Being the president of your firm
Chapter 1: Q 1-3, 1-4, 1-13, 1-14, & 1-15.
P: 1-1 & 1-5.
1-3 The president of your firm, Lesky and Lesky, has little background in accounting. Today, he walked into 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.
1-4 Identify the accounting principle(s) applicable to each of the following situations: a. Tim Roberts owns a bar and a rental apartment and operates a consulting service. He has separate financial statements for each. b. An advance collection for magazine subscriptions is reported as a liability titled Unearned Subscriptions. c. Purchases for office or store equipment for less than $25 are entered in Miscellaneous Expense. d. A company uses the lower of cost or market for valuation of its inventory. e. Partially completed television sets are carried at the sum of the cost incurred to date. f. Land purchased 15 years ago for $40,500 is now worth $346,000. It is still carried on the books at $40,500. g. Zero Corporation is being sued for $1 million for breach of contract. Its lawyers believe that the damages will be minimal. Zero reports the possible loss in a note.
Q 1-13 An arbitrary write-off of inventory can be justified under the conservatism concept. Is this statement true or false? Discuss.
Q 1-14 Inventory that has a market value below the historical cost should be written down in order to recognize a loss. Comment.
Q 1-15 There are other acceptable methods of recognizing revenue when the point of sale is not acceptable. List and discuss the other methods reviewed in this chapter, and indicate when they can be use
1-1 FASB Statement of Financial Accounting Concepts No. 2 indicates several qualitative characteristics of useful accounting information. Following is a list of some of these qualities, as well as a list of statements and phrases describing the qualities.
a. Benefits > costs
b. Decision usefulness
c. Relevance
d. Reliability
e. Predictive value, feedback value, timeliness
f. Verifiability, neutrality, representational faithfulness
g. Comparability
h. Materiality
i. Relevance, reliability
1. Without usefulness, there would be no benefits from information to set against its cost.
2. Pervasive constraint imposed on financial accounting information.
3. Constraint that guides the threshold for recognition.
4. A quality requiring that the information be timely and that it also have predictive value, feedback value, or both.
5. A quality requiring that the information have representational faithfulness and that it be verifiable and neutral.
6. These are the two primary qualities that make accounting information useful for decision making. 7. These are the ingredients needed to ensure that the information is relevant.
8. These are the ingredients needed to ensure that the information is reliable.
9. Includes consistency and interacts with relevance and reliability to contribute to the usefulness of information.
Chapter 2: P 2-1, P 2-6 & P 2-9.
2-1 Mike Szabo Company engaged in the following transactions during the month of December
2 Made credit sales of $4,000 (accepted accounts receivable).
6 Made cash sales of $2,500. Paid office salaries of $500.
10 Sold land that originally cost $2,200 for $3,000 cash.
14 Paid $6,000 for equipment. Billed clients $900 for services (accepted accounts receivable).
24 Collected $1,200 on an account receivable.
28 Paid an account payable of $70
Required Record the transactions, using T-account
