Chapter 1 HW questions
The full disclosure principle
Ace Appliance Company is involved in a major lawsuit involving injuries sustained by some of its employees in the manufacturing plant. The company is being sued for $2,000,000, a material amount, and is not insured. The suit was not disclosed in the most recent financial statements because no settlement had been reached. What accounting concept was violated?
Expense recognition
Astro Turf Company recognizes an expense, cost of goods sold, in the period the product is manufactured. What accounting concept was violated?
The periodicity assumption
Atwell Corporation has not prepared financial statements for external users for over three years. What accounting concept was violated?
The economic entity assumption
Don Smith is the sole owner of a company called Hardware City. The company recently paid a $150 utility bill for Smith's personal residence and recorded a $150 expense. What accounting concept was violated?
Expense recognition; materiality
Golden Book Company purchased a large printing machine for $1,000,000 (a material amount) and recorded the purchase as an expense. What accounting concept was violated?
Recognizing expense in the appropriate period.
In depreciating the cost of an asset, accountants are most concerned with?
A good or service has been delivered to a customer.
In general, revenue is recognized when
Revenue recognition
Jackson Manufacturing does not recognize revenue for unshipped merchandise even though the merchandise has been manufactured according to customer specifications. Identify the accounting concept that applies to this statement?
Expense recognition
Lady Jane Cosmetics depreciates the cost of equipment over their useful lives. Identify the accounting concept that applies to this statement?
The historical cost (original transaction value) principle
McCloud Drug Company owns a patent that it purchased three years ago for $2 million. The controller recently revalued the patent to its approximate market value of $8 million. What accounting concept was violated?
The historical cost (original transaction value) principle
Pastel Paint Company purchased land two years ago at a price of $250,000. Because the value of the land has appreciated to $400,000, the company has valued the land at $400,000 in its most recent balance sheet. What accounting concept was violated?
The economic entity assumption
Philips Company pays the monthly mortgage on the home of its president, Larry Crosswhite, and charges the expenditure to miscellaneous expense. What accounting concept was violated?
The periodicity assumption
SiriusXM Radio Inc. files its annual and quarterly financial statements with the SEC. Identify the accounting concept that applies to this statement?
Identify the conceptual framework within which accounting standards are developed.
Statements of Financial Accounting Concepts issued by the FASB
Revenue recognition
The Klingon Company sells farm machinery. Revenue from a large order of machinery from a new buyer was recorded the day the order was received. What accounting concept was violated?
The economic entity assumption
The president of Applebee's International, Inc., travels on the corporate jet for business purposes only and does not use the jet for personal use. Identify the accounting concept that applies to this statement?
Record expenses in the period that related revenues are recognized.
The primary objective of expense recognition is to?
Useful to capital providers.
The primary objective of financial reporting is to provide information.
False
The separate entity assumption states that, in the absence of contrary evidence, all entities will survive indefinitely. TorF?
