud's relevance to 'PFT.'
Bud's reliability to 'VRN.'
Earnings per share data should be reported on the income statement for:
Choice 'b' is correct. Yes - Yes.
Both the 'extraordinary items' and 'income before extraordinary items' should be shown with an earnings per share number on the income statement.
Which of the following is correct concerning financial statement disclosure of accounting policies?
Choice 'b' is correct. Disclosure of accounting policies (and all other disclosure also) is an integral part of the financial statements.
Choice 'a' is incorrect. For disclosure of accounting policies, disclosure should not be limited to principles and methods peculiar to the industry in which the company operates. All material accounting policies should be disclosed.
Choice 'c' is incorrect. For disclosure of accounting policies, the format and location of accounting policies are not fixed by GAAP. Accounting policy disclosures are normally Note 1, but that is a (reasonable and very general) practice and not a 'rule.' It does make sense to disclose the 'why' before the 'what.'
Choice 'd' is incorrect. Disclosure of accounting policies should not duplicate details disclosed elsewhere in the financial statements.
Interim Financial Reporting
On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.
This question represents one of Quo's transactions. List A represents possible clarifications of these transactions as: a change in accounting principle, a change in accounting estimate, a correction of an error in previously presented financial statements, or neither an accounting change nor an accounting error.
Item to Be Answered
Quo sells extended service contracts on its products. Because related services are performed over several years, in 1993 Quo changed from the cash method to the accrual method of recognizing income from these service contracts.
List A (Select one)
Choice 'c' is correct. Change from the cash method to the accrual method is a correction of an error in previously presented financial statements.
Which of the following factors determines whether an identified segment of an enterprise should be reported in the enterprise's financial statements under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information?
1. The segment's assets constitute more than 10% of the combined assets of all operating segments.
2. The segment's liabilities constitute more than 10% of the combined liabilities of all operating segments.
Choice 'a' is correct. For segment reporting, if an identified segment's assets constitute more than 10% of the combined assets of all operating segments, the segment should be reported. The same rule does not apply for the segment's liabilities. The candidate does have to remember the 10% and also the 10% of 'what.'
Choice 'b' is incorrect. For segment reporting, if an identified segment's assets constitute more than 10% of the combined assets of all operating segments, the segment should be reported. The same rule does not apply for the segment's liabilities.
Choice 'c' is incorrect. For segment reporting, if an identified segment's assets constitute more than 10% of the combined assets of all operating segments, the segment should be reported. The same rule does not apply for the segment's liabilities, so the correct answer cannot be 'Both.'
Choice 'd' is incorrect. For segment reporting, if an identified segment's assets constitute more than 10% of the combined assets of all operating segments, the segment should be reported. The correct answer cannot be 'Neither.'
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