Monday, September 22, 2014

Exercise 1-13 Basic assumptions and principles

Exercise 1-13 Basic assumptions and principles [LO1-7, 1-8, 1-9]
For each of the following situations, state whether you agree or disagree with the financial reporting practice employed, and briefly explain the reason for 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 2013 fiscal year, Dower, Inc., received an order from a customer for $45,350. The merchandise will ship early in 2014. Because the sale was made to a long-time customer, the controller recorded the sale in 2013.
At the beginning of its 2013 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.

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Exercise 1-2 Accrual accounting - Intermediate Accounting Spiceland 7th Edition

Exercise 1-2 Accrual accounting [LO1-2]
Listed below are several transactions that took place during the second two years of operations for RPG Consulting.

Year 2 Year 3
  Amounts billed to customers for services rendered $ 430,000 $ 530,000
  Cash collected from credit customers 340,000 480,000
  Cash disbursements:
       Payment of rent 88,000 0
       Salaries paid to employees for services rendered during the year 148,000 168,000
       Travel and entertainment 38,000 48,000
       Advertising 19,000 43,000

     In addition, you learn that the company incurred advertising costs of $33,000 in year 2, owed the advertising agency $5,800 at the end of year 1, and there were no liabilities at the end of year 3. Also, there were no anticipated bad debts on receivables, and the rent payment was for a two-year period, year 2 and year 3.

Calculate accrual net income for both years.
Determine the amount due the advertising agency that would be shown as a liability on the RPG’s balance sheet at the end of year 2.

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