E 1-13 Basic assumptions and principles LO1-7 through LO1-92 For each of the fol

Question

E 1-13 Basic assumptions and principles LO1-7 through LO1-92 For each of the following situations, state whether you agree or disagree with the financial reporting practice employed and briefly explain the reason for your answer. 1. The controller of the Dumars Corporation increased the carrying value of land from its original cost of recently appraised value of $3.5 million. 2. The president of Vosburgh Industries asked the company controller to charge miscellaneous expense for the purchase of an automobile to be used solely for personal use. 3. At the end of its 2018 fiscal year, Dower, Inc., received an order from a customer for $45.350. The merchandise will ship early in 2019. Because the sale was made to a long-time customer, the controller recorded the sale in 2018 4. At the beginning of its 2018 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 describged a pending lawsuit against Page 4 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 E 1-14 Basic assumptions and principles L01-712 through L01-90 Listed below are accounting concepts discussed in this chapter a. Economic entity assumption b. Going concern assumption

Explanation / Answer

Solution-

1) Disagree

Reason-Accountants are guided by the cost principle. This requires accountants to report assets at their cost when acquired—not their replacement cost or market value. The historical cost is an objective amount that can easily be audited. In contrast, the market value is subjective: one person thinks the land is worth $1 million while another thinks it's worth $1.5 million.

So valuation of land on cost price is more accurate and acceptable in Finacial reporting.

2) Disagree

Reason-Expenses which are not in related with office work or office purpose(i.e personal nature expenses),Can't charge in miscellanous expenses account.

3)Dis aggree

Reason- The Controller can't recored sale in 2018 beacuse only order is received in 2018 and Goods will Transfer in 2019. So sale will record in 2019 instead of 2018.That'why treatment of the controller is not correct.

4)Agree -

5) Agree- Any pending law suit against the company is always shown in notes to accounts.So i agree with the financial reporting employed.

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