Revenue Analysis
EXERCISES
2.1
Instructions
Select the assumption, principle, or constraint that most appropriately justifies these procedures and practices.
(Do not use qualitative characteristics.)
(a) Market value changes are not recognized in the accounting records.
(b) Lower of cost or market is used to value inventories.
(c) Financial information is presented so that investors will not be misled.
(d) Intangible assets are capitalized and amortized over periods benefited.
(e) Repair tools are expensed when purchased.
(f) Agricultural companies use market value for purposes of valuing crops.
(g) Each enterprise is kept as a unit distinct from its owner or owners.
(h) All significant postbalance sheet events are reported.
(i) Revenue is recorded at point of sale.
(j) All important aspects of bond indentures are presented in financial statements.
(k) Rationale for accrual accounting.
(l) The use of consolidated statements is justified.
(m) Reporting must be done at defined time intervals.
(n) An allowance for doubtful accounts is established.
(o) All payments out of petty cash are charged to Miscellaneous Expense. (Do not use conservatism.)
2-2 Presented below are a number of facts related to R. Kelly, Inc. Assume that no mention of these facts was made in the financial statements and the related notes.
Instructions
Assume that you are the auditor of R. Kelly, Inc. and that you have been asked to explain the appropriate accounting and related disclosure necessary for each of these items.
(a) The company decided that, for the sake of conciseness, only net income should be reported on the income statement. Details as to revenues, cost of goods sold, and expenses were omitted.
(b) Equipment purchases of $170,000 were partly financed during the year through the issuance of a $110,000 notes payable. The company offset the equipment against the notes payable and reported plant assets at $60,000.
(c) R. Kelly has reported its ending inventory at $2,100,000
2.1
Instructions
Select the assumption, principle, or constraint that most appropriately justifies these procedures and practices.
(Do not use qualitative characteristics.)
(a) Market value changes are not recognized in the accounting records.
(b) Lower of cost or market is used to value inventories.
(c) Financial information is presented so that investors will not be misled.
(d) Intangible assets are capitalized and amortized over periods benefited.
(e) Repair tools are expensed when purchased.
(f) Agricultural companies use market value for purposes of valuing crops.
(g) Each enterprise is kept as a unit distinct from its owner or owners.
(h) All significant postbalance sheet events are reported.
(i) Revenue is recorded at point of sale.
(j) All important aspects of bond indentures are presented in financial statements.
(k) Rationale for accrual accounting.
(l) The use of consolidated statements is justified.
(m) Reporting must be done at defined time intervals.
(n) An allowance for doubtful accounts is established.
(o) All payments out of petty cash are charged to Miscellaneous Expense. (Do not use conservatism.)
2-2 Presented below are a number of facts related to R. Kelly, Inc. Assume that no mention of these facts was made in the financial statements and the related notes.
Instructions
Assume that you are the auditor of R. Kelly, Inc. and that you have been asked to explain the appropriate accounting and related disclosure necessary for each of these items.
(a) The company decided that, for the sake of conciseness, only net income should be reported on the income statement. Details as to revenues, cost of goods sold, and expenses were omitted.
(b) Equipment purchases of $170,000 were partly financed during the year through the issuance of a $110,000 notes payable. The company offset the equipment against the notes payable and reported plant assets at $60,000.
(c) R. Kelly has reported its ending inventory at $2,100,000