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(Elements of Financial Statements) Ten interrelated elements that are most directly related to measuring the performance and financial status of an enterprise are provided below.

Assets Distributions to owners Expenses Liabilities Comprehensive Income Gains Equity Revenues Losses Investments by owners

Instructions

Identify the element or elements associated with the 12 items below.(a) Arises from peripheral or incidental transactions.

(b) Obligation to transfer resources arising from a past transaction.

(c) Increases ownership interest.

(d) Declares and pays cash dividends to owners.

(e) Increases in net assets in a period from nonowner sources.

(f) Items characterized by service potential or future economic benefit.

(g) Equals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners.

(h) Arises from income statement activities that constitute the entity’s ongoing major or central operations.

(i) Residual interest in the assets of the enterprise after deducting its liabilities.

(j) Increases assets during a period through sale of product.

(k) Decreases assets during the period by purchasing the company’s own stock.(l) Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners.

Short Answer

Expert verified

a) Gains or losses, (b) Liabilities, (c) Investments by owners, comprehensive income, and also comes under revenues and gains (d) Distribution to owners (e) Comprehensive income and also gains and revenues (f) Assets (g) Comprehensive Income (h) Revenues, expenses (i) Equity (j) Revenues (k) Distribution to owners (l) Comprehensive Income

Step by step solution

01

(a) Transactions that are related to peripheral or incidental  – Gains or losses

Gains or losses – The arises from peripheral or incidental transactions are associated with gains or losses element.

02

(b) Transactions that are related to the obligation to transfer resources arising from a past transaction – Liability

Liability –The obligation to transfer resources arising from a past transaction is associated with the liability element.

03

(c) Transactions related to Increases ownership interest –  Investments by owners, comprehensive income, and also comes under revenues and gains

Investment by owners – The increases in ownership interest are associated with Investment by owners, Comprehensive income, and Gains or losses.

04

(d) Transaction related to declaring and paying cash dividends to owners  –  Distribution to owners

Distribution to owners – Declares and paying cash dividends to owners are associated with the liability element.

05

(e) Transaction related to Increases in net assets in a period from non-owner resources –  Comprehensive income and also gains and revenues

Comprehensive income –The Increase in net assets in a period from non-owner resources is associated with the comprehensive income as well as gains and revenues.

06

(f) Transaction related to Items characterized by service potential –   Assets

Assets – Items characterized by service potential are associated with the liability element.

07

(g) Transaction related to Equals increase in assets fewer liabilities during the year, after adding distributions to owners and subtracting investments by owners – Comprehensive Income

Comprehensive income – Equals increase in assets and fewer liabilities during the year, after adding distributions to owners and subtracting investments by owners is associated with comprehensive income.

08

(h) Transactions Arising from income statement activities that constitute the entity's ongoing major or central operations – Revenues, expenses

Revenues or expenses – Transactions Arising from income statement activities that constitute the entity's ongoing major It is associated with the revenues or expenses element.

09

(i) Transaction relating to Residual interest in the assets of the enterprise after deducting its liabilities – Equity

Equity – Residual interest in the assets of the enterprise after deducting its liabilities is associated with the equity element.

10

(j) Transactions related to Increased assets during a period through the sale of Product – Revenues

Revenues – Increased assets during a period through the sale of Products are associated with the revenue element.

11

(k) Transaction relating to Decreases assets during the period by purchasing the company's stock – Distribution to owners

Distribution to owners – Decreases assets during the period by purchasing the company's stock is associated with the distribution to owners element.

12

(l) Transactions relating to including all changes in equity during the period, except those resulting from investments by owners and distributions to owners – Comprehensive Income

Comprehensive income – includes all changes in equity during the period, except those resulting from investments by owners, and distributions to owners are associated with the comprehensive income element.

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Most popular questions from this chapter

Accounting information provides useful information about business transactions and events. Those who provide and use financial reports must often select and evaluate accounting alternatives. The FASB statement on qualitative characteristics 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. Faithful representation (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 faithful representation.

2. Relevance and consistency.

3. Comparability and consistency.

4. Relevance and understandability.

c) What criterion should be used to evaluate trade-offs between information characteristics?

According to the FASB conceptual framework, the objective of financial reporting for business enterprises is based on the needs of the users of financial statements. Explain the level of sophistication that the Board assumes about the users of financial statements.

The chairman of the company’s board of directors for which you are the chief accountant has told you that he has little use for accounting figures based on historical cost. He believes that replacement values are of far more significance to the board of directors than “out-of-date costs.” Present some arguments to convince him that accounting data should still be based on historical cost.

What is the definition of fair value?

How is materiality (or immateriality) related to the proper presentation of financial statements? What factors and measures should be considered in assessing the materiality of a misstatement in the presentation of a financial statement?

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