In this simulation, you are asked to address questions regarding the FASB conceptual framework. Prepare responses to allparts.

Transcribed Image Text:

KWW Professlonal Simulation Conceptual Framework Time Remaining 4 hours 10 minutes Unaplit Spit Horie Spit Vertical Spreadsheet Calculator Exit Sitoation Explanation Rosoarch Resources Directions A friend of yours is one of seven shareholders in a small start-up company. He is evaluating information about the company that was discussed at a recent shareholders' meeting. No mention of these facts was made in the financial statements or the related notes. Given your accounting background, he thought you would know the appropriate treatment of these items. 1. The company is concemed that one of Its patents will be worthless in the event of liquidation. As a result, this intanglble asset was written off through the following entry. 7,000 Retained Eamings Patents 7,000 2. The company is belng sued for $15,000 by a customer claiming damages caused by a defective product. The attorney for the company is confident that the company will have no liability for damages. To be safe, the company made the following entry. Loss from Lawsuit Lawsuit Liability 15,000 15,000 3. The company president used her expense account to purchase a new Hummer solely for her personal use. The following entry was made. Miscellaneous Expense Cash 55,000 55,000 Situation Explanation Rusearch Resourcon Diractions For each situation, prepare a brief explanation for the appropriate accounting and related disclosure required for each of the items. Situation Explanation Rueearch Resourcen Diractions Your friend had an extensive discussion with other shareholders on the subject of materiality. He argues for a strict quantitative definition of materiality, while the other shareholders believe that both quantitative and qualitative indicators should be considered in evaluating whether an item is material. Using the FASB Codification database, discuss how the conceptual framework defines and operationalizes materiality.