(a)
Accounting assumptions: These are the conventions which guide FASB (Financial Accounting Standards Board) to develop accounting standards. The basic assumptions are monetary unit assumption, economic entity assumption, periodicity assumption, and going concern assumption.
Accounting principles: These are the rules which guide FASB to prepare guidelines necessary for reporting the accounting formation, in a useful and relevant format which is better understood by the users. Some basic principles are historical cost principle, fair value principle, and full disclosure principle.
To identify: The accounting assumptions and principles that were violated by Company L, and explain what the company actually should have done.
(b)
To identify: The accounting assumptions and principles that were violated by Company L, and explain what the company actually should have done.
(c)
To identify: The accounting assumptions and principles that were violated by Company L, and explain what the company actually should have done.
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- On September 30, 2013, the general ledger of Leons Golf Shop, which uses the calendar year as its accounting period, showed the following year-to-date account balances: The merchandise inventory account had a 48,000 balance on January 1, 2013. The historical gross profit percentage is 40%. Leon prepares quarterly financial statements and takes physical inventory once a yearat the end of the accounting period. In order to prepare the financial statements for the third quarter, the store needs to have an estimate of ending inventory. You have been asked to use the gross profit method to estimate the ending inventory. Review the worksheet called GP. Study it carefully because it may have a solution format somewhat different from the one shown in your textbook.arrow_forwardRowen, Inc. had pre-tax accounting income of $1,672,000 and a tax rate of 40% in 2015, its first year of operations. During 2015 the company had the following transactions: Received rent from Jane, Co. for 2016 $64,000 Municipal bond income $80,000 Depreciation for tax purposes in excess of book depreciation $40,000 Installment sales revenue to be collected in 2016 $108,000 5. For 2015, what is the amount of income taxes payable for Rowen, Inc? a. $603,200 b. $654,000 c. $686,400 d. $772,800arrow_forwardQuantum and Time company is engaged in merchandising business. During the year 2020, the company generated a net income of 45 million. In the process it incurred depreciation of 3 million & amortization of 2 million, while accounts receivables increased by 2 million, inventory decreased by 3 million and trade payables increased by 2 million. It reported total assets, total current liabilities, and total non-current liabilities of 200million, 50 million and 75 million respectively as on the balance sheet date. Calculate the CFROI of the company based on the given information.arrow_forward
- Fairplay had the following information related to the sale of its products during 2009, which was its fi rst year of business: Revenue $1,000,000 Returns of goods sold $ 100,000 Cash collected $ 800,000 Cost of goods sold $ 700,000 Under the accrual basis of accounting, how much net revenue would be reported on Fairplay’s 2009 income statement? B . $900,000.arrow_forwardThe following transactions occurred during March 2016 for the Wainwright Corporation. The company owns and operates a wholesale warehouse. 1. Issued 30,000 shares of common stock in exchange for $300,000 in cash. 2. Purchased equipment at a cost of $40,000. $10,000 cash was paid and a note payable was signed for the balance owed. 3. Purchased inventory on account at a cost of $90,000. The company uses the perpetual inventory system. 4. Credit sales for the month totaled $120,000. The cost of the goods sold was $70,000. 5. Paid $5,000 in rent on the warehouse building for the month of March. 6. Paid $6,000 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2016. 7. Paid $70,000 on account for the merchandise purchased in 3. 8. Collected $55,000 from customers on account. 9. Recorded depreciation expense of $1,000 for the month on the equipment. Required: Analyze each transaction and show the effect of each on the accounting equation for a…arrow_forwardThe following transactions occurred during March 2016 for the Wainwright Corporation. The company owns and operates a wholesale warehouse. 1. Issued 30,000 shares of common stock in exchange for $300,000 in cash. 2. Purchased equipment at a cost of $40,000. $10,000 cash was paid and a note payable was signed for the balance owed. 3. Purchased inventory on account at a cost of $90,000. The company uses the perpetual inventory system. 4. Credit sales for the month totaled $120,000. The cost of the goods sold was $70,000. 5. Paid $5,000 in rent on the warehouse building for the month of March. 6. Paid $6,000 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2016. 7. Paid $70,000 on account for the merchandise purchased in 3. 8. Collected $55,000 from customers on account. 9. Recorded depreciation expense of $1,000 for the month on the equipment. Analyze; Prepare journal entries to record each of the transactionsarrow_forward
- The following information is available for Kingbird Inc. for the year ended December 31, 2017: Loss on discontinued operations $65,000 Retained earnings January 1, 2017 $1,120,000 Rent revenue 85,000 Selling expenses 860,000 Income tax applicable to continuing operations 288,000 Income tax applicable to loss on discontinued operations 22,000 Administrative expenses 500,000 Cost of goods sold 1,620,000 Loss on write-down of inventory 32,000 Sales revenue 3,715,000 Gain on sale of equipment 30,000 Cash dividends declared 210,000 Unrealized gain on available-for-sale securities 20,000 Interest expense 45,000 200,000 shares were outstanding during all of 2017. Prepare a multiple-step income statement. (Round earnings per share to 2 decimal places, e.g. 1.45.)arrow_forwardBridgeport Co. reported before-tax income of $427,000 in 2017 and $323,000 for 2018. However, the company’s new controller found that the following errors had been made: 1. Sales for 2018 included $21,800 which had been received in cash during 2018, but for which the related products were delivered and title passed to the purchaser in 2017. 2. Inventory on December 31, 2017, was overstated by $6,600. 3. Ordinary repairs to equipment in the amount of $19,500 were erroneously charged to the Equipment account during 2017. The company recorded a full year of depreciation on this amount in 2017 and 2018 on a straight-line basis assuming a 10-year life. 4. The bookkeeper in recording interest expense for both 2017 and 2018 on bonds payable made the following entry on an annual basis. Interest Expense 25,300 Cash 25,300 The bonds have a face value of $253,000 and pay a stated interest rate of 10%. They were issued at a premium of $9,840 on…arrow_forwardYou are given the following information about Sandhill Plumbing Company. Revenues in 2017 totaled $ 917, depreciation expenses $ 85, costs of goods sold $ 399, and interest expenses $ 62. At the end of the year, current assets were $ 150 and current liabilities were $ 111. The company has an average tax rate of 34 percent. Calculate its net income by setting up an income statement. (Round answers to 2 decimal places, e.g. 15.25) Sandhill Plumbing CompanyIncome Statementchoose the accounting period Amount select an income statement item $ enter a dollar amount select an income statement item enter a dollar amount select a summarizing line for the first part $ enter a total amount for the first part select an income statement item enter a dollar amount select a summarizing line for the second part $ enter a total amount for the second part select an income statement item enter a dollar amount select a summarizing line for the…arrow_forward
- You are given the following information about Sandhill Plumbing Company. Revenues in 2017 totaled $ 917, depreciation expenses $ 85, costs of goods sold $ 399, and interest expenses $ 62. At the end of the year, current assets were $ 150 and current liabilities were $ 111. The company has an average tax rate of 34 percent. Calculate its net income by setting up an income statement. (Round answers to 2 decimal places, e.g. 15.25) Sandhill Plumbing CompanyIncome Statementchoose the accounting period Amount select an income statement item $ enter a dollar amount select an income statement item enter a dollar amount select a summarizing line for the first part $ enter a total amount for the first part select an income statement item enter a dollar amount select a summarizing line for the second part $ enter a total amount for the second part select an income statement item enter a dollar amount select a summarizing line for the…arrow_forwardThe following transactions occurred during March 2018 for the Wainwright Corporation. The company owns and operates a wholesale warehouse. Issued 30,000 shares of capital stock in exchange for $300,000 in cash. Purchased equipment at a cost of $40,000. $10,000 cash was paid and a note payable was signed for the balance owed. Purchased inventory on account at a cost of $90,000. The company uses the perpetual inventory system. Credit sales for the month totaled $120,000. The cost of the goods sold was $70,000. Paid $5,000 in rent on the warehouse building for the month of March. Paid $6,000 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2018. Paid $70,000 on account for the merchandise purchased in 3. Collected $55,000 from customers on account. Recorded depreciation expense of $1,000 for the month on the equipment. Required:1. Analyze each transaction by indicating the cash effect and classify each as a financing, investing, and/or…arrow_forwardThe Oakland Mills Company has disclosed the following financial information in its annual reports for the period ending March 31, 2011: sales of $1,593,952, costs of goods sold of $635,632.29, depreciation expenses of $175,000, and interest expenses of $89,575. Assume that the firm has a tax rate of 35 percent. What is the company's net income? Set up an income statement to answer the question. (Round answers to 2 decimal places, e.g. 15.25) Choose the correct one: Amount Revenues ________________ Earnings before interest, taxes, depreciation, and amortization net income depreciation Cost of goods sold Earnings before interest and taxes Interest Earnings before taxes Taxes…arrow_forward
- Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning