part I

ok, so why -21600?

+162000

-92000

-60600

-31000

=(21600)

the -31000 is the kicker, what happens is, you incur 36000 in year one but only pay for 31000 of it, thus, you have a 5000 excess that gets carried over into year II

receivables

+174000

-162000

=+12000

ok, so why 48000?

+192000

-102000

-42000

=48000

receivables

+224000

-192000

+12000

=44000

is the +12000 from last year?

ok, so apparently what you have to do is, you have to add the +12000 onto the +224000 since the +12000 was billed in year 1 but not collected until year two, ...

ok, they billed 174 in year one, but only received 162, meaning they were 12 short

but they would have had to have collected the 12 in the 192 from year 2...

ok, the number 224 isn't real because despite the fact that they billed 224 in year 2 there was a residual bill from year 1 that hadn't been paid, so actually the bill was for 224+12 or 236, and 236 - 192=44, the 236 takes into account both the residual bill and the current bills

ok, and on this one, 

174, yes, since that's what was billed

224, yes, since that's what billed, accrual basis

92

102

oh here we go, so the problem here is the utilities: the firm INCURRED 36 in year one, so that's what goes on the income s, since that's what they consumed in that period, yet, they only paid 31, so there's a 5000 excess that didn't get paid...therefore, the 42 is misleading because it represent the 5000 + ... well, 42-5=37, so 37 is what they actually consumed in that period...

  

part II

ok, net income, so 

410, 

510, 

ok

the rent is 86 / 2, or 43, since we're in accrual 

salaries, 146, 166, ok

utilities 36, 46, ok, we have no information to suggest they didn't pay their bills

but advertising is sketch, they INCURRED 31 in y2, but only paid 18, and owed the agency 5600 at the end of year one...which means that they ... ok...31-18=13 + 5600, so at the end of year two they owe 18600, which means the bill in year 3 needed to be 4100-18600, or: 22400

so that makes sense, 31k in year two since that's what was incurred, 22400 in year three, since that's only what was incurred, despite all of these cash shenanigans

then net income is just revenue - expenses  

you already figured this out

Part III

• predictive value=information is useful in predicting the future
• relevance=pertinent to the decision at hand
• timeliness=information is available prior to the decision
• distribution to owners= decreases in equity resulting from transfers to owners
• confirmatory value=information confirms expectations
• understandability=users understand the information in the context of the decision being made
• gain=increases in equity from peripheral or incidental transactions of an entity
• faithful representation=agreement between a measure and the phenomenon it purports to represent 
• comprehensive income=the change in equity from nonowner transactions
• materiality=concerns the relative size of an item and its effect on decisions
• comparability=important for making interfirm comparisons
• neutrality=the absence of bias
• recognition=the process of admitting information into financial statements
• consistency=applying the same accounting practices over time
• cost effectiveness=requires consideration of the costs and value of information
• verifiability=implies consensus among different measurers 

Part Iv

• expense recognition=record expenses in the period the related revenue is recognized
• periodicity=the life of an enterprise can be divided into artificial time periods
• historical cost principle=the original transaction value upon acquisition
• materiality=concerns the relative size of an item and its effect on decisions
• revenue recognition=criteria usually satisfied for products at point of sale
• going concern assumption=the entity will continue indefinitely 
• monetary unit assumption=a common denominator is the dollar
• economic entity assumption=the enterprise is separate from its owners and other entities
• full-disclosure principle=all information that could affect decisions should be reported

part v

1. why historical cost? because HC dictates that you need to record ... or rather, things should be in the balance sheet at the price you bought them, which is a problem because of inflation or changes in value because of the market or even a company going out of business (because the real value of things is then priced at liquidation prices)
2. why periodicity? because you have to give investors a change to periodically renew their conviction in the investment
3. why revenue recognition? because you're not supposed to recognize the transaction? as revenue until delivery, you didn't EARN it yet...
4. why economic entity? because they're two different legal entities but the same accounting entity? no... because there's supposed to be a separation between person and company...
5. why expense recognition? because it's supposed to be an asset? expense or asset? ok yes....but K said it's supposed to be expensed over time, it's wrong because the expense isn't supposed to be expensed all at once
6. why full disclosure? because the investors have a right to know

part VI

1. monetary unit, because its value has to remain stable, that's the whole reason for picking ONE currency in the first place
2. full disclosure, don't really get this one, but they didn't mention the change...
3. expense recognition, because it was expensed over the useful life, rather than the other one that recorded it all at once...
4. historical cost, because they didn't record it as they paid for it, it would be like buying something at 100 then selling it for 50 and putting it on the ? for 100 because you paid for it at that price at a certain point in time
5. revenue recognition, yes, he didn't recognize until he earned the revenue
6. materiality, because the price doesn't matter
7. periodicity, no, it has to be multiple times a year, quarterly..

part VII

• monetary unit, because inflation complicates the fact that the dollar is stable
• full disclosure, because it could affect decision making and that's what accounting is all about
• expense recognition, so you would want to depreciate? a machine because you are only incurring an expense at a certain time??  or rather, because you incur the expense regularly with a big machine not all at once?
• historical cost, I can see this, the original price is the base, the basis for measurement, ok...
• periodicity, because it's timely to be able to get this information when it's relevant, ie., periodically rather than all at once at the end of the year or something after you can't make decisions
• easy
• easy
• materiality? oh, because you're not recognizing an expense if it's trivial ? because you're converting it to an expense immediately despite the fact that it's not used yet...
• conservatism, why is this not qualitative? what is conservatism again? conservatism is when you have the threshold for good, there's a higher burden of proof for the good than for the bad, which is technically a bias...yea, it's a PRACTICAL justification because it prevents? lawsuits...
• easy

part VIII

1. don't get this one, probably because of "income producing", since investors would want to know about say a lawsuit and that doesn't produce income
2. who ... do the SFAC? well the SEC doesn't really interfere with the FASB? so that can't be right, the SFACs don't represent GAAP so that can't be right (p.18), but SFAC is a thing [Statements of Financial Accounting Standards (SFAS)], 
3. delivered, yes
4. expense recognition, ok, depreciation, we want to depreciate it a little each period
5. the link between revenue and expense is important 
6. right, not separate entity,  that's going concern