Question

In each of the given situations, indicate which accounting concepts, principles or constraints apply and whether they have been applied appropriately. If you decide the accounting treatment is not generally accepted, discuss the effect of the departure on the balance sheet.

Please be as SPECIFIC as possible when answering these questions! Include ALL that apply to each question.

1.    The Baldwin Company mounts an $800,000 year-long advertising campaign on a new national cable television network. The firm's annual accounting period is the calendar year. The television network required full payment in December at the beginning of the campaign. Accounting treatment is

Increase Advertising Expense, $800,000

Decrease Cash, $800,000

2.    Because of a local bankruptcy, machinery worth $300,000 was acquired at a "bargain" purchase price of $150,000. Accounting treatment is

Increase Machinery, $150,000

Decrease Cash, $150,000

3.    J.P. Smith, a consultant operating a sole proprietorship, withdrew $40,000 from the business and purchased stocks as an investment gift to his wife. Accounting treatment is

Increase Investments, $40,000

Decrease Cash, $40,000

4.    Morongo Company received a firm offer of $106,000 for a parcel of land it owns that cost $75,000 two years ago. The offer was refused, but the indicated gain was recorded in the accounts. Accounting treatment is

Increase Land, $31,000

Increase Revenue from Change in Land Value, $31,000

Answer 1