Correctly State The Letters Of The Principles Assu

Correctly State The Letter Or Letters Of The Principles Assumption

Correctly state the letter or letters of the principle(s), assumption(s), or concept(s) used to justify the accounting procedure followed. These procedures are all correct. Principle(s), assumption(s), concept(s): A. Business entity. B. Conservatism. C. Earning principle of revenue recognition. D. Going concern (continuity). E. Exchange-price (cost) principle. F. Matching principle. G. Period cost (or principle of immediate recognition of expense). H. Realization principle. I. Stable dollar assumption.

Accounting procedures: Correctly state the letter or letters of the principle(s), assumption(s), or concept(s) used to justify the accounting procedure followed for the accounting procedures. 1. Inventory is recorded at the lower of cost or market value. 2. A truck purchased in January was reported at 80 percent of its cost even though its market value at year-end was only 70 percent of its cost. 3. The collection of $40,000 of cash for services to be performed next year was reported as a current liability. 4. The president's salary was treated as an expense of the year even though he spent most of his time planning the next two years' activities. 5. No entry was made to record the company's receipt of an offer of $800,000 for land carried in its accounts at $435,000. 6. A supply of printed stationery, checks, and invoices with a cost of $8,500 was treated as a current asset at year-end even though it had no value to others. 7. A tract of land acquired for $180,000 was recorded at that price even though it was appraised at $230,000, and the company would have been willing to pay that amount. 8. The company paid and charged to expense the $4,200 paid to Craig Nelson for rent of a truck owned by him.

Paper For Above instruction

The determination and application of accounting principles, assumptions, and concepts are fundamental for maintaining consistency, reliability, and comparability in financial reporting. Each specific accounting procedure is justified by one or more of these foundational principles, ensuring that financial statements faithfully represent the company's financial position and performance.

1. Inventory Valuation at Lower of Cost or Market Value (Procedure 1)

The practice of recording inventory at the lower of cost or market value aligns with the Conservatism principle (B). This principle encourages practitioners to avoid overstating assets and income by recognizing potential losses immediately, but not gains until realized. In this case, inventory is valued conservatively, recognizing if market value drops below cost, thus preventing overstatement of assets on the balance sheet.

2. Reporting Truck at 80 Percent of Cost (Procedure 2)

The reporting of the truck at 80 percent of its cost, despite a lower market value, relates primarily to the Historical Cost principle (E) and is also influenced by the Consistency principle. The historical cost concept dictates that assets should be recorded at their original purchase price, providing objectivity and verifiability. Although firms might consider market value, depreciation or impairment adjustments are usually made if required, but in this case, the original cost basis was maintained.

3. Cash Collection for Future Services as a Liability (Procedure 3)

The recognition of cash received for future services as a current liability reflects the Realization principle (H) and the Matching principle (F). The revenue has not been earned yet, so recognizing it as a liability ensures that revenues are recognized in the period in which they are earned, aligning with the revenue recognition criteria and ensuring proper matching of income and expenses.

4. Salary Treated as Expense in the Year (Procedure 4)

This procedure adheres to the Matching principle (F), which requires expenses to be recognized in the period they are incurred to generate revenue. Even though the president’s time spans multiple years, the salary paid within the current fiscal year is recorded as an expense to reflect the costs associated with the current period’s operations.

5. Not Recording the Sale of Land at the Offer Price (Procedure 5)

The decision not to record the land sale at the offer price of $800,000 is consistent with the Realization principle (H). Revenue should only be recognized when an exchange has effectively occurred and the sale is realized or realizable, which has not yet happened as the transaction is merely an offer, not an actual sale.

6. Treating Stationery as a Current Asset (Procedure 6)

The stationery with a cost of $8,500 is recognized as an asset at year-end, which aligns with the Historical cost principle (E) and the Materiality concept. Although the stationery has no value to others, it has initial cost value recorded on the books because it provides economic benefit until used; thus, it is classified as a current asset until consumed.

7. Land Recorded at Cost Despite Higher Appraisal (Procedure 7)

The land is recorded at historical cost ($180,000), following the Cost principle (E). According to this principle, assets are initially recorded at their purchase price and are not subsequently adjusted for market value unless impaired. Although an appraisal suggests a higher value, the cost basis remains appropriate unless impairment occurs.

8. Expense for Rent Paid to Craig Nelson (Procedure 8)

The payment to Craig Nelson for truck rent is expense recognition based on the Period costs (G) concept and the Realization principle (H). The expense is recognized when incurred, matching it with the period it relates to, regardless of whether the owner is the same individual as the stockholder, emphasizing the objectivity and consistency in accounting.

Conclusion

In summary, each of the procedures discussed can be justified by specific accounting principles, assumptions, and concepts. These principles collectively underpin the credibility, comparability, and fairness of financial reporting, guiding accountants in their judgments across diverse scenarios. Recognizing and applying these principles correctly ensures that financial statements are both reliable and meaningful for stakeholders.

References

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