ch2 - h. All significant post-balance sheet events are...

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Exercises on Chapter 2 Exercise 2-5 (Assumptions, Principles, and Constraints) Presented below are a number of operational guidelines and practices that have developed over time. Instructions: Select the assumption, 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 PRINCIPLE b. Lower of cost or market is used to value inventories. CONSERVATISM c. Financial information is presented so that investors will not be misled. FULL DISCLOSURE PRINCIPLE d. Intangible assets are capitalized and amortized over periods benefited. MATCHING PRINCIPLE e. Repair tools are expensed when purchased. MATERIALITY f. Agricultural companies use market value for purposes of valuing crops. INDUSTRY PRACTICES g. Each enterprise is kept as a unit distinct from its owner or owners. ECONOMIC ENTITY ASSUMPTION
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Unformatted text preview: h. All significant post-balance sheet events are reported. FULL DISCOSURE PRINCIPLE i. Revenue is recorded at point of sale. REVENUE RECOGNITION PRINCIPLE j. All important aspects of bond indentures are presented in financial statements. FULL DISCLOSURE PRINCPLE k. Rationale for accrual accounting. MATCHING PRINCIPLE l. The use of consolidated statements is justified. ECONOMIC ENTITY ASSUMPTION m. Reporting must be done at defined time intervals. PERIODICITY ASSUMPTION n. An allowance for doubtful accounts is established. MATCHING PRINCIPLE o. All payments out of petty cash are charged to Miscellaneous Expense. (Do not use conservatism) MATERIALITY p. Goodwill is recorded only at time of purchase. HISTORICAL COST PRINCIPLE q. No profits are anticipated and all possible losses are recognized. CONSERVATISM r. A company charges its sales commission costs to expense. MATCHING PRINCIPLE...
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ch2 - h. All significant post-balance sheet events are...

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