Concept explainers
Basic assumptions and principles
• LO1–8, LO1–9
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
2. Atwell 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.
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INTERMEDIATE ACCOUNTING
- Parrish Ch. 4 Pg. 101 4-5 11/25/19 For the following entries please identify if the entry is correct. If not correct the entry and explay WHY it is incorrect. Thank you. 1) To record depreciation on trucks for one year. The trucks cost $30000 and have no salvage value. They are being depreciated strait line over 6 years. Depreciation Expense $1500 Accumulated Depreciation $1500 2) To record one year's interest on a loan to an officer of the compnay. The loan was $10000 at 7% interest Interest Revenue $730 Interest Receivable $730 3) The Supplies account started with a balance of $1900. At the end of the period, a count of remaining supplies was indicated we had $563 left. Supplies Expense $563 Supplies $563 4) Employees have earned $1900 since last payday Wages Expense $1900 Wages Payable $1900 5) The company received a bill from the County Treasurer for $700 property taxes. The…arrow_forwardA Each of the following situations is independent: B CD F G H K L M N R. U V X Y 1 2 1. Change in estimated useful life and residualvalue. Company XYZ purchases equipment on 1 January 20x6 for 3 4 $ 42,000 The company uses the straight line method of depreciation, taking a full year's depreciation in the year 5 of acquisition. The equipment has an estimated residual value of $8,000.00 and an estimated useful life of 4 years. In 20x7, the company decides that the machine really has an origional total life of 5 years and 7 a residual value of $ 7,000.00 8 9 How much is the depreciation expense for 20x7? 10 11 Solution: 12 13 14 15 16 17 18 2. Retrospective change in accounting policy. A private company changes its method of accounting for long term 19 construction contracts from the percentage of completion method (PC) to the compelted contract method (CC) in 20x7. 20 The years affected by the change, and incomes under both methods, appear below (ignore income tax) 21 22 Year 23 20x5 24…arrow_forwardProblem 08-48 (Algo) [LO 8-1, 8-7, 8-8] Ms. Drake sold a business that she had operated as a sole proprietorship for 18 years. On the date of sale, the business balance sheet showed the following assets: Accounts receivable Inventory Furniture and equipment: Cost Accumulated depreciation Leasehold improvements: Cost Accumulated amortization Tax Basis $ 37,750 143,200 Net cash flow 50,750 (40,600) 22,000 (4,400) Required: The purchaser paid a lump-sum price of $316,000 cash for the business. The sales contract stipulates that the FMV of the business Inventory is $156,400, and the FMV of the remaining balance sheet assets equals adjusted tax basis. Assuming that Ms. Drake's marginal tax rate on ordinary income is 35 percent and her rate on capital gain is 15 percent, compute the net cash flow from the sale of her business.arrow_forward
- Accounting A. Tax payer incurred expenses of SAR 10,000 to alter and improve equipment with a cost base of SAR 100,000. Are these expenses deductible under article 18 of the law? B. Tax payer recorded the following journal entry Dr. Bad debt expense 10,000 Cr. Provision for doubtful receivable 10,000 Required: Is that provision deductible under article (14) of the law C. 1n 2020 Dr. Accounts receivable (Ibrahim) 100,000 Cr. Sales 100,000 In 2021 Dr. Bad debt expense 20,000 Cr. Accounts receivable Ibrahim) Required: Is that bad debt expense deductible under article (14) of the law?arrow_forwardThe double entry Non-current assets Case study no. 1: A VAT payer company has the following financial position at the beginning of the financial reporting period: subscribed and paid in social capital 20,000 lei, petty cash 20,000 lei The company records the following transactions referring to noncurrent intangible and tangible assets entering its estate: a) It pays 1,000 lei setup costs through petty cash; b) It purchases software from a supplier at 4,000 lei, VAT 19% c) It develops machinery measured at a production cost of 40,200 lei Homework: Based on the transactions that were recorded, fill in the corresponding Ledger and Final Balance Sheet. In order to do so, you must first settle the company's accounts with the state in terms of VAT and close the revenue (income) accounts. Case study no. 2: The entity considered for case study no. 1 records monthly amortisation and depreciation by using the straight line depreciation method for the following categories of noncurrent assets: a)…arrow_forward:57 El Dorado Foods Incorporated owns a chain of specialty stores in the Pacific Northwest. Recently, four of the stores have experienced declining profits due to market saturation in the area. As a result, management gathered data about possible impairment of the assets of the stores. The information gathered was as follows: Book value: $17.5 million Fair value: $14.9 million Undiscounted sum of future cash flows: $16.5 million Required: Determine the amount, if any, of the impairment loss that El Dorado must recognize on these assets. Note: Enter your answer in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5). Impairment loss millionarrow_forward
- Question 2 (Note this question is from the Topic 8 Lecture: Capital Gains Tax) Ajay Ltd purchased a depreciating asset with the value of $5,000 on 31 March 1989. On the same day, the company paid $50 to transfer the ownership. One year after, on 31 March this company spent an additional $1,500 for the asset functionality improvement. Later, on 31 March 1992, the company moved to a new place, and paid $200 to transfer this asset to the new location of business. Finally, the asset was sold in 2020 for $12,000 (Ignore GST effect in all calculations of this question). 1990, Calculate cost base, and capital gain (Loss), and capital gain tax, if any, considering Ajay decided to index (if applicable) and the relevant corporate tax rate is 30%.arrow_forwardProblem 8-7A (Algo) Record contingencies (LO8-5) The ink-jet printing division of Vericom Printing has grown tremendously in recent years. Assume the following transactions related to the ink-jet division occur during the year ended December 31, 2024. 1. Vericom Printing is being sued for $10.1 million by Addamax. Plaintiff alleges that the defendants formed an unlawful joint venture and drove it out of business. The case is expected to go to trial later this year. The likelihood of payment is reasonably possible. 2. Vericom Printing is the plaintiff in a(n) $8.1 million lawsuit filed against a competitor in the high-end color-printer market. Vericom Printing expects to win the case and be awarded between $5.6 and $8.1 million. 3. Vericom Printing recently became aware of a design flaw in one of its ink-jet printers. A product recall appears probable. Such an action would likely cost the company between $410,000 and $810,000. Required: Determine the appropriate way Vericom Printing…arrow_forwardion(1) to course 'Taxation(1)' 14 The Britannia Company newly installed the software. The WDV at OMR 100,000, unfortunately software corrupted. The technician backup the corrupted software, service expenditure OMR 1000. Calculate the depreciation value, put of Select one: a. OMR 32,670 b. OMR 33,330 Oc. OMR 28.450 Od OMR 33,000 Next page nagearrow_forward
- Question 1: What Would Your Accountant Say? The president of your company just had the market value of the corporate headquarters appraised at $10M; however, the value of the property in the firm’s financial statements is $5M, consisting of the historical cost at the time of purchase of $7M, less accumulated depreciation on the building of $2M. She wants to know why accounting principles do not allow the headquarters to be presented at market value in the financial statements. What would your accountant say? Question 2: What Would Your Finance Manager Say? Several executives of your firm have gathered to discuss whether to invest in a new production facility. There are several alternatives from which to choose, including constructing a new plant or purchasing an existing building. Since none of the executives present at the meeting have a background in finance, they ask you to describe the pros and cons of a few capital budgeting methods used to evaluate investment decisions. What…arrow_forward20 Table 1, Table 2, and Exhibit 10-10.) Placed in Asset Service Basis Part 1 of 3 November Used copier $ 7,800 12 New computer equipment Furniture June 6 14,000 3.7 polnts New delivery truck Luxury auto July 15 October 28 32,000 19,000 70,000 January 31 Total $142,800 Burbank acquired the copier in a tax-deferred transaction when the shareholder contributed the copier to the business in exchange for stock. (Round your answer to the nearest whole dollar amount.) a. Assuming no bonus or §179 expense, what is Burbank's maximum cost recovery deduction for this year? 8 Answer is complete but not entirely correct. Maximum cost recovery deduction $ 13,767arrow_forwardPA5. LO 11.2 Jada Company had the following transactions during the year: • Purchased a machine for $500,000 using a long-term note to finance it • Paid $500 for ordinary repair • Purchased a patent for $45,000 cash • Paid $200,000 cash for addition to an existing building • Paid $60,000 for monthly salaries • Paid $250 for routine maintenance on equipment • Paid $10,000 for major repairs • Depreciation expense recorded for the year is $25,000 If all transactions were recorded properly, what is the amount of increase to the Property, Plant, and Equipment section of Jada's balance sheet resulting from this year's transactions? What amount did Jada report on the income statement for expenses for the year?arrow_forward
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning