Intermediate Accounting 1

Problem and Solutions

1) What are soft assets?

Answer:
Soft assets can indeed lose their value at any time. This is because their value is often
dependent on factors such as market conditions, competition, and technological advancements.
An example of a soft asset is a patent, which is a legal protection for an invention or innovation.
Soft assets are intangible in nature, meaning they do not have a physical form and cannot be
touched or seen. Therefore, all of the statements mentioned in the options are correct about soft
assets.
Soft assets can indeed lose their value at any time. This is because their value is often
dependent on factors such as market conditions, competition, and technological

2. There are two sets of accounting standards GAPP and iGAPP. By the year ______ GAPP will
be phased out for iGAPP.

a. 2015
b. 2016
c. 2020
d. 2030

Explanation:
The given answer suggests that by the year 2016, GAPP (Generally Accepted Accounting
Principles) will be phased out for iGAPP (International Generally Accepted Accounting
Principles). This implies that iGAPP will replace GAPP as the preferred set of accounting
standards.

3. Auditors ensure that information is _________ presented?

: Exactly, Fairly, Not, Well

Explanation:
Auditors ensure that information is "fairly" presented. This means that auditors strive to provide
an unbiased and accurate representation of the financial statements and other information they
are auditing. They assess whether the information is presented in accordance with the relevant
accounting principles and regulations, without any material misstatements or omissions that
could mislead users of the information. The auditor's role is to provide assurance to
stakeholders that the information is presented fairly and can be relied upon for decision-making
purposes.

4. The purpose of financial accounting is to provide information for _______ use.

Explanation:
Financial accounting is the process of recording, summarizing, and reporting financial
transactions of a business. The purpose of financial accounting is to provide information for
external use. This includes stakeholders such as investors, creditors, suppliers, and government
agencies who rely on financial statements to make decisions about the company. External users
are interested in the financial performance, position, and cash flows of the business to assess
its profitability, solvency, and liquidity. Therefore, financial accounting serves the purpose of
providing relevant and reliable financial information to external users for decision-making
purposes.

5. Which is not a component of shareholder's equity?

: Retained Earnings, AOCI (accumulate other comprehensive income), Cash, Paid-in-Capital

Explanation:
Cash is not a component of shareholder's equity because it represents the actual physical
currency or funds held by a company. Shareholder's equity, on the other hand, represents the
residual interest in the assets of a company after deducting liabilities. It includes components
such as retained earnings, AOCI (accumulate other comprehensive income), and paid-in
capital, which are all related to the company's financial performance and investments, rather
than the actual cash held by the company.

6. The expectations gap exists between…

: The public and accountants, Accountants and the government, Accountants and the economy,
The public and the government

Explanation:
The expectations gap exists between the public and accountants because the public often has
unrealistic expectations of what accountants can deliver. The public expects accountants to
detect and prevent all fraud, ensure accurate financial reporting, and provide reliable financial
advice. However, accountants have limitations and cannot guarantee these outcomes. This gap
arises due to a lack of understanding of the complexities and limitations of the accounting
profession by the public. Accountants strive to meet these expectations, but it is important for
the public to have a realistic understanding of what they can truly deliver.

7. Which is NOT a challenge for accountants?

: Timeliness, Providing non-financial information, Soft Assets, Backward looking info

Explanation:
Accountants are responsible for analyzing financial data and providing accurate information to
stakeholders. Timeliness is a challenge for accountants as they need to ensure that financial
reports are prepared and delivered in a timely manner. Providing non-financial information can
also be a challenge as accountants primarily focus on financial data. Soft assets, such as
intellectual property or brand value, can be difficult to quantify and include in financial
statements. However, backward-looking information is not a challenge for accountants as it
refers to historical financial data which is readily available and can be easily analyzed.

8. a component of the Sarbannes-Oxley Act?

: Statements must be prepared in a timely fashion

Explanation:
The Sarbanes-Oxley Act, also known as SOX, was enacted in response to corporate accounting
scandals. It includes various provisions to improve corporate governance and financial
reporting. One of the key components of SOX is the requirement for CEOs and CFOs to
personally sign statements, ensuring accountability for the accuracy of financial information.
Another component is the establishment of the Public Company Accounting Oversight Board
(PCAOB), which oversees the auditing profession. Additionally, companies are required to
present financial information accurately and auditors have a limit of 5 years before they must
rotate. Board members must also be independent and possess financial expertise. Therefore,
the statement that is NOT a component of the Sarbanes-Oxley Act is that statements must be
prepared in a timely fashion.

9. Which party does not help set accounting standards?

: AICPA, SEC, FASB, Congress

Explanation:
Congress does not help set accounting standards. The responsibility for setting accounting
standards in the United States lies with the Financial Accounting Standards Board (FASB),
which is an independent private-sector organization. The American Institute of Certified Public
Accountants (AICPA) is a professional organization of accountants, and the Securities and
Exchange Commission (SEC) is a government agency that regulates the securities industry.
However, Congress has the power to pass laws that may impact accounting standards, but they
do not directly set them.

10. Which FASB pronouncement does not establish GAAP?

: Stds. Interps Staff Pos, Fin Acct Concepts, EITF

Explanation:
Fin Acct Concepts is not a FASB pronouncement that establishes GAAP. FASB
pronouncements, such as Stds. Interps Staff Pos and EITF, are authoritative guidelines that
define and govern Generally Accepted Accounting Principles (GAAP). However, Financial
Accounting Concepts (Fin Acct Concepts) is a series of conceptual frameworks and guidelines
developed by the FASB to provide a theoretical foundation for the development of GAAP. While
important in guiding the development of accounting standards, Fin Acct Concepts itself does not
establish GAAP.