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ASSIGNMENTExercise 2-7 (Assumptions, Principles, and Constraints)Presented below are the assumptions, principles and constraints used in this chapter1)Economic entity assumption2)Going-concern assumption3)Monetary unit assumption4)Periodicity assumption5)Historical-cost principle6)Matching principle7)Full disclosure principle8)Cost-benefit relationship9)Materiality10) Industry practices11) ConservationINSTRUCTIONSIdentify by number the accounting assumption, principle, or constraint that describes each situation below. Do not use a number more than once.a)Recognizes expenses based on contribution to revenues in the proper period6 - Matching Principleb)Indicated that market value changes subsequent to purchase are not recorded in the accounts. (Do not use revenue recognition principle).5 - Historical-cost Principlec)Ensures that all relevant financial information is reported.7 - Full Disclosure Principled)Rationale why plant assets are not reported at liquidation value (Do not use historical cost principle)2 - Going Concern Assumptione)Anticipates all losses, but reports no gains.11 - Conservatismf)Indicates that personal and business record keeping should be separately maintained.1 - Economic Entity Assumptiong)Separates financial information into time periods for reporting purposes.4 - Periodicity Assumptionh)Permits the use of market value valuation in certain specific situations.10 - Industry Practicesi)Requires that information significant enough to affect the decision of reasonably informed users should be disclosed. (Do not use full disclosure principle).9 - Materialityj)Assumes that the dollar is the "measuring stick" used to report on financial performance.3 - Monetary Unit Assumption
Exercise 2-8 (Assumptions, Principles, and Constraints)Presented below are a number of operational guidelines and practices that have developed over time.INSTRUCTIONSSelect the assumptions, principle, or constraint that most appropriately justifies these procedures and practices. (Do not use qualitative characteristics).a)Market value changes are not recognized in the accounting records.Historical Cost Principeb)Lower-of-cost-or-market is used to value inventories.