The qualitative characteristics outlined in the FASB\'s conceptual framework inc

Question

The qualitative characteristics outlined in the FASB's conceptual framework include: Faithful Representation Predictive value Materiality Neutrality Freedom from e Required: Select the qualitative characteristic that best applies to each of the following independent situations. (Note: Each of the 10 characteristics is used once and only once.) In deciding whether to invest in SoutArlies or American Alines investors evalue the companes 2 To provide the most reliable infermation about future sales Wamarts management uses an appropiate process to estimate the decline in inventory value each year In deciding whether so loan money. Wells Fargo uses balance sheet information to fonecast he probability ot bankruptcy 4 IBM is required to issue public financial statements within 60 days of its yearend Employees of Starbucks can use the company's financial statements to analyze the efficiency with which management has conducted operations over the past year When first requining firms to prepare a statement of cash fows, the FAS8's intent was not to discourage or promate investment in the automobile industry When Harley-Davidson reports revenue for the year, the amount includes saies not oniy in the Uted States bu 5. also those outside the Unted Stabes 8 The amount of total assets reported by General Milis can be substantiated by its audons The Cheesecake Factory prepares its balance sheet in a clear format using basic accournting terminology to allow users to easily compgrehend the company's assets, liabilities, and stockholders equity. Target prepays $600 to rent a post office box for the nexsix monts and decides to recond the ntepayment to Rent Expense (instead of Prepaid Rent) in the current month 10 References eBook & Resources Matching Leaning Objective 01-07 Explain the nature of the conceptual framework used to develop generalily accepted Oifficulty 2 Medium

Explanation / Answer

1) In deciding whether to invest in Southwest Airlines or American Airlines, investors evaluate the companies' income statements Comparability: Investor can Compare Financials Statement of companies and then decide which company he can invest his funds, risk associated and return of the company 2) To provide the most reliable information about future sales, Walmart’s management uses an appropriate process to estimate the decline in inventory value each year. Freedom From Error: Financial Statement must reflect unbaised judgement of management and due deligence in reflecting appropriate accounting principles 3) In deciding whether to loan money, Wells Fargo uses balance sheet information to forecast the probability of bankruptcy. Predictive Value: A positive and growing net Income for consecutive years should provide predictive value for the companys future cash generating ability 4) IBM is required to issue public financial statements within 60 days of its year­end. Timeliness: It is enhancing quality characteristic of a company to provide financials on time 5) Employees of Starbucks can use the company's financial statements to analyze the efficiency with which management has conducted operations over the past year. Conformatory Value: To be Relevant ,accounting information should assist decision makers in Confirming past Predeictions 6) When first requiring firms to prepare a statement of cash flows, the FABS's inyent was not to discourage or promote investment in the automobile industry Neutrality: It is related to the establishment of accountings Standards and not biased 7) When Harley Davidson reports revenue for the year, the amount includes sales not only in the United States but also those outside the United States Completeness: Includes all necessary information for faithful representation of the business activity of the firm 8) The amount of the total assets reported by General Mills can be substantiated by its auditors Verifiability: It was Enhance Qualitative Characteristics.It is concerned with Measurement theory 9) The Cheesecake Factory prepares its balance sheet in a clear format using basic accounting terminology to allow users to easily comprehend the company's assets, liabilities and stockholders equity Understandability: The quality of understandability is a characteristic influenced by both users and   preparers of accounting information. 10) to record the entire paymentsto Rent Expense (instead of Prepaid Rent) in the current month Materiality: Material insufficient in amount or nature which can affect a decision need to be reported according to the GAAP

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