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ConceptAndPrinciples[1] - CONCEPTS AND PRINCIPALS 1...

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CONCEPTS AND PRINCIPALS 1. Accounting principles are broad guides to accounting practice. (a) How do these principles differ from the principles relating to the physical sciences? (b) Of what significance is acceptability in the development of accounting principles? (c) Why must accounting principles be continually reexamined and revised? 2. What role does the Financial Accounting Foundation play in the development of accounting principles? 3. What body is currently dominant in the development of (a) generally accepted accounting principles for business enterprises and (b) principles for state and municipal governments? 4. For accounting purposes, what is the nature of the assumption as to the length of life of an enterprise? 5. Plant assets are reported on the balance sheet at a total cost of $500,000, less accumulated depreciation of $300,000. (a) Is it possible that the assets might realize considerably more or considerably less than $200,000 if the business were discontinued and the assets were sold separately? (b) Why aren't plant assets reported on the balance sheet at their estimated market values? 6. During the current year, a mortgage note payable for $250,000, issued by Parson Company 10 years ago, became due and was paid. Assuming that the general price level had increased by 50% during the 10-year period, did the loan result in an increase or a decrease in Parson Company's purchasing power? Explain. 7. A machine with a cost of $75,000 and accumulated depreciation of $60,000 will soon need to be replaced by a similar machine that will cost $125,000. (a) At what amount should the machine presently owned be reported on the balance sheet? (b) What amount should management use in planning for the cash required to replace the machine? 8. During July, merchandise costing $150,000 was sold for $225,000 in cash. Because the purchasing power of the dollar has declined, it will cost $160,000 to replace the merchandise. (a) What is the amount of gross profit in July? (b) Assuming that all operating expenses for the month are paid in cash and that the owner withdraws cash in the amount of the net income, would there be enough cash remaining from the $225,000 of sales to replace the merchandise sold? Discuss. 9. Conventional financial do not give recognition to the instability of the purchasing power of the dollar, How can the effect of the fluctuating dollar on business operations be presented to the users of the financial statements? 10. What is the current cost of an asset? 11. If land was purchased for 80,000 when the general level index was 220, and price level index has risen 242, what Is the constant dollar equivalent of the original cost of the land? 12. Is revenue from sales of merchandise on account more commonly recognized at the time of sale or at the time of cash receipt? 13. During the current year, merchandise costing $150,000 was sold on the installment plan for $250,000.
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