Question

Conceptual Framework:

For each of the following situations, state whether you agree or disagree with the financial reporting practice employed, and then briefly explain the reason and proper treatment if you disagree. Use the conceptual framework as your guide in deriving your answer.

The controller of the Dumars Corporation increased the carrying value of land from its original cost of $2 million to its recently appraised value of $3.5 million.

The president of Vosburgh Industries asked the company controller to charge miscellaneous expense for the purchase of an automobile to be used solely for personal use.

At the end of its 2016 fiscal year, Dower, Inc., received an order from a customer for $45,350. The merchandise will ship early in 2017. Because the sale was made to a long-time customer, the controller recorded the sale in 2016.

At the beginning of its 2016 fiscal year, Rossi Imports paid $48,000 for a two-year lease on warehouse space. Rossi recorded the expenditure as an asset to be expensed equally over the two-year period of the lease.

The Reliable Tire Company included a note in its financial statements that described a pending lawsuit against the company.

The Hughes Corporation, a company whose securities are publicly traded, prepares monthly, quarterly, and annual financial statements for internal use but disseminates to external users only the annual financial statements.

Answer 1

he controller of the Dumars Corporation increased the carrying value of land from its original cost of $2 million to its recently appraised value of $3.5 million. Disagree because it violated historical cost concept

The president of Vosburgh Industries asked the company controller to charge miscellaneous expense for the purchase of an automobile to be used solely for personal use. Disagree because it violate entity econominc asumption

At the end of its 2016 fiscal year, Dower, Inc., received an order from a customer for $45,350. The merchandise will ship early in 2017. Because the sale was made to a long-time customer, the controller recorded the sale in 2016. Disagree because it violated revenue recognition concept

At the beginning of its 2016 fiscal year, Rossi Imports paid $48,000 for a two-year lease on warehouse space. Rossi recorded the expenditure as an asset to be expensed equally over the two-year period of the lease. Agree as it is in line with matching princple

The Reliable Tire Company included a note in its financial statements that described a pending lawsuit against the company.  Agree as the case is fully disclosed

The Hughes Corporation, a company whose securities are publicly traded, prepares monthly, quarterly, and annual financial statements for internal use but disseminates to external users only the annual financial statements. Disagree because it violated periodicity assumption.

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