Question

C. For each of the following situations, (1.) indicate whether you agree or disagree with the

financial reporting practice employed, then (2.) name the accounting concept being properly

employed, or name the accounting concept being violated. (more than one answer may be

appropriate)

1. Loser Corporation did not disclose that it was the defendant in a material lawsuit because thetrial was still in progress.

2. Alliant Semiconductor Corporation files quarterly and annual financial statements with the SEC.

3. Reliant Pharmaceutical Inc. issues financial statements quarterly. It paid $450,000 rent in advance for the next three years on the office building it uses. Accounting intern charged the entire expenditure to Rent Expense.

4. Customer paid Rockville 20% of the $100,000 motor parts contract in advance. Rockville accounting postpones crediting its earned Revenue account until the motor parts are shipped.

Answer 1

Diagree because all material disclosures are to be reported in financial statements. The trial was still in progress but it was a material lawsuit and according to Materiality concept, all material information is to be reported in financial statements.

Agree because the reporting is done on timely basis and Periodicity concept is being followed here according to which financial statements are to be reported on periodic basis.

Agree because timely financial statements are being issued and disagree because the rent paid is recorded in the period in which it is paid i.e. expenses of a period are matched with the revenues of that period. Periodicity concept i.e. timely reporting is followed and matching concept is being violated.

Agree because they are recording the revenue when it becomes due and not when it is received. they are following Accural concept i.e. the expense adn revenues are recorded when they become due and not when they are actually received or paid.