TOPIC5SEMINARQUESTIONS

1. AccountingPrinciples/Conventions/Assumptions
ThisinformationrelatestoBigBrewingInc:
BigBeerBrewingInc.issuesfinancialstatementsinJulyforitsprioryear.Thesestatements
correctanerrorinthepreviousyear'sfinancialstatements.Theerrorwasestimatedtobe
$200,000.Theexacterroramountisunknownandwouldcostapproximately$500,000to
exactlypinpoint.ShouldBig Beer BrewingInc.goaheadandfindtheexacterroramount
(justifyyouranswer)?

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ThebookkeeperatBigBeerBrewingInc.hasanunhealthyhabitofsamplingtheinventory
forqualitypurposes,whichunfortunatelyhasanegativeeffectonhisjobofkeepingtrack
ofexpenses.Consequently,mostrandomexpensesgetrecordedinthemiscellaneousexpense
account.Attheendoftheyearthemiscellaneousexpenseaccounthasatotalof$2424.25in
it.Thetotalnetincomeofthecompanyis$400,000.ShouldBigBeerBrewingInc.reclassify
alltheexpensesinthemiscellaneousaccount(justifyyouranswer)?

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Big Beer Brewing Inc. had a good year. Because the company hit its predetermined
performancetarget,theManagingDirectorwaspaida$1500cashbonus,butthebookkeeper
has incorrectly recorded that as an advertising expense. Should Big Beer Brewing Inc.
reclassifytheadvertisingexpense(justifyyouranswer)?

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2. ObjectiveofFinancialReporting(FromKiesoetal.(2010)
Homer Winslow and Jane Alexander are discussing various aspects of the conceptual
framework.Homerindicatesthatthispronouncementprovideslittle,ifany,guidancetothe
practicing professional in resolving accounting controversies. He believes that the
Framework provides such broad guidelines that it would be impossible to apply the
objective(s)topresentdayreportingproblems.Janeconcedesthispoint,butindicatesthat
objective(s)arestillneededtoprovideastartingpointforthestandardsetterinhelpingto
improvefinancialreporting.
a) IndicatethebasicobjectiveestablishedintheConceptualFramework.

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b) WhatdoyouthinkisthemeaningofJanesstatementthatthestandardssettersneeda
starting point to resolve accounting controversies about how to improve financial
reporting?

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