Aspects of the FASB's Conceptual Framework
Determine whether the following statements are true or false. If a statement is false, explain why.
1. Comprehensive income includes change in equity resulting from distributions to owners.
2. Timeliness and predictive value are both characteristics of relevant information.
3. The tendency to recognize favorable events early is an example of conservative.
4. The conceptual framework focuses primarily on the needs of internal users of financial information.
5. The seven Statements of Financial Accounting Concepts are considered part of generally accepted accounting principles.
6. The overriding objective of financial reporting is to provide information for making economic decisions.
7. The term recognition is synonymous with the term disclosure.
8. Once an accounting method is adopted, it should never be changed.
Measurement Attributes and Going Concern Problems
One of the underlying assumptions of the accounting model is the going concern assumption. When this assumption is questionable, valuation methods used for assets and liabilities may differ from those used when the assumption is viable. For each of the following situations, identify the measurement attribute that would most likely be used if the company is not likely to remain a going concern.
1. Plant and equipment are carried at an amortized cost on a straight-line basis of $1,500,000.
2. Bonds with a maturity price of $2,000,000 and interest in arrears of $500,000 are reported as a noncurrent liability.
3. Accounts receivable are carried at $700,000, the gross amount charged for sales. No allowance for doubtful accounts is reported.
4. The reported LIFO cost of inventory is $300,000.
5. Investments in a subsidiary company are recorded at initial cost plus undistributed profits.
This solution answers various questions pertaining to measurement attributes and FASB's conceptual framework.