Concept Introduction:
Revenue recognition principle- It states that revenue should be recognized and reported in financial statementswhen services or products are provided to the customers and not the payment is received. In other words, entity should not report income when they receive cash from their customers to record revenue from sales. This principle is consistent with accrual basis of accounting.
Requirement 1:
To determine the principle if Quagmire company recognizes revenue when goods are delivered to a customer, even though cash will not be collected from customer for 30 days.
Concept Introduction:
Conservatism principle- This principle states that the accountant should always be conservative in recording all uncertain or estimated revenue and always record and report all uncertain expense or loss.
Requirement 2:
To determine the principle when inventory, which was damaged by flood, is reported at the lower of its cost or market value.
Concept Introduction:
Historical cost- It states that the resources reported in financial statements should be recorded at initial acquisition cost that is the exchange price at the time the resource is acquired.
Requirement 3:
To determine the principle when land, located in a desirable location, is reported at original acquisition price, even though its value has increased by over 100% since it was purchased.
Concept Introduction:
Expense recognition principle- It states that all expenses in a business should be recognized and reported in the same time-period as the revenue the business generates. It can be the same time when the cash is paid, or it might predate or follow with the revenue amount realized. This is commonly referred as matching principle.
Requirement 4:
To determine the principle when the cost paid for a delivery truck is recorded as an asset and expensed over the next 5 years as it is used to help generate revenue.
Trending nowThis is a popular solution!
Chapter 2 Solutions
Cornerstones of Financial Accounting
- Question: 1) A delivery vehicle purchased by XYZ Ltd two years ago for $50 000 will be recorded at its original/initial price in the Balance Sheet of XYZ Ltd today. This accounting assumption is known as: option: A. Matching principle B. Accounting entity concept C. Consistency D. Historical cost concept Required: please answer this question by choosing the correct answer.arrow_forwardFinancial Statement Preparation AE 221 Problem 1: Lutus Company provided the following adjusted trial balance on December 31, 2021: Sales Share of profit of associate Other income Decrease in inventory of finished goods Raw materials and consumables used Employee benefit expense Translation gain on foreign operations Depreciation Impairment loss on property Finance cost 9,750,000 150,000 300,000 250,000 3,500,000 1,500,000 300,000 450,000 800,000 350,000 450,000 900,000 200,000 Other expenses Income tax expense Unrealized gain on option contract designated as cash flow hedge Required: Prepare a single statement of comprehensive income for the year ended December 31, 2021.arrow_forwardPart One DaYs Sales Outstanding Data: 2018: 26.05 2019: 32.25 2020: 29.69 2021:36.43 2022: 35.05 Based on your analysis from Part One, which of the following transactions and events would result in an improvement in Days Sales Outstanding in year 2022? A) recognising the impairment of plant & equipment B) the recognition of income tax expense owing at the end of the period C) recognising the increase in market value of land D) A and B only E) A and C only F) B and C only G) All of the above H) None of the abovearrow_forward
- Return on assets The financial statements of The Hershey Company (HSY) are shown in Exhibits 6 through 9 of this chapter. Based upon these statements, answer the following questions. The percent that a company adds to its cost of sales to determine the selling price is called a markup. That is Hershey’s markup percent? Round to one decimal place.arrow_forwardAnalyze Home Depot The Home Depot (HD) reported the following data (in millions) in its recent financial statements: a. Determine the asset turnover ratio for Home Depot for Year 2 and Year 1. Round to two decimal places. b. What conclusions can be drawn from these ratios concerning the change in the ability of Home Depot to effectively use its assets to generate sales?arrow_forwardQuestion 8 The Sleazy Corporation prepared the following statement of income and comparative statements of financial position for 2023. SLEAZY CORPORATION Income Statement For the Year Ended 31 January 2023 Sales Less: Cost of Goods Sold Gross Profit Less: Depreciation expense Other operating expenses Plus: Gain on Sale of Equipment Income Before Taxes Income Taxes Net Income SLEAZY CORPORATION Statement of Financial Position At January 31 Assets Cash Accounts Receivable Temporary Investments Merchandise Inventory Property, Plant, and Equipment Less: Accumulated Depreciation Total Assets Liabilities and Shareholders' Equity Accounts Payable Other Accrued Payables Bonds Payable Common Shares Retained Earnings Total Liabilities & Shareholders' Equity $840,000 385,000 455,000 68,600 85,400 49,000 350,000 70,000 $280,000 ======= 2023 $ 14,000 89,600 35,000 336,000 350,000 (75,600) $749,000 ======== $ 70,000 49,000 140,000 210,000 280,000 $749,000 ======== 2022 $ 12,600 77,000 35,000…arrow_forward
- Assessment #1 Cost Classification Inventory valuation PART 2 The Angla Ruston University operates a Laundromat, solely for the purpose of providing laundering services to students in residence. You have been hired as accounting students to analyze the cost of the laundering services and develop a cost function which describes the behaviour of the laundering costs. The university administration has assembled the data for a twelve-month period pertaining to the monthly total costs of providing the service and the corresponding number of students who used the laundering facilities each month. You were recently taught how to use the Excel graphing tool and a member of the team successfully generated the scattergram given below from the data set provided. Total Laundering Costs 300,000 250,000 200,000 150,000 100,000 50,000 0 0 ANGLA RUSTON UNIVERSITY SCATTER DIAGRAM 500 1,000 1,500 Line of Best Fit # of Students Laundering 2,000 2,500 3,000 The other team members are now tasked to use the…arrow_forwardEstimating Useful Life and Percent Used Up The property and equipment section of the lululemon athletica 2018 balance sheet follows. Property and Equipment (in thousands) Feb. 3, 2019 Jan. 28, 2018 Land $78,636 $83,048 Buildings 38,030 39,278 Leasehold improvements 362,571 301,449 Furniture and fixtures 103,733 91,778 69,542 61,734 230,689 173,997 15,009 14,806 74,271 51,260 972,481 817,350 (405,244) $567,237 Computer hardware Computer software Equipment and vehicles Work in progress Property and equipment, gross Accumulated depreciation Property and equipment, net (343,708) $473,642 Depreciation expenses related to property and equipment was $122.4 million and $108.00 million, for the years ended February 3, 2019, and January 28, 2018, respectively.arrow_forward1. Resto supplies incorporated takes 32,000 loss on a number of older ovens in its inventory; it paid the manufacturer 170,000 for them but can sell them for only 75,000. Choices: a. Full disclosure principle b. Time period assumption c. Materiality constraint d. Cost Principle e. Revenue recognition principle f. Conservatism Constraint g. Matching principle h. Economic entity assumption i. Monetary unit j. Going concern k. Some other answers 2. A hotel corporation is preparing its end of year financial statements. Management has informed the accountant that in six weeks it will begin to close 12 of its properties. The accountant will provide information related to these future actions on the current end of year financial statements because of the _______ principle. Choices: a. Full disclosure principle b. Time period assumption c. Materiality constraint d. Cost Principle e. Revenue recognition principle f. Conservatism Constraint g. Matching principle h. Economic entity assumption…arrow_forward
- Question 1The Alpha Manufacturing Co. present the following information for the year ended 31st December 2019 Sales: $ 252000 Commission: 2500Sales Returns and Allowances: 2000 Advertising: 4000 Purchases of Raw Material: 96200Depreciation of Sales Office: 2200 Carriage In: 300 Traveling Expense: 1800 Direct Labour: 40000 Bad Debts : 700 Purchases Return: 1200 Salaries: 2000 Indirect Material: 4300Stationery Used: 1125Indirect Labour : 4700Rent of Office: 1500 Rent of Factory: 3500Interest Received: 1110 Factory Taxes: 1150 Interest Paid: 275 Insurance of Factory Building: 1500Depreciation of Plant and Machinery: 3425 Heat, Light and Power: 2225INVENTORIES January 1 Dec. 31Finished Goods …………………….. $ 17600 $15300Work in Progress ……………………. 16100 13900Materials ……………………………… 9000 15300 Required:Cost of goods sold StatementIncome Statement.arrow_forwardProblem 16-1 (IAA) Roxas Company reported the following net income: 2020 2021 1,750,000 2,000,000 An examination of the accounting records for the year ended December 31, 2021 revealed that several errors were made. The following errors were discovered: Salary accrued at year-end was consistently omitted: 2020 2021 100,000 140,000 The footings and extensions showed that the inventory on December 31, 2020 was overstated by P190,000. Prepaid insurance of P120,000 applicable to 2022 was expensed in 2021. Interest receivable of P20,000 was not recorded on December 31, 2021. On January 1, 2021 an equipment costing P400,000 was sold for P220,000. At the date of sale, the equipment had accumulated depreciation of P240,000. The cash received was recorded as miscellaneous income in 2021. In addition, depreciation was recorded for the equipment for 2021 at the rate of 10%. Required: a. Prepare worksheet showing corrected net income for 2020 and 2021. b. Prepare adjusting entries on December 31,…arrow_forwardQuestion 1: Following amounts have been Extracted from the records of Monday Limited. Description 2019 2018 - Rs. In 000- Sales 32,875 31,390 Gross profit 16,880 14,310 Profit for the year 3,300 2,700 Account receivable 3,860 2,510 Account payable 4,660 2,890 Inventory 430 445 Cash at bank 12 37 Bank overdraft 280 40 Monday Limited secured a large new contract to supply goods to a large departmental store across a two year period from 1st July 2019. Monday Limited normally offers wholesale customers 30 days’ credit, but department store would only agree to the contract with 90 days credit terms. The directors of Monday Limited agreed to this as they believed it was worth it to have their products placed with this department store. Monday Limited has an average 45 day credit from its suppliers. The bank overdraft is used to fund working capital and currently has a limit of Rs.300,000.…arrow_forward
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage LearningFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning