1460T_c02.qxd 11:11:2005 09:45 Page 55 Nishant-16 NIshant-16:Desktop Folder:prakash 11/11: EQA Concepts for Analysis.55 characteristics or qualities of information discussed in SFAC No.2 are the ingredients that make infor- mation useful and the qualities to be sought when accounting choices are made Instructions (a)Identify and discuss the benefits that can be expected to be derived from the FASB's conceptual framework study. (b)What is the most important quality for accounting information as identified in Statement of Fi- nancial Accounting Concepts No.2?Explain why it is the most important. (c)Statement of Financial Accounting Concepts No.2 describes a number of key characteristics or qual- ities for accounting information.Briefly discuss the importance of any three of these qualities for financial reporting purposes. (CMA adapted) CA2-3 (Objectives of Financial Reporting)Regis Gordon and Kathy Medford are discussing various aspects of the FASB's pronouncement Statement of Financial Accounting Concepts No.1,"Objectives of Financial Reporting by Business Enterprises.Regis 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 objectives to present- day reporting problems.Kathy concedes this point but indicates that objectives are still needed to pro- vide a starting point for the FASB in helping to improve financial reporting. Instructions (a)Indicate the basic objectives established in Statement of Financial Accounting Concepts No.1. (b)What do you think is the meaning of Kathy's statement that the FASB needs a starting point to resolve accounting controversies? CA2-4 (Qualitative Characteristics)Accounting information provides useful information about busi- ness transactions and events.Those who provide and use financial reports must often select and evalu- ate accounting alternatives.FASB Statement of Financial Accounting Concepts No.2,"Qualitative Charac- teristics of Accounting Information,"examines the characteristics of accounting information that make it useful for decision making.It also points out that various limitations inherent in the measurement and reporting process may necessitate trade-offs or sacrifices among the characteristics of useful information. Instructions (a)Describe briefly the following characteristics of useful accounting information. (1) Relevance (4)Comparability (2)Reliability (5)Consistency (3)Understandability (b)For each of the following pairs of information characteristics,give an example of a situation in which one of the characteristics may be sacrificed in return for a gain in the other. (1)Relevance and reliability. (3)Comparability and consistency. (2)Relevance and consistency. (4)Relevance and understandability. (c)What criterion should be used to evaluate trade-offs between information characteristics? CA2-5 (Revenue Recognition and Matching Principle)After the presentation of your report on the ex- amination of the financial statements to the board of directors of Bones Publishing Company,one of the new directors expresses surprise that the income statement assumes that an equal proportion of the revenue is earned with the publication of every issue of the company's magazine.She feels that the "crucial event"in the process of earning revenue in the magazine business is the cash sale of the subscription.She says that she does not understand why most of the revenue cannot be "recognized"in the period of the sale. Instructions (a)List the various accepted times for recognizing revenue in the accounts and explain when the methods are appropriate. (b)Discuss the propriety of timing the recognition of revenue in Bones Publishing Company's ac- counts with: (1)The cash sale of the magazine subscription. (2)The publication of the magazine every month. (3)Both events,by recognizing a portion of the revenue with the cash sale of the magazine sub- scription and a portion of the revenue with the publication of the magazine every month. CA2-6 (Revenue Recognition and Matching Principle)On June 5,2006,McCoy Corporation signed a con- tract with Sulu Associates under which Sulu agreed (1)to construct an office building on land owned by Mc- Coy,(2)to accept responsibility for procuring financing for the project and finding tenants,and (3)to manage the property for 35 years.The annual net income from the project,after debt service,was to be divided equally between McCoy Corporation and Sulu Associates.Sulu was to accept its share of future net income as full payment for its services in construction,obtaining finances and tenants,and management of the project.characteristics or qualities of information discussed in SFAC No. 2 are the ingredients that make infor￾mation useful and the qualities to be sought when accounting choices are made. Instructions (a) Identify and discuss the benefits that can be expected to be derived from the FASB’s conceptual framework study. (b) What is the most important quality for accounting information as identified in Statement of Fi￾nancial Accounting Concepts No. 2? Explain why it is the most important. (c) Statement of Financial Accounting Concepts No. 2 describes a number of key characteristics or qual￾ities for accounting information. Briefly discuss the importance of any three of these qualities for financial reporting purposes. (CMA adapted) CA2-3 (Objectives of Financial Reporting) Regis Gordon and Kathy Medford are discussing various aspects of the FASB’s pronouncement Statement of Financial Accounting Concepts No. 1, “Objectives of Financial Reporting by Business Enterprises.” Regis 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 objectives to present￾day reporting problems. Kathy concedes this point but indicates that objectives are still needed to pro￾vide a starting point for the FASB in helping to improve financial reporting. Instructions (a) Indicate the basic objectives established in Statement of Financial Accounting Concepts No. 1. (b) What do you think is the meaning of Kathy’s statement that the FASB needs a starting point to resolve accounting controversies? CA2-4 (Qualitative Characteristics) Accounting information provides useful information about busi￾ness transactions and events. Those who provide and use financial reports must often select and evalu￾ate accounting alternatives. FASB Statement of Financial Accounting Concepts No. 2, “Qualitative Charac￾teristics of Accounting Information,” examines the characteristics of accounting information that make it useful for decision making. It also points out that various limitations inherent in the measurement and reporting process may necessitate trade-offs or sacrifices among the characteristics of useful information. Instructions (a) Describe briefly the following characteristics of useful accounting information. (1) Relevance (4) Comparability (2) Reliability (5) Consistency (3) Understandability (b) For each of the following pairs of information characteristics, give an example of a situation in which one of the characteristics may be sacrificed in return for a gain in the other. (1) Relevance and reliability. (3) Comparability and consistency. (2) Relevance and consistency. (4) Relevance and understandability. (c) What criterion should be used to evaluate trade-offs between information characteristics? CA2-5 (Revenue Recognition and Matching Principle) After the presentation of your report on the ex￾amination of the financial statements to the board of directors of Bones Publishing Company, one of the new directors expresses surprise that the income statement assumes that an equal proportion of the revenue is earned with the publication of every issue of the company’s magazine. She feels that the “crucial event” in the process of earning revenue in the magazine business is the cash sale of the subscription. She says that she does not understand why most of the revenue cannot be “recognized” in the period of the sale. Instructions (a) List the various accepted times for recognizing revenue in the accounts and explain when the methods are appropriate. (b) Discuss the propriety of timing the recognition of revenue in Bones Publishing Company’s ac￾counts with: (1) The cash sale of the magazine subscription. (2) The publication of the magazine every month. (3) Both events, by recognizing a portion of the revenue with the cash sale of the magazine sub￾scription and a portion of the revenue with the publication of the magazine every month. CA2-6 (Revenue Recognition and Matching Principle) On June 5, 2006, McCoy Corporation signed a con￾tract with Sulu Associates under which Sulu agreed (1) to construct an office building on land owned by Mc￾Coy, (2) to accept responsibility for procuring financing for the project and finding tenants, and (3) to manage the property for 35 years. The annual net income from the project, after debt service, was to be divided equally between McCoy Corporation and Sulu Associates. Sulu was to accept its share of future net income as full payment for its services in construction, obtaining finances and tenants, and management of the project. Concepts for Analysis • 55 1460T_c02.qxd 11:11:2005 09:45 Page 55 Nishant-16 NIshant-16:Desktop Folder:prakash 11/11: