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Wileyplus CH2 Questions

comparability
Quality of information that permits users to identify similarities in and differences between two sets of economic phenomena.
timeliness
Having information available to users before it loses its capacity to influence decisions.
predictive value
Information about an economic phenomenon that has value as an input to the processes used by capital providers to form their own expectations about the future.
relevance
Information that is capable of making a difference in the decisions of users in their capacity as capital providers.
neutrality
Absence of bias intended to attain a predetermined result or to induce a particular behavior.
faithful representation
Quality of information that assures users that information represents the economic phenomena that it purports to represent.
confirmatory value
Information about an economic phenomenon that changes past or present expectations based on previous evaluations.
free from error
The extent to which information is accurate in representing the economic substance of a transaction.
completeness
Includes all the information that is necessary for a faithful representation of the economic phenomena that it purports to represent.
understandability
Quality of information that allows users to comprehend its meaning.
equity
Retained earnings
revenues
Sales
equity
Additional paid-in capital
assets
Inventory
expenses
Depreciation
losses
Loss on sale of equipment
liability
Interest payable
distribution to owners
Dividends
gains
Gain on sale of investment
investments by owners
Issuance of common stock
revenue recognition
Norfolk Southern Corporation reports revenue in its income statement when it is earned instead of when the cash is collected.
expense recognition
Yahoo, Inc. recognizes depreciation expense for a machine over the 2-year period during which that machine helps the company earn revenue.
full disclosure
Oracle Corporation reports information about pending lawsuits in the notes to its financial statements.
historical cost
Eastman Kodak Company reports land on its balance sheet at the amount paid to acquire it, even though the estimated fair value is greater.
gains, losses
Arises from peripheral or incidental transactions.
liabilities
Obligation to transfer resources arising from a past transaction.
investment by owners, comprehensive income
Increases ownership interest.
distribution to owners
Declares and pays cash dividends to owners.
comprehensive income
Increases in net assets in a period from nonowner sources.
assets
Items characterized by service potential or future economic benefit.
comprehensive income
Equals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners.
revenues, expenses
Arises from income statement activities that constitute the entity’s ongoing major or central operations.
equity
Residual interest in the assets of the enterprise after deducting its liabilities.
revenues
Increases assets during a period through sale of product.
distribution to owners
Decreases assets during the period by purchasing the company’s own stock.
comprehensive income
Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners.
expense recognition principle
Allocates expenses to revenues in the proper period.

Intangible assets are capitalized and amortized over periods benefited.

An allowance for doubtful accounts is established.

A company charges its sales commission costs to expense.

historical cost principle
Indicates that fair value changes subsequent to purchase are not recorded in the accounts. (Do not use revenue recognition principle.)

Fair value changes are not recognized in the accounting records.

Goodwill is recorded only at time of purchase.

full disclosure principle
Ensures that all relevant financial information is reported.

Financial information is presented so that investors will not be misled.

All significant postbalance sheet events are reported.

All important aspects of bond indentures are presented in financial statements.

going concern assumption
Rationale why plant assets are not reported at liquidation value. (Do not use historical cost principle.)
economic entity assumption
Indicates that personal and business record keeping should be separately maintained.

Each enterprise is kept as a unit distinct from its owner or owners.

The use of consolidated statements is justified.

periodicity assumption
Separates financial information into time periods for reporting purposes.

Reporting must be done at defined time intervals.

industry practices
Permits the use of fair value valuation in certain industries. (Do not use fair value principle.)
monetary unit assumption
Assumes that the dollar is the “measuring stick” used to report on financial performance.
materiality
Repair tools are expensed when purchased.
industry practices or fair value principle
Agricultural companies use fair value for purposes of valuing crops.
revenue recognition principle
Revenue is recorded at point of sale.
revenue and expense recognition principles
Rationale for accrual accounting.

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