Intermediate Accounting 15e Kieso solutions manual and test bank
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by Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
March 2013, ©2013
Kieso, Weygandt and Warfield’s Intermediate Accounting continues to set the standard for intermediate accounting students and professionals in the field. The Fifteenth edition builds on this legacy through new innovative student focused pedagogy in the book itself and with online support.  |
Kieso maintains the qualities for which the text is globally recognized, including its reputation for accuracy, comprehensiveness, accessibility, and quality problem material that best prepares students for success on the CPA exam. The Fifteenth edition offers the most up to date coverage of IFRS and US GAAP in a presentational format suited to the complex challenges of teaching intermediate in these changing times.
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CHAPTER 2
Conceptual Framework for
Financial Reporting
Financial Reporting
ASSIGNMENT
CLASSIFICATION TABLE (BY TOPIC)
|
Questions |
Brief Exercises
|
Exercises |
Concepts
for Analysis |
||
|
1.
|
Conceptual framework–general.
|
1, 7
|
|
|
1, 2
|
|
|
2.
|
Objective of financial reporting.
|
2
|
|
1, 2
|
3
|
|
|
3.
|
Qualitative characteristics of
accounting.
|
3, 4, 5, 6, 8
|
1, 2, 3, 4
|
2, 3, 4
|
4, 9
|
|
|
4.
|
Elements of financial statements.
|
9, 10, 11
|
6, 10, 12
|
5
|
|
|
|
5.
|
Basic assumptions.
|
12, 13, 14
|
5, 7
|
6, 7
|
|
|
|
6.
|
Basic principles:
a. Measurement. b. Revenue recognition. c. Expense recognition.
d. Full
disclosure.
|
15, 16, 17, 18 19, 20, 21, 22, 23 24 25, 26, 27 |
8, 9, 11 8 8, 11 8, 11 |
6, 7 7 6, 7
6, 7, 8
|
5 5 5, 6, 7, 8, 10 10 |
|
|
7.
|
Accounting
principles–comprehensive.
|
|
|
9, 10
|
|
|
|
8.
|
Cost
constraint.
|
28, 29, 30
|
|
3, 6, 7
|
11
|
|
|
9.
|
Assumptions,
principles, and constraints.
|
|
10
|
6, 7
|
|
|
ASSIGNMENT
CLASSIFICATION TABLE (BY LEARNING OBJECTIVE)
Learning Objectives |
Questions |
Brief Exercises |
Exercises |
Concepts for Analysis |
|
1. Describe the usefulness of a conceptual
framework.
|
1
|
|
1, 2
|
CA2-1
|
|
2. Describe the FASB’s efforts to construct
a conceptual framework.
|
|
|
|
CA2-1, CA2-2, CA2-3
|
|
3. Understand the objectives of financial
reporting.
|
2
|
|
1, 2
|
CA2-2, CA2-3
|
|
4. Identify the qualitative characteristics
of accounting information.
|
3, 4, 5, 6, 8
|
1, 2, 3, 4, 5
|
2, 3, 4
|
CA2-4, CA2-5
|
|
5. Define the basic elements of financial
statements.
|
7, 10, 11, 26, 27
|
6, 12
|
5
|
|
|
6. Describe the basic assumptions of
accounting.
|
9, 12, 13, 14, 25
|
7, 10, 11
|
6, 7
|
|
|
7. Explain the application of the basic
principles of accounting.
|
15, 16, 17, 18, 19, 20, 21, 22, 23, 24,
26, 27, 28, 29, 30
|
8, 9, 11
|
6, 7, 8, 9, 10
|
CA2-5, CA2-6, CA2-7, CA2-8, CA2-9,
CA2-10, CA2-11
|
|
8. Describe the impact that the cost
constraint has on reporting accounting information.
|
28, 29, 30
|
11
|
3, 6, 7
|
CA2-11
|
ASSIGNMENT
CHARACTERISTICS TABLE
|
|
|
Level
of Difficulty
|
Time
|
E2-1
|
|
Usefulness,
objective of financial reporting.
|
Simple
|
15–20
|
E2-2
|
|
Usefulness,
objective of financial reporting, qualitative characteristics.
|
Simple
|
15–20
|
E2-3
|
|
Qualitative
characteristics.
|
Moderate
|
25–30
|
E2-4
|
|
Qualitative
characteristics.
|
Simple
|
15–20
|
E2-5
|
|
Elements
of financial statements.
|
Simple
|
15–20
|
E2-6
|
|
Assumptions,
principles, and constraint.
|
Simple
|
15–20
|
E2-7
|
|
Assumptions,
principles, and constraint.
|
Moderate
|
20–25
|
E2-8
|
|
Full disclosure principle.
|
Complex
|
20–25
|
E2-9
|
|
Accounting principles–comprehensive.
|
Moderate
|
20–25
|
E2-10
|
|
Accounting principles–comprehensive.
|
Moderate
|
20–25
|
|
|
|
|
|
|
CA2-1
|
|
Conceptual
framework–general.
|
Simple
|
20–25
|
CA2-2
|
|
Conceptual
framework–general.
|
Simple
|
25–35
|
CA2-3
|
|
Objective of financial reporting.
|
Moderate
|
25–35
|
CA2-4
|
|
Qualitative
characteristics.
|
Moderate
|
30–35
|
CA2-5
|
|
Revenue
recognition principle.
|
Complex
|
25–30
|
|
|
|
|
|
|
CA2-6
|
|
Expense
recognition principle.
|
Complex
|
20–25
|
CA2-7
|
|
Expense
recognition principle.
|
Moderate
|
20–25
|
CA2-8
|
|
Expense
recognition principle.
|
Moderate
|
20–30
|
CA2-9
|
|
Qualitative
characteristics.
|
Moderate
|
20–30
|
CA2-10
|
|
Expense
recognition principle.
|
Moderate
|
20–25
|
CA2-11
|
|
Cost
Constraint.
|
Moderate
|
30–35
|
SOLUTION
TO CODIFICATION EXERCISES
CE2-1
(a) The
master glossary provides three definitions of fair value that are found in
GAAP:
Fair
Value—The amount at which an asset (or liability) could be bought (or incurred)
or settled in a current transaction between willing parties, that is, other
than in a forced or liquidation sale.
Fair
Value—The fair value of an investment is the amount that the plan could
reasonably expect to receive for it in a current sale between a willing buyer
and a willing seller, that is, other than in a forced or liquidation sale. Fair
value shall be measured by the market price if there is an active market for
the investment. If there is no active market for the investment but there is a
market for similar investments, selling prices in that market may be helpful in
estimating fair value. If a market price is not available, a forecast of
expected cash flows, discounted at a rate commensurate with the risk involved,
may be used to estimate fair value. The fair value of an investment shall be
reported net of the brokerage commissions and other costs normally incurred in
a sale.
Fair
Value is the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the
measurement date.
(b) Revenue—Revenue
earned by an entity from its direct distribution, exploitation, or licensing of
a film, before deduction for any of the entity’s direct costs of distribution.
For markets and territories in which an entity’s fully or jointly-owned films
are distributed by third parties, revenue is the net amounts payable to the
entity by third party distributors. Revenue is reduced by appropriate
allowances, estimated returns, price concessions, or similar adjustments, as
applicable.
The
glossary references a revenue definition for the SEC: (Revenue (SEC))—See
paragraph
942-235-S599-1, Regulation S-X Rule 9-05(c)(2), for the definition of revenue for purposes of Regulation S-X Rule 9-05.
942-235-S599-1, Regulation S-X Rule 9-05(c)(2), for the definition of revenue for purposes of Regulation S-X Rule 9-05.
This
definition relates to segment reporting requirements for public companies.
(c) Comprehensive
Income is defined as the change in equity (net assets) of a business entity
during a period from transactions and other events and circumstances from nonowner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners.
CE2-2
The
FASB Codification’s organization is closely aligned with the elements of
financial statements, as articulated in the Conceptual Framework. This is
apparent in the lay-out of the “Browse” section, which has primary links for
Assets, Liabilities, Equity, Revenues, and Expenses.
ANSWERS
TO QUESTIONS
1. A conceptual framework is a coherent system
of interrelated objectives and fundamentals that can lead to consistent standards and that prescribes the nature, function,
and limits of financial accounting and financial statements. A
conceptual framework is necessary in financial accounting for the following
reasons:
(1) It enables the FASB to issue more useful and consistent standards
in the future.
(2) New issues will be more
quickly solvable by reference to an existing framework of basic theory.
(3) It increases financial
statement users’ understanding of and confidence in financial reporting.
(4) It enhances comparability among companies’ financial statements.
2. The basic objective is to provide financial
information about the reporting entity that is useful to present and potential
equity investors, lenders, and other creditors in making decisions about
providing resources to the entity.
3. “Qualitative characteristics of accounting
information”
are those characteristics which
contribute to the quality or value of the information. The overriding qualitative
characteristic of accounting information is usefulness for decision making.
4. Relevance
and faithful representation are the two primary qualities of useful accounting
information. For information to be relevant, it should should be capable
of making a difference in a decision by helping users to form predictions about
the outcomes of past, present, and future events or to confirm or correct
expectations. Faithful representation of a measure rests on whether the numbers
and descriptions match what really existed or happened.
5. The
concept of materiality refers to the relative significance of an amount,
activity, or item to informative disclosure, proper presentation of financial
position, and the results of operations. Materiality has qualitative and
quantitative aspects; both the nature of the item and its relative size enter
into its evaluation.
An
accounting misstatement is said to be material if knowledge of the misstatement
will affect the decisions of the average informed reader of the financial
statements. Financial statements are misleading if they omit a material fact or
include so many immaterial matters as to be confusing. In the examination, the
auditor concentrates efforts in proportion to degrees of materiality and
relative risk and disregards immaterial items.
The
relevant criteria for assessing materiality will depend upon the circumstances
and the nature of the item and will vary greatly among companies. For example,
an error in current assets or current liabilities will be more important for a
company with a flow of funds problem than for one with adequate working
capital.
The
effect upon net income (or earnings per share) is the most commonly used
measure of materiality. This reflects the prime importance attached to net
income by investors and other users of the statements. The effects upon assets
and equities are also important as are misstatements of individual accounts and
subtotals included in the financial statements. The auditor will note the
effects of misstatements on key ratios such as gross profit, the current ratio,
or the debt/equity ratio and will consider such special circumstances as the
effects on debt agreement covenants and the legality of dividend payments.
CHAPTER 2
CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
IFRS
questions are available at the end of this chapter.
TRUe-FALSe—Conceptual
Answer No. Description
T 1. Nature of conceptual framework.
T 2. Conceptual framework definition.
F 3. Levels of conceptual framework.
T 4 International conceptual framework.
F 5. Statements of Financial Accounting
Concepts.
T 6. Objective of financial reporting.
F 7. Financial statement users.
T 8. Relevance and faithful representation.
T 9. Consistency.
F 10. Relevance.
F 11. Faithful representation.
F 12. Basic elements.
T 13. Comprehensive income.
T 14. Going concern assumption.
F 15. Economic entity assumption.
F 16. Expense recognition principle.
T 17. Recognizable revenues.
T 18. Supplementary information.
F 19. Cost benefit trade-off.
F 20. Conservatism.
Multiple Choice—Conceptual
Answer No. Description
c 21. GAAP defined.
d 22. Purpose of conceptual framework.
c 23. Conceptual framework.
d 24. Conceptual framework purpose.
d S25. Conceptual framework benefits.
d 26. Objectives of financial reporting.
a 27. Decision usefulness.
d 28. General purpose of financial reporting.
a 29. Primary objective of financial reporting.
a P30. Example of comparability.
a S31. Primary quality of relevance.
b 32. Characteristic of accounting information.
c 33. Characteristic of accounting information.
c 34. Meaning of comparability.
a 35. Meaning of consistency.
Multiple
Choice—Conceptual (cont.)
Answer No. Description
d 36. Ingredient of relevance.
c 37. Ingredient of reliability.
a 38. Consistency characteristic.
b 39. Primary quality of accounting information.
d 40. Quality of relevance.
a 41. Quality of reliability.
d 42. Consistency quality.
a 43. Decision-usefulness criterion.
c 44. Primary qualities of accounting information.
b 45. Definition of relevance.
b 46. Definition of reliability.
d 47. Relevance quality.
c 48. Materiality characteristic.
d 49. Completeness characteristic.
b 50. Neutrality characteristic.
d 51. Neutrality characteristic.
c 52. Definition of verifiability.
a 53. Quality of predictive value.
c 54. Quality of free from error.
d 55. Consistency.
b 56. Consistency characteristic.
b 57. Comparability and consistency.
d 58. Comparability.
d 59. Elements of financial statements.
c 60. Distinction between revenues and gains.
c 61. Definition of a loss.
d 62. Definition of comprehensive income.
b 63. Components of comprehensive income.
d P64. Comprehensive income.
b S65. Earnings vs. comprehensive income.
a S66. Reporting financial statement elements.
b 67 Basic element of financial statements.
a 68. Basic element of financial statements.
d 69. Basic element of financial statements.
c 70. Definition of gains.
d 71. Historical cost assumption.
c 72. Periodicity assumption.
b 73 Going concern assumption.
b 74. Periodicity assumption.
a S75. Monetary unit assumption.
c S76. Periodicity assumption.
c 77. Monetary unit assumption.
d 78. Economic entity assumption.
a 79. Economic entity assumption.
b 80. Periodicity assumption.
a 81. Going concern assumption.
d 82. Going concern assumption.
d 83. Implications of going concern assumption.
a 84. Historical cost principle.
Multiple
Choice—Conceptual (cont.)
Answer No. Description
d 85. Historical cost principle.
c 86. Revenue recognition principle.
d 87. Revenue recognition principle.
d 88. Revenue recognition principle.
d 89. Measurement principle.
c 90. Expense recognition principle.
b 91. Product costs.
b 92. Expense recognition principle.
b 93. Expense recognition principle.
b 94. Expense recognition.
c 95. Full-disclosure principle.
a 96. Argument against historical cost.
d 97. Recognition of revenue.
b 98. Revenue recognition principle.
c 99. Definition of performance obligation.
a 100. Required components of financial statements.
d 101. Recognition of expenses.
c 102. Historical cost principle.
a 103. Expense recognition principle example.
d 104. Recording expenditure as asset.
c 105. Historical cost principle violation.
a 106. Full disclosure principle violation.
d 107. Full disclosure principle.
c 108. Historical cost principle violation.
a 109. Industry practice constraint.
c 110. Costs of providing financial information.
d 111. Benefits of providing financial information.
c 112. Use of materiality.
b 113. Definition of prudence/conservation.
a 114. Example of materiality constraint.
d 115. Constraints to limit the cost of reporting.
a 116. Cost-benefit relationship.
c 117. Materiality characteristic.
d 118. Materiality.
d 119. Pervasive constraints.
a 120. Prudence or conservatism.
b 121. Conceptual framework second level
a 122. Trade-offs between characteristics of accounting information.
c 123. Trade-offs between characteristics of accounting information.
c P124. Prudence or conservatism.
Multiple
Choice—CPA
Adapted
Answer No. Description
a 125. Quality of predictive value.
b 126. Relevance and faithful representation.
b 127. Classification of gains and losses.
b 128. Earnings concept.
a 129. Components of comprehensive income.
b 130. Components of comprehensive income.
d 131. Components of comprehensive income.
d 132. Components of comprehensive income.
a 133. Definition of recognition.
P Note: these questions also appear in the Problem-Solving
Survival Guide.
S Note: these questions also appear in the Study
Guide.
BRIEF Exercises
Item Description
BE2-134 Qualitative
characteristics.
BE2-135 Accounting
concepts—identification.
BE2-136 Accounting
concepts—identification.
EXERCISES
E2-137 Accounting
concepts—matching.
E2-138 Accounting
concepts—fill in the blanks.
E2-139 Basic assumptions.
E2-140 Historical cost
principle.
E2-141 Matching concept.
CHAPTER LEARNING OBJECTIVES
1. Describe the usefulness of a conceptual
framework.
2. Describe the FASB’s efforts to construct a
conceptual framework.
3. Understand the objective of financial
reporting.
4. Identify the qualitative characteristics of
accounting information.
5. Define the basic elements of financial
statements.
6. Describe the basic assumptions of
accounting.
7. Explain the application of the basic
principles of accounting.
8. Describe the impact that the cost constraint
has on reporting accounting information.
9. Compare the conceptual frameworks underlying
GAAP and IFRS.
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