1. The president of your firm, Lesky and Lesky, has little background in accounting. Today, he walked in to your office and said, “A year ago we bought a piece of land for $100,000. This year, inflation has driven prices up by 6%, and an appraiser just told us we could easily resell the land for $115,000. Yet our balance sheet still shows it at $100,000. It should be valued at $115,000. That’s what it’s worth. Or, at a minimum, at $106,000.” Respond to this statement with specific reference to the accounting principles applicable in this situation.
2. Identify the accounting principle(s) applicable to each of the following situations:
A. Tim Roberts owns a bar and a rental ...view middle of the document...
E. Going concern
5. Certain underlying considerations have had an important impact on the development of generally accepted accounting principles. Following is a list of these underlying considerations, as well as a list of statements describing them.
A. Going concern or continuity I. Industry practices
B. Monetary unit J. Verifiability
C. Conservatism K. Consistency
D. Matching L. Realization
E. Full disclosure M. Historical cost
F. Materiality N. Time period
G. Transaction approach O. Business entity
H. Accrual basis
______ 1. The business for which the financial statements are prepared is separate and distinct from the owners.
______ 2. The assumption is made that the entity will remain in business for an indefinite period of time.
______ 3. Accountants need some standard of measure to bring financial transactions together in a meaningful way.
______ 4. Revenue should be recognized when the earning process is virtually complete and the exchange value can be objectively determined.
______ 5. This concept deals with when to recognize the costs that are associated with the recognized revenue.
______ 6. Accounting reports must disclose all facts that may influence the judgment of an informed reader.
______ 7. This concept involves the relative size and importance of an item to a firm.
______ 8. The accountant is required to adhere as closely as possible to verifiable data.
______ 9. Some companies use accounting reports that do not conform to the general theory that underlies accounting.
______ 10. The accountant records only events that affect the financial position of the entity and, at the same time, can be reasonably determined in monetary terms.
______ 11. Revenue must be recognized when it is realized (realization concept), and expenses are recognized when incurred (matching concept).
______ 12. The entity must give the same treatment to comparable transactions from period to period.
______ 13. The measurement with the least favorable effect on net income and financial position in the current period must be selected.
______ 14. Of the various values that could be used, this value has been selected because it is objective and determinable.
______ 15. With this assumption, inaccuracies of accounting for the entity short of its complete life span are accepted.
6. What are the major sections of a statement of cash flows?
7. Identify the basic accounting equation.
8. Identify the usual forms of a business entity and describe the ownership characteristic of each.
9. If assets are $40,000 and stockholders’ equity is $10,000, how much are liabilities?
10. If assets are $ 100,000 and liabilities are $40,000, how much is...