Question

H E1-12 Basic Por cach of the following situations, indicate whether you agree or disagree with the financial reporting practice assumptions and employed and state the accounting concept that is applied Gif you agree) or violated (if you disagree) principles 1. Wagner Corporation adjusted the valuation of all assets and liabilities to reflect changes in the purchasing .LO1-7 through power of the dollar LO1-9 2. Spooner Oil Company changed its method of accounting for oil and gas exploration costs from successful efforts to full cou. 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 a $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. E 1-13 For each of the following situations, state whether you agree or disagree with the financial reporting practice Basic employed, and briefly explain the reason for your answer assumptions and 1. The controller of the Dumars Corporation increased the carrying value of land from its original cost of $2 principles million to its recently appraised value of $3.5 million. .LO1-7 through 2. The president of Vosburgh Industries asked the company controller to charge miscellaneous expense for the LO1-9 purchase of an automobile to be used solely for personal use. 3. At the end of its 2020 fiscal year, Dower, Inc., received an order from a customer for $45,350. The merchan- dise will ship early in 2021. Because the sale was made to a long-time customer, the controller recorded the sale in 2020 4. At the beginning of its 2020 fiscal year, Rossi Imports paid $48,000 for a two-year lease on warehouse space. Rossi recorded the expenditure as an asset to be expensed equally over the two-year period of the lease. 5. The Reliable Tire Company included a note in its financial statements that described a pending lawsuit against the company 6. The Hughes Corporation, a company whose securities are publicly traded, prepares monthly, quarterly, and annual financial statements for internal use but disseminates to external users only the annual financial statements.

Answer 1

1. Disagree with the Financial Reporting since Land is recognized at its original cost along with any other related initial costs spent to put the land into use. If the land’s market value increases or decreases over time, its value on the balance sheet remains at historical cost or original cost only. This is under the historical cost principle.
2. Disagree with the Financial Reporting since this is a violation of the economic entity assumption, which states that the transactions carried out by the business are separate from its owner.
3. Disagree with the Financial Reporting since this is a violation of the revenue recognition principle, which states that delivery must have occurred or services been rendered as one of the criteria for revenue recognition.
4. Agree with the Financial Reporting since the company is conforming to the expense recognition principle, which states that expenses should be recognized in the same period as the revenues to which they relate.
5. Agree with the Financial Reporting since the company is conforming to the full disclosure principle, which states that any information about the company must be disclosed to its concerned parties to maintain a fair picture of the company and so that the concerned parties make informed decisions.