Question

BASIC CONCEPTS AND PRINCIPLES 1-1 HO For each of the circumstances enumerated below, give the letter item indicating the accounting objective attained or the principle applied: a. Understandability b. Verifiability c. Timeliness d. Comparability e. Completeness f. Conservatism g. Continuity of life h. Economic entity i. Historical Cost j. Income Determination k. Quantifiability 1. Materiality ーi. Goodwill is only recorded in the accounts when it arises from the purchase of another entity at a price higher than the fair market value of the purchased entity's tangible assets 2, A note describing the company's possible liability in a lawsuit is included with the financial statement even though no formal liability exists at the balance sheet date. 3. All payments out of petty cash are debited to Miscellaneous Expense 4. Fixed Assets are classified separately as Land and Buildings with an Accumulated Depreciation for Buildings 5. A retail store uses estimates rather than a complete physical count of its inventory for purposes of preparing monthly financial statements

Answer 1

1. Goodwill is recorded in the accounts only when it arises from the purchase of another entity at a price higher than the fair market value of the purchased entity's identifiable assets.	b) Verifiability
	i) Historical cost
2. A note describing the company's possible liability in a lawsuit is included with the financial statements even though no formal liability exists at the balance sheet date.	a) Understandability
3. All payments out of petty cash are debited to Miscellaneous Expense.	l) Materiality
4. Fixed assets are classified separately as land or buildings, with an accumulated depreciation account for buildings.	a) Understandability
	b) Verifiability
	d) Comparability
	g. continuity of life
5. A retail store estimates inventory rather than taking a complete physical count for purposes of preparing monthly financial statements.	c) Timeliness
6. Securities available for sale are valued lower of cost or market	f) conservatism
7. Investments in equity securities are initially recorded at cost.	b) Verifiability
	i) Historical cost
8) An advance payment of insurance premium is reported as an asset.	j. income determination
9. a system of voucher is used to account for cash disbursements	b) Verifiability
	k quantifiability
10. Small tools used by a large manufacturing firm are^ recorded as expenses when purchased.	l) Materiality
11. Periodic payments of $1,500 per month for services of H. Hay, who is the sole propri-etor of the company, are reported as withdrawals.	h) Economic entity