Matching
For each of the situations, identify the assumption, concept, constraint or recognition criteria that provides the best explanation by selecting the appropriate code. Each code will be used more than once; however each situation only has one correct answer.
Premises:
Insurance expense is recorded each month, although the insurance policy covers a full year and is paid annually.
Interest expense is payable semi-annually and is recorded only when paid, with no adjustment at year end even though payment dates do not coincide with year end date.
A patent with an indefinite life has an original cost of $12,500 although the company was recently offered $1,000,000 by another company who wants to buy it.
One third of the company's sales were made to a related party and this fact is disclosed in the financial statements.
When preparing financial statements, the company's policy is to record all correcting entries, whether the correction is for $200,000 or $2.
The company's inventory's cost is $50,000, its retail value is $120,000, and if liquidated could be sold at auction for $30,000. The inventory is reported at $50,000 on the company's balance sheet.
The company accountant recently spent two days calculating the accrued utilities expense on 130 individual apartments for the last few days of the year. In the past, the amounts were estimated.
The company has a large number of accounts receivable which individually have small balances. In order to determine the allowance for doubtful accounts, the company uses an estimate based on past experience rather than taking the time to evaluate the collectability of individual accounts.
The proprietor of an unincorporated business maintains two bank accounts and two sets of accounting records - one for household expenses, and the other for business purposes.
The proprietor's babysitting costs are recorded in the company expense accounts.
The company's sales are made on credit, but to keep accounting costs down, sales are recorded when the customer accounts are paid.
After obtaining an independent appraisal which indicated a significant increase in value over original cost, the company restated its land at the higher amount. The company has not adopted the revaluation model for accounting for long-lived assets.
All assets are restated at their liquidation values.
A company's accountant notices that the petty cash account was not adjusted prior to preparing the year end financial statements and the account balance is incorrect by $13.52. However, the accountant decides to release the financial statements without making the correction.
The company records revenue when services are provided, not when the customers pay for the service.
A former employee has sued the company for a large amount, but no mention is made of this case in the financial statements.
Responses:
Full disclosure
Going concern assumption
Cost constraint
Materiality constraint
Revenue recognition criteria
Economic entity concept
Cost concept
Matching
Correct Answer:
Premises:
Responses:
Insurance expense is recorded each month, although the insurance policy covers a full year and is paid annually.
Interest expense is payable semi-annually and is recorded only when paid, with no adjustment at year end even though payment dates do not coincide with year end date.
A patent with an indefinite life has an original cost of $12,500 although the company was recently offered $1,000,000 by another company who wants to buy it.
One third of the company's sales were made to a related party and this fact is disclosed in the financial statements.
When preparing financial statements, the company's policy is to record all correcting entries, whether the correction is for $200,000 or $2.
The company's inventory's cost is $50,000, its retail value is $120,000, and if liquidated could be sold at auction for $30,000. The inventory is reported at $50,000 on the company's balance sheet.
The company accountant recently spent two days calculating the accrued utilities expense on 130 individual apartments for the last few days of the year. In the past, the amounts were estimated.
The company has a large number of accounts receivable which individually have small balances. In order to determine the allowance for doubtful accounts, the company uses an estimate based on past experience rather than taking the time to evaluate the collectability of individual accounts.
The proprietor of an unincorporated business maintains two bank accounts and two sets of accounting records - one for household expenses, and the other for business purposes.
The proprietor's babysitting costs are recorded in the company expense accounts.
The company's sales are made on credit, but to keep accounting costs down, sales are recorded when the customer accounts are paid.
After obtaining an independent appraisal which indicated a significant increase in value over original cost, the company restated its land at the higher amount. The company has not adopted the revaluation model for accounting for long-lived assets.
All assets are restated at their liquidation values.
A company's accountant notices that the petty cash account was not adjusted prior to preparing the year end financial statements and the account balance is incorrect by $13.52. However, the accountant decides to release the financial statements without making the correction.
The company records revenue when services are provided, not when the customers pay for the service.
A former employee has sued the company for a large amount, but no mention is made of this case in the financial statements.
Premises:
Insurance expense is recorded each month, although the insurance policy covers a full year and is paid annually.
Interest expense is payable semi-annually and is recorded only when paid, with no adjustment at year end even though payment dates do not coincide with year end date.
A patent with an indefinite life has an original cost of $12,500 although the company was recently offered $1,000,000 by another company who wants to buy it.
One third of the company's sales were made to a related party and this fact is disclosed in the financial statements.
When preparing financial statements, the company's policy is to record all correcting entries, whether the correction is for $200,000 or $2.
The company's inventory's cost is $50,000, its retail value is $120,000, and if liquidated could be sold at auction for $30,000. The inventory is reported at $50,000 on the company's balance sheet.
The company accountant recently spent two days calculating the accrued utilities expense on 130 individual apartments for the last few days of the year. In the past, the amounts were estimated.
The company has a large number of accounts receivable which individually have small balances. In order to determine the allowance for doubtful accounts, the company uses an estimate based on past experience rather than taking the time to evaluate the collectability of individual accounts.
The proprietor of an unincorporated business maintains two bank accounts and two sets of accounting records - one for household expenses, and the other for business purposes.
The proprietor's babysitting costs are recorded in the company expense accounts.
The company's sales are made on credit, but to keep accounting costs down, sales are recorded when the customer accounts are paid.
After obtaining an independent appraisal which indicated a significant increase in value over original cost, the company restated its land at the higher amount. The company has not adopted the revaluation model for accounting for long-lived assets.
All assets are restated at their liquidation values.
A company's accountant notices that the petty cash account was not adjusted prior to preparing the year end financial statements and the account balance is incorrect by $13.52. However, the accountant decides to release the financial statements without making the correction.
The company records revenue when services are provided, not when the customers pay for the service.
A former employee has sued the company for a large amount, but no mention is made of this case in the financial statements.
Responses:
Related Questions
Q106: The following are independent situations observed by
Q107: A number of unrelated transactions recorded by
Q108: There are several ways the recognition and
Q109: Shediac Bay Sailing Inc. sold $175,500 of
Q110: Presented below are some business transactions that
Q111: The following are independent situations observed by
Q112: For each of the independent situations described
Q113: The following transactions occurred during 2014:
1. A
Q114: Match the following qualitative characteristics of financial
Q115: Match the items below by entering the
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents