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I – A. “ Representational faithfulness is accomplished when transactions and events affecting the entity are presented in financial statements in a manner that is in agreement with the actual underlying transactions and events” (CICA, Financial statement Concepts 1000.21 (a), 2003). It means that all of information in the financial statement such as numbers and descriptions must be factual. The independent auditors checked the computer ID tags on each piece of equipment to confirm the actual numbers, and for that reason Byrn Company observes the representational faithfulness that is one of subsets of reliability.
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I – B. “The consistency principle states that businesses should use the same accounting methods and procedures from period to period” (Harrison, Horngren, Lemon, & Lemon, 2004, p. 279) Hence the financial statement of Carroll Company violates the consistency principle.
I – C. “The time-period concept ensures that accounting information is reported at regular intervals” (Harrison, Horngren, Lemon, & Lemon, 2004, p. 114). Still, the company believes that quarterly financial information can be issued whenever it is convenient for the accounting department, and they published its first three quarterly reports during the 10th month of the year.
Consequently the financial statement of Dawn’s Data Enterprises violates the timeliness that is one of subsets of relevance.
I – D. “The financial statement representation of a transaction or event is verifiable if knowledgeable and independent observers would concur that it is in agreement with the actual underlying transaction or event with a reasonable degree of precision. Verifiability focuses on the correct application of a basis of measurement” (CICA, Financial statement Concepts 1000.21 (b), 2003). Even though the comptroller of the bank knows the electric pencil sharpener may qualify as an asset by years of benefit expected, he decided that the cost of the sharpener should be expensed. As a result, the financial statement of the bank violates the verifiability that is one of subsets of reliability.
I – E. “Information that helps users to predict an entity’s future income and cash flows has predictive value” (CICA, Financial statement Concepts 1000.20 (a), 2003). The company’s financial statements show ten years successful operation, and it helps Bill to invest in the company. The financial statement of Wilson Enterprises follows the predictive value and feedback value which is one of subsets of relevance.
II – A. A dress shop purchases a $3,500 sewing machine to use for alterations.
A dress shop’s assets increase amount of $3,500 because assets mean all resources owned by a business.
