Question

mework 3: Ch16 Saved Help 12 For each of the following situations, indicate whether you agree or disagree with the financial reporting practice employed and stat the accounting concept that is applied (if you agree) or violated (if you disagree). 76 oints eBook 1. Wagner Corporation adjusted the valuation of all assets and liabilities to reflect changes in the purchasing power of the dollar 2. Spooner Oil Company changed its method of accounting for oil and gas exploration costs from successful efforts to full cost. No mention of the change was included in the financial statements. The change had a material effect on Spooner's financial statements. 3. Cypress Manufacturing Company purchased machinery having a five-year life. The cost of the machinery is being expensed over the life of the machinery. 4. Rudeen Corporation purchased equipment for $180,000 at a liquidation sale of a competitor. Because the equipment was worth $230,000, Rudeen valued the equipment in its subsequent balance sheet at $230,000. 5. Davis Bicycle Company received a large order for the sale of 1,000 bicycles at $100 each. The customer paid Davis the entire amount of $100,000 on March 15. However, Davis did not record any revenue until April 17, the date the bicycles were delivered to the customer. 6. Gigantic Corporation purchased two small calculators at a cost of $32.00. The cost of the calculators was expensed even though they had a three-year estimated useful life. 7. Esquire Company provides financial statements to external users every three years. References Situation Agree/Disagree Assumption/Constraint/Accounting principle 7.

Answer 1

Answer 1).
Wagner Corporation adjusted the valuation of all assets and liabilities to reflect changes in the purchasing power of the dollar.
Disagree. Violation of the Cost Principle

Answer 2).
Spooner Oil Company changed its method of accounting for oil and gas exploration costs from successful efforts to full cost. No mention of the change was included in the financial statements. The change had a material effect on Spooner's financial statements.
Disagree. Violation of the Full disclosure principle

Answer 3)
Cypress Manufacturing Company purchased machinery having a five-year life. The cost of the machinery is being expensed over the life of the machinery.
Agree. Complies with Matching principle

Answer 4).
Rudeen Corporation purchased equipment for $180,000 at a liquidation sale of a competitor. Because the equipment was worth $230,000, Rudeen valued the equipment in its subsequent balance sheet at $230,000.
Disagree. Violation of the Cost principle.

Answer 5).
Davis Bicycle Company received a large order for the sale of 1,000 bicycles at $100 each. The customer paid Davis the entire amount of $100,000 on March 15. However, Davis did not record any revenue until April 17, the date the bicycles were delivered to the customer.
Agree. Complies with Revenue recognition principle

Answer 6).
Gigantic Corporation purchased two small calculators at a cost of $32.00. The cost of the calculators was expensed even though they had a three-year estimated useful life.
Agree. Complies with the Materiality principle

Answer 7).
Esquire Company provides financial statements to external users every three years.
Disagree. Violates the relevance concept. To be relevant, information must be timely.