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Chapter 2: Question 2BE (page 63)

Match the qualitative characteristics below with the following statements.1. Timeliness 5. Faithful representation2. Completeness 6. Relevance3. Free from error 7. Neutrality4. Understandability 8. Confirmatory value

  1. Quality of information that assures users that information represents the economic phenomena that it purports to represent.
  2. Information about an economic phenomenon that corrects past or present expectations based on previous evaluations.
  3. The extent to which information is accurate in representing the economic substance of a transaction.
  4. Includes all the information that is necessary for a faithful representation of the economic phenomena that it purports to represent.
  5. Quality of information that allows users to comprehend its meaning.

Short Answer

Expert verified

The matching for qualitative characteristics are as follows:

  • Faithful representation
  • Confirmatory value
  • Free from error
  • Completeness
  • Understandability

Step by step solution

01

Meaning of Faithful Representation

The termfaithful representationhelps users offinancial statements to obtain valuable business-related information, which in turn helps in making sound business decisions.

02

Explanation for Statement ‘a’

Faithful representation in accounting means that the accounting transactions and events are to be recorded in such a way that it presents the true economic condition of the business.

Financial reports should be faithfully represented so that the economic decisions become useful. Good financial reports also help in the allocation of resources.

Hence, faithful representation is the correct answer for the statement 鈥榓鈥�.

03

Explanation for Statement ‘b’

Confirmatory value means that the information gives feedback on earlier evaluations. It allows users to make changes in their opinion on such evaluations.

Therefore, the confirmatory value is the correct answer for the statement 鈥榖.鈥�

04

Explanation for Statement ‘c’

Free from error in accounting means that there are no errors incurred in the process by which the financial information was produced.

The financial statements should be error-free so that the information present within them shows the true and fair view of the organization.

Hence, free from error is the correct answer for the statement 鈥榗.鈥�

05

Explanation for Statement ‘d’

Completeness in accounting means that the financial statements are well equipped with every item that should be included in the statement for a particular accounting period.

Thus, completeness is the correct answer for the statement 鈥榙鈥�.

06

Explanation for Statement ‘e’

The term understandability in accountingrefers to the way of representation of financial information that is easily understandable to the users.

In order to make the financial information to be easily understandable by the users, the information should be complete, concise, clear, and well organized.

Hence, understandability is the correct answer for the statement 鈥榚.鈥�

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Most popular questions from this chapter

Question: (Qualitative Characteristics) Recently, your uncle, Carlos Beltran, who knows that you always have your eye out for a profitable investment, has discussed the possibility of your purchasing some corporate bonds. He suggests that you may wish to get in on the 鈥済round floor鈥� of this deal. The bonds being issued by Neville Corp. are 10-year debentures which promise a 40% rate of return. Neville manufactures novelty/party items.

You have told Uncle Carlos that, unless you can take a look at Neville鈥檚 financial statements, you would not feel comfortable about such an investment. Believing that this is the chance of a lifetime, Uncle Carlos has procured a copy of Neville鈥檚 most recent, unaudited financial statements which are a year old. These statements were prepared by Mrs. Andy Neville. You peruse these statements, and they are quite impressive. The balance sheet showed a debt-to-equity ratio of 0.10 and, for the year shown, the company reported net income of $2,424,240.

The financial statements are not shown in comparison with amounts from other years. In addition, no significant note disclosures about inventory valuation, depreciation methods, loan agreements, etc. are available.

Instructions

Write a letter to Uncle Carlos explaining why it would be unwise to base an investment decision on the financial statements that he has provided to you. Be sure to explain why these financial statements are neither relevant nor representationally faithful.

Briefly describe the fair value hierarchy.

BE2-9 (L05) If the going concern assumption is not made in accounting, discuss the differences in the amounts shown in thefinancial statements for the following items.

(a) Land. (d) Inventory.

(b) Unamortized bond premium. (e) Prepaid insurance.(c) Depreciation expense on equipment.

Identify which basic assumption of accounting is best described in each item below.

a)The economic activities of FedEx Corporation are divided into 12-month periods for the purpose of issuing annual reports.

b)Solectron Corporation, Inc. does not adjust amounts in its financial statements for the effects of inflation.

c)Walgreen Co. reports current and non-current classifications in its balance sheet.

d)The economic activities of General Electric and its subsidiaries are merged for accounting and reporting purposes.

Homer Winslow and Jane Alexander are discussing various aspects of the FASB鈥檚 concepts statement on the objective of financial reporting. Homer indicates that this pronouncement provides little, if any, guidance to the practicing professional in resolving accounting controversies. He believes that the statement provides such broad guidelines that it would be impossible to apply the objective to present-day reporting problems. Jane concedes this point but indicates that the objective is still needed to provide a starting point for the FASB in helping to improve financial reporting.Instructions

  1. Indicate the basic objective established in the conceptual framework.
  2. What do you think is the meaning of Jane鈥檚 statement that the FASB needs a starting point to resolve accounting controversies?
See all solutions

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