Exam 11: Accounting Principles

Which of the following is a constraint in financial reporting?

For each of the independent situations described below, list the assumption, concept, constraint or recognition criteria that have been violated, if any. List only one term for each case. 1. Mark McDougal, MD, had the clinic accountant prepare his personal tax return. He paid the accountant using clinic funds and debited the clinic's "Professional Fees" account. 2. Won Company does not use an account for allowance for doubtful accounts. Instead, accounts receivable are written off directly to Bad Debt Expense if they remain unpaid after 24 months. 3. Equipment is carried at its fair value on the Fontaine Company balance sheet, which is $25,000 higher than cost. Fontaine Company has not adopted the revaluation model for accounting for long-lived assets. 4. Depreciation Expense for the Sobowski Company is $15,000. The company will have a net loss of $12,000 if the Depreciation is recorded, but a Profit of $3,000 if Depreciation is deferred a year. The decision is made to defer the Depreciation to next year which is expected to be more profitable. 5. The land of Krypto Company is appraised at $200,000 more than its cost. The new accountant for the company recommends booking the appraised value and showing a "Gain from Revaluation" on the Income Statement. Krypto Company has not adopted the revaluation model for accounting for long-lived assets.

Going forward, there will be two sets of accounting standards for Canadian for profit companies.

Presented below are some business transactions that occurred during 2013 for Cahill Company: Instructions For each situation above, identify the assumption, concept, or constraint that has been violated, if any. If the entry is incorrect, prepare the entry that should have been made, if any.

If a company is not a going concern, then its assets will be presented at their net realizable value.

One of the conditions of recognizing revenue from sales of goods is that costs relating to the sale of the goods can be reliably measured.

If a company provides refunds to customers for goods returned then revenue is recognized at the time of the return of the goods.

Canadian and International standards are based on specific rules for accounting.

Under IFRS, a company can never change its accounting policies.

A persuasive constraint that ensures the value of the information provided is greater than the costs of providing it.

Financial statements are prepared for an economic business unit that is separate and distinct from its owners. This is referred to as

The level of disclosure contained in the notes to the financial statements is limited by the

When estimating amounts for accruals, it is NOT important that the estimate is supportable or verifiable because it is just an estimate.

Which of the following statements is NOT true?

The percentage-of-completion method

A common application of the cost constraint is 1) recording assets at cost. 2) not disclosing information that is not material and not required in the notes. 3) use of the FIFO cost flow assumption for inventory valuation.

The organization that is working toward uniformity in accounting practices throughout the world is the

Which statement below is NOT true?

IFRS will be the standard for all Canadian Companies.

The overriding criterion in evaluating the accounting information to be presented is