E1.5 (LO 2) An icon reads, Groupwork. (Qualitative Characteristics) SFAC No. 8, Chapter 3, identifies the qualitative characteristics that make accounting information useful. Presented below are a number of questions related to these qualitative characteristics and underlying constraint.

E1.5 (LO 2) An icon reads, Groupwork. (Qualitative Characteristics) SFAC No. 8, Chapter 3, identifies the qualitative characteristics that make accounting information useful. Presented below are a number of questions related to these qualitative characteristics and underlying constraint.

What is the quality of information that enables users to confirm or correct prior expectations?

Confirmatory value

Identify the pervasive constraint developed in the conceptual framework.

Cost Constraint

The chairman of the SEC at one time noted, “If it becomes accepted or expected that accounting principles are determined or modified in order to secure purposes other than economic measurement, we assume a grave risk that confidence in the credibility of our financial information system will be undermined.” Which qualitative characteristic of accounting information should ensure that such a situation will not occur? (Do not use faithful representation.)

Neutrality

Muruyama Corp. switches from FIFO to average-cost to FIFO over a 2-year period. Which qualitative characteristic of accounting information is not followed?

Comparability, Consistency

Assume that the profession permits the savings and loan industry to defer losses on investments it sells because immediate recognition of the loss may have adverse economic consequences on the industry. Which qualitative characteristic of accounting information is not followed? (Do not use relevance or faithful representation.)

Neutrality

What are the two fundamental qualities that make accounting information useful for decision-making?

Relevance and Faithful Representation.

Watteau Inc. does not issue its first-quarter report until after the second quarter’s results are reported. Which qualitative characteristic of accounting is not followed? (Do not use relevance.)

Timeliness

Predictive value is an ingredient of which of the two fundamental qualities that make accounting information useful for decision-making purposes?

Relevance

Duggan, Inc. is the only company in its industry to depreciate its plant assets on a straight-line basis. Which qualitative characteristic of accounting information may not be followed?

Comparability

Roddick Company has attempted to determine the replacement cost of its inventory. Three different appraisers arrive at substantially different amounts for this value. The president, nevertheless, decides to report the middle value for external reporting purposes. Which qualitative characteristic of information is lacking in these data? (Do not use relevance or faithful representation.)

Verifiability X