Financial statements are prepared according to a number of accounting principles, some of which are listed below:
|
1. |
Business entity |
6. |
Consistency |
|
2. |
Going concern |
7. |
Full disclosure |
|
3. |
Monetary unit |
8. |
Matching |
|
4. |
Historical cost |
9. |
Materiality |
|
5. |
Recognition |
Required: Identify the principle that would apply in each of the following situations. Explain your choice.
|
_________________ |
a. |
An accountant for Caldwell Corporation records a $25 stapler with a five–year life as an expense. Caldwell has total assets of $1,000,000. |
|
_________________ |
b. |
Fred Rozak, an independent consultant, must keep a set of books for his consulting firm and a separate set of books for his personal records. |
|
_________________ |
c. |
A machine is recorded at its purchase price of $9,000 and is not revalued at the end of the accounting period to reflect its market value of $10,000. |
|
_________________ |
d. |
An asset purchased in 1985 for $10,000 is not revalued even though it would take $30,000 in equivalent money to purchase the land today. |
|
_________________ |
e. |
Accountants of Hull Corporation do not record the value of its equipment at the much lower amount for which it could be sold in the near future. |
|
_________________ |
f. |
Investors of Spellman Corporation note that the accounting policy for valuing inventory has not changed from the prior fiscal year. |
|
_________________ |
g. |
Looten Corporation senior managers decide to disclose a recent $2 million lawsuit in a note to the financial statements even though the case will not likely be settled for two years. |
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