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An accountant must be familiar with the concepts involved in determining earnings of a company. The amount of earnings reported for a company is dependent on the proper recognition, in general, of revenue and expense for a given time period. In some situations, costs are recognized as expenses at the time of product sale; in other situations, costs are recognized as expenses or losses based on other criteria. Required: 1. Explain the rationale for recognizing costs as expenses at the time of product sale. 2. What is the rationale underlying the appropriateness of treating costs as expenses of a period instead of assigning the costs to an asset? Explain. 3. Sonic expenses are assigned to specific accounting periods on the basis of systematic and rational allocation of asset cost. Explain the underlying rationale for recognizing expenses on this basis.

BuyFind

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
Publisher: Cengage Learning
ISBN: 9781337788281
BuyFind

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
Publisher: Cengage Learning
ISBN: 9781337788281

Solutions

Chapter
Section
Chapter 2, Problem 5C
Textbook Problem

An accountant must be familiar with the concepts involved in determining earnings of a company. The amount of earnings reported for a company is dependent on the proper recognition, in general, of revenue and expense for a given time period. In some situations, costs are recognized as expenses at the time of product sale; in other situations, costs are recognized as expenses or losses based on other criteria.

Required:

  1. 1. Explain the rationale for recognizing costs as expenses at the time of product sale.
  2. 2. What is the rationale underlying the appropriateness of treating costs as expenses of a period instead of assigning the costs to an asset? Explain.
  3. 3. Sonic expenses are assigned to specific accounting periods on the basis of systematic and rational allocation of asset cost. Explain the underlying rationale for recognizing expenses on this basis.

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Chapter 2 Solutions

Intermediate Accounting: Reporting And Analysis
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Ch. 2 - What are the two primary qualities of useful...Ch. 2 - What is relevant accounting information? Identify...Ch. 2 - What is materiality, and how does it relate to...Ch. 2 - What is faithfully represented accounting...Ch. 2 - Identify the enhancing characteristics of useful...Ch. 2 - Compare and contrast comparability and...Ch. 2 - What is the cost constraint, and how does it...Ch. 2 - What is the reporting entity assumption? How does...Ch. 2 - What is the going-concern assumption, and why is...Ch. 2 - What is the period-of-time assumption, and why is...Ch. 2 - Why does financial reporting utilize a mixed set...Ch. 2 - Discuss the relationship among historical cost,...Ch. 2 - What is recognition in accounting?Ch. 2 - Describe accrual accounting. What are the...Ch. 2 - What drives the timing of revenue recognition?...Ch. 2 - What drives expense recognition? When should...Ch. 2 - What is conservatism? Why do accountants sometimes...Ch. 2 - Describe the financial reporting model within the...Ch. 2 - What are the primary sources of useful information...Ch. 2 - The information provided by financial reporting...Ch. 2 - Which of the following is considered a constraint...Ch. 2 - According to Statement of Financial Accounting...Ch. 2 - Which characteristic states that accounting...Ch. 2 - Under Statement of Financial Accounting Concepts...Ch. 2 - Under Statement of Financial Accounting Concepts...Ch. 2 - Accruing net losses on obsolete inventory is an...Ch. 2 - The valuation of a promise to receive cash in the...Ch. 2 - An accrued expense is an expense: a. incurred but...Ch. 2 - A company purchased a patent 4 years ago, and was...Ch. 2 - Qualitative Characteristics The following is a...Ch. 2 - Accounting Assumptions The following is a list of...Ch. 2 - Objectives of Financial Reporting The FASB has...Ch. 2 - A friend, who is not an accounting major, is not...Ch. 2 - A friend, who is not an accounting major, is...Ch. 2 - Financial accounting and reporting provide...Ch. 2 - An accountant must be familiar with the concepts...Ch. 2 - Relevance versus Faithful Representation You are...Ch. 2 - Conceptual Framework The FASBs Conceptual...Ch. 2 - Objectives, Users, and Stewardship The owners of...Ch. 2 - The concept of the reporting entity is a...Ch. 2 - Accruals and Deferrals Generally accepted...Ch. 2 - The following are brief descriptions of two...Ch. 2 - Violations of Assumptions and Principles The...Ch. 2 - You have been hired as an accounting consultant by...Ch. 2 - Inconsistent Statements on Accounting Principles...

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