ASSIGNMENT CLASSIFICATION TABLE BY TOPIC

Copyright © 2016 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only) 2-1

CHAPTER 2

Conceptual Framework for Financial Reporting

ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)

Topics

Questions Brief Exercises

Exercises Concepts for Analysis

• Conceptual framework–

general.

1 1, 2 1, 2

• Objective of financial

reporting.

2, 7 1, 2 3

• Qualitative characteristics

of accounting.

3, 4, 5, 6, 8 1, 2, 3, 4, 5 2, 3, 4 4, 9

• Elements of financial

statements.

9, 10, 11 9, 7 5

• Basic assumptions. 12, 13, 14, 25 8, 9 6, 7, 9

6. Basic principles:

• Measurement.
• Revenue recognition.
• Expense recognition.
• Full disclosure.

15, 16, 17, 18

19, 20, 21, 22, 23

24

25, 26, 27

10, 11, 12

10

10, 11, 12

10, 11, 12

6, 7 7

6, 7, 9, 10

6, 7, 8

5

6, 7, 8, 10

10

• Cost constraint. 28, 29 3, 7 11

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2-2 Copyright © 2016 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only)

ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE)

Learning Objectives Questions

Brief Exercises

Exercises Concepts for Analysis

• Describe the usefulness of a

conceptual framework.

1 1, 2 CA2-1

CA2-2

• Understand the objective of

financial reporting.

2, 7 1, 2 CA2-3

• Identify the qualitative

characteristics of accounting information.

3, 4, 5, 6, 8 1, 2, 3, 4, 5 2, 3, 4 CA2-4, CA2-9

• Define the basic elements of

financial statements.

9, 10, 11 6, 7 5

• Describe the basic assumptions of

accounting.

12, 13, 14,

25

8, 9 6, 7

• Explain the application of the basic

principles of accounting.

15, 16, 17,

18, 19, 20,

21, 22, 23,

24, 25, 26,

27

10, 11, 12 6, 7, 8,

9, 10

CA2-5, CA2-6,

CA2-7, CA2-8,

CA2-10,

CA2-11

• Describe the impact that the cost

constraint has on reporting accounting information.

28, 29 3, 7 CA2-11

Copyright © 2016 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only) 2-3

ASSIGNMENT CHARACTERISTICS TABLE

Item

Description Level of Difficulty Time (minutes) 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 20–30 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 and assumptions–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

2-4 Copyright © 2016 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 16/e, Solutions Manual (For Instructor Use Only)

ANSWERS TO QUESTIONS

• 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 account- ing 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.

LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication

• 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.

LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication

• “Qualitative characteristics of accounting information” are those characteristics which contribute to

the quality or value of the information. The overriding qualitative characteristic of accounting infor- mation is usefulness for decision-making.

LO: 3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication

• Relevance and faithful representation are the two primary qualities of useful accounting information.

For information to be relevant, it 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.

LO: 3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication

• 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 FASB is proposing a definition of materiality in the Conceptual Framework, which will be aligned with that in the securities laws and which can used in disclosure decisions.