Question

Identify the accounting concept that was violated in each of the following situations.

1. Pastel Paint Company purchased land two years ago at a
price of $250,000. Because the value of the land has
appreciated to $400,000, the company has valued the land at
$400,000 in its most recent balance sheet.
2.
Atwel Corporation has not prepared financial statements for
external users for over three years.
3. The Klingon Company sells farm machinery. Revenue from a
large order of machinery from a new buyer was recorded the
day the order was received.
4.
Don Smith is the sole owner of a company called Hardware
City. The company recently paid a $150 utility bill for Smith's
personal residence and recorded a $150 expense.
5. Golden Book Company purchased a large printing machine for $1,000,000 (a material amount) and recorded the purchase as an expense. 6. Ace Appliance Company is involved in a major lawsuit involving injuries sustained by some of its employees in the manufacturing plant. The company is being sued for $2,000,000, a material amount, and is not insured. The suit was not disclosed in the most recent financial statements because no settlement had been reached.

Answer 1

Answers:

1 P paint company violated the "Historical cost principle"

2 A Corporation violated the "Periodicity assumption"

3 The k company violated the "Realization principle"

4 H city violated the "economic entity assumption"

5 G book company violated the "Materiality convention"

6 A appliance company violated the "Full disclosure principle"