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Analytical Issue in in Financial Accounting Q&A 19
Analytical Issue in in Financial Accounting Q&A 19
Analytical Issue in in Financial Accounting Q&A 19
‐ Analytical Issues in Financial Accounting
A corporation's net income as presented on its income statement is usually
A. Equal to its economic profits.
B. More than its economic profits because opportunity costs are not considered in calculating net income.
C. More than its economic profits because economists do not consider interest payments to be costs.
D. Less than its economic profits because accountants include labor costs, while economists exclude labor costs.
Answer:
A. Economic profits always take into consideration the opportunity costs. That is, they take into account the
forgone opportunity from partaking in a specific activity.
B. Because accounting profit only takes into account explicit costs and economic profit also includes implicit
cost, economic profit will usually be lower than accounting profit.
C. Economists do consider interest to be an expense.
D. Economists and accountants look at labor costs in much of the same way.
Question ‐ Analytical Issues in Financial Accounting
If an entity's books of account are not maintained in its functional currency, the FASB Accounting Standards
Codification requires remeasurement into the functional currency prior to the translation process. An item that
should be remeasured by use of the current exchange rate is
A. An investment in bonds to be held until maturity.
B. A patent and the associated accumulated amortization.
C. The revenue from a long‐term construction contract.
D. A plant asset and the associated accumulated depreciation.
Answer:
A. An investment in bonds is a monetary asset and it is remeasured at the current exchange rate. Most
monetary assets are remeasured using the current exchange rate.
B. A patent is remeasured at the historical exchange rate on the date it was acquired.
C. Revenue items are usually remeasured at the historical rate that was in effect on the date of the transaction.
D. Plant assets are nonmonetary assets and are therefore remeasured at the historical rates.