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NP_10e_Ch04_Solutions - P4-1 Miscellaneous Cases 1 Lipski...

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P4-1 Miscellaneous Cases 1. Lipski Company Changing the method of accounting for depreciation of office furniture could violate the restated using the new method so as to allow for a year-to-year comparison of financial performance. 2. Gomez Corporation Reclassifying operating expenses from a more general approach to one where a distinction is made between Selling Expenses and Administrative Expenses could be justified if it the new method outweighed the costs. 3. Param Corporation By not reporting an illegal bribe made by a company official, the company would violate the company should be left out. In addition, any information that might affect a reader's classified not whether it should be reported. 4. K & T Bookstore acquisition of a long-term asset that is expected to provide benefits to the company over several years. Conservatism only applies when there are more than one reasonable methods to account for a transaction. This is not the case here. 5. Chang Company By not disclosing what inventory method they are using, this company is violating the to account for inventory and this knowledge may affect their evaluation of the company its profitability. Consistency Convention unless the nature and reasons for the changes are fully explained in the Notes to the Financial Statements . In addition, the two prior years need to be met the Cost/Benefit Convention . In other words, it would make sense if the benefits of the Principle of Full Disclosure . No transactions which affect the financial condition of opinion or decision about the company should be included. Invoking the Materiality Convention is not appropriate since it applies only to how the transaction should be Despite the uncertainty surrounding the future, the addition should be recorded as Property, Plant & Equipment and depreciated over its useful life. While expensing this cost would conform to the Conservatism Convention , it would not be a fair characterization of the Principle of Full Disclosure . It is important for some readers to know the method used
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P4-2 Doug's Hardware Corporation 1. Multistep Income Statement Doug's Hardware Corporation Income Statements For the Years Ended July 31, 2011 & 2010 2011 % 2010 % Net sales $464,200 100.0% $388,466 100.0% Cost of goods sold $243,880 52.5% $198,788 51.2% Gross margin $220,320 47.5% $189,678 48.8% Operating expenses: Selling expenses $95,160 20.5% $55,644 14.3% General & administrative expenses $90,840 19.6% $49,286 12.7% Total operating expenses $186,000 40.1% $104,930 27.0% Income from operations $34,320 7.4% $84,748 21.8% Other revenues & expenses Interest income $1,420 0.3%
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