Chapter 2 Solutions for Int. Accounting Kieso/Wiley Plus Essay

1492 Words Mar 2nd, 2014 6 Pages


EXERCISE 2-1B (15–20 minutes)

(a) True.
(b) False – General-purpose financial reports helps users who lack the ability to demand all the financial information they need from an entity and therefore must rely, at least partly, on the information in financial reports.
(c) False – Standard-setting that is based on personal conceptual frameworks will lead to different conclusions about identical or similar issues. As a result, standards will not be consistent with one another, and past decisions may not be indicative of future ones.
(d) False – Information that is decision-useful to capital providers may also be useful to other users of financial reporting, who are not capital providers.
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The purpose of this question is to develop some decision framework when the probability of a future event must be assumed.)

(b) At the present time, accountants do not recognize price-level adjustments in the accounts. Hence, it is misleading to deviate from the measurement principle (historical cost) because conjecture or opinion can take place. It should also be noted that depreciation is not so much a matter of valuation as it is a means of cost allocation. Assets are not depreciated on the basis of a decline in their fair market value, but are depreciated on the basis of systematic charges of expired costs against revenues. (Note to instructor: It might be called to the students’ attention that the FASB does encourage supplemental disclosure of price-level information.)

(c) Most accounting methods are based on the assumption that the business enterprise will have a long life. Acceptance of this assumption provides credibility to the historical cost principle, which would be of limited usefulness if liquidation were assumed. Only if we assume some permanence to the enterprise, is the use of depreciation and amortization policies justifiable and appropriate. Therefore, it is incorrect to assume liquidation as Barela, Inc. has done in this situation. It should be noted that only where liquidation appears imminent is the going concern assumption inapplicable.

(d) The measurement principle (historical cost) indicates that

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