Solutions for chapter 7

Solutions for chapter 7 - PROBLEM 7-1B 1. Going concern...

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PROBLEM 7-1B 1. Going concern assumption. Liquidation value is not appropriate because it assumes that the enterprise will not continue. No entry is necessary. Only when liquidation appears imminent is the going concern assumption inapplicable. 2. Matching principle. The purchase of equipment should not be expensed immediately. Only costs which have no future benefit are recognized immediately as expenses. Reporting a lower net income is not a legitimate reason for expensing a piece of equipment. Therefore, the following entry is necessary in 2002: Depreciation Expense ($24,000 ÷ 6 years). ............... 4,000 Accumulated Depreciation—Equipment. .......... 4,000 3. Matching principle. Plant assets should be expensed in a rational and systematic manner. Deferring depreciation is not rational and systematic. Therefore, the following entry is necessary in 2002: Depreciation Expense. ................................................ 18,000 Accumulated Depreciation. ................................ 18,000
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Solutions for chapter 7 - PROBLEM 7-1B 1. Going concern...

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