Presented below are five inappropriate accounting procedures that are being used by the Playground Equipment Corporation.
a.On the year-end balance sheet, Playground Equipment Corporation reported its inventory at market value, which was greater than cost. As a result of this procedure, a gain was recognized on the company's income statement.
b.Mrs. Devlin, the president of the company, purchased an automobile for her son using the company's money. The company's accountant recorded the expenditure as salaries expense.
c.Playground Equipment Corporation reported income from operations of $5,000,000 for the current year. During the year, Devlin settled and paid a $5,000,000 class action lawsuit against the company resulting from damages incurred from the sale of defective products. The settlement was reported as a miscellaneous expense with no footnotes provided.
d.Playground Equipment is going to issue additional common stock next year. In order to improve its income, the company switched from the LIFO inventory cost flow method to FIFO. The company did not disclose the accounting change. Comparative financial statements were prepared.
e.The company made $3,000,000 of expenditures to expand a building that originally cost $5,000,000. The expenditures are expected to benefit operations over the building's remaining useful life of ten years. The expenditures were expensed as maintenance.
Required:
For each of the above items, list the accounting assumption(s), convention(s), or principle(s) that is (are) being violated.

Question

Presented below are five inappropriate accounting procedures that are being used by the Playground Equipment Corporation. 
a.On the year-end balance sheet, Playground Equipment Corporation reported its inventory at market value, which was greater than cost. As a result of this procedure, a gain was recognized on the company's income statement.
b.Mrs. Devlin, the president of the company, purchased an automobile for her son using the company's money. The company's accountant recorded the expenditure as salaries expense.
c.Playground Equipment Corporation reported income from operations of $5,000,000 for the current year. During the year, Devlin settled and paid a $5,000,000 class action lawsuit against the company resulting from damages incurred from the sale of defective products. The settlement was reported as a miscellaneous expense with no footnotes provided. 
d.Playground Equipment is going to issue additional common stock next year. In order to improve its income, the company switched from the LIFO inventory cost flow method to FIFO. The company did not disclose the accounting change. Comparative financial statements were prepared. 
e.The company made $3,000,000 of expenditures to expand a building that originally cost $5,000,000. The expenditures are expected to benefit operations over the building's remaining useful life of ten years. The expenditures were expensed as maintenance.
Required:
For each of the above items, list the accounting assumption(s), convention(s), or principle(s) that is (are) being violated.

Quizplus · Accepted Answer

The Answer of Presented below are five inappropriate accounting procedures that are being used by the Playground Equipment Corporation. 
a.On the year-end balance sheet, Playground Equipment Corporation reported its inventory at market value, which was greater than cost. As a result of this procedure, a gain was recognized on the company's income statement.
b.Mrs. Devlin, the president of the company, purchased an automobile for her son using the company's money. The company's accountant recorded the expenditure as salaries expense.
c.Playground Equipment Corporation reported income from operations of $5,000,000 for the current year. During the year, Devlin settled and paid a $5,000,000 class action lawsuit against the company resulting from damages incurred from the sale of defective products. The settlement was reported as a miscellaneous expense with no footnotes provided. 
d.Playground Equipment is going to issue additional common stock next year. In order to improve its income, the company switched from the LIFO inventory cost flow method to FIFO. The company did not disclose the accounting change. Comparative financial statements were prepared. 
e.The company made $3,000,000 of expenditures to expand a building that originally cost $5,000,000. The expenditures are expected to benefit operations over the building's remaining useful life of ten years. The expenditures were expensed as maintenance.
Required:
For each of the above items, list the accounting assumption(s), convention(s), or principle(s) that is (are) being violated.

Presented Below Are Five Inappropriate Accounting Procedures That Are Being