Midterm CCFC 511 Fall 2005 - Solutions

Midterm CCFC 511 Fall 2005 - Solutions - Financial...

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Financial Accounting 1 Suggested Solution – MidTerm – Fall 2005 Question 1 – 10 Marks A) Extraordinary item – event is infrequent and unusual, although management is responsible for safeguarding the company’s assets self-insurance is an option open to them. The extraordinary loss would be presented net of tax. B) Unusual or infrequent, but not both – Companies face litigation risk and depending on the circumstances may be an unusual or infrequent occurrence. The loss would likely be presented as an “Other Loss” C) Ordinary business operations – this loss is expected to recur as management annually reviews which franchise locations are underperforming and should be closed. It appears to be a part of their regular business decisions. D) Unusual or infrequent, but not both – Although this loss is the first such loss for the company it’s not unusual for companies in this industry to experience strikes. The loss would likely be presented as an “Other Loss” E) Unusual or infrequent, but not both – The gain/loss is not unusual but the gain/loss is infrequent in this case and would likely be presented as an “Other Gain/Loss”
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Question 2 – 5 Marks 1. HISTORICAL COST PRINCIPLE 2. REVENUE RECOGNITION PRINCIPLE 3. FULL DISCLOSURE PRINCIPLE 4. ECONOMIC ENTITY ASSUMPTION 5. MATERIALITY CONCEPT
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Question 3. First, a revenue recognition policy must be chosen - use of the installment method is not appropriate in the circumstances as the company seems to be collecting on its billings
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This note was uploaded on 01/09/2010 for the course ACCT 351 taught by Professor Desmondtsang during the Spring '08 term at McGill.

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Midterm CCFC 511 Fall 2005 - Solutions - Financial...

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