Question

Select the assumption, principle, or constraint that most appropriately justifies these procedures and practices. (Do not use qualitative characteristics.) (a) Fair value changes are not recognized in the accounting records. select an option (b) Financial information is presented so that investors will not be misled. select an option (c) Intangible assets are amortized over periods benefited. select an option (d) Agricultural companies use fair value for purposes of valuing crops. select an option (e) Each enterprise is kept as a unit distinct from its owner or owners. select an option (f) All significant post-balance-sheet events are disclosed. select an option (g) Revenue is recorded when the product is delivered. select an option (h) All important aspects of bond indentures are presented in financial statements. select an option (i) Rationale for accrual accounting. select an option (j) The use of consolidated statements is justified. select an option (k) Reporting must be done at defined time intervals. select an option (l) An allowance for doubtful accounts is established. select an option (m) Goodwill is recorded only at time of purchase. select an option (n) A company charges its sales commission costs to expense. select an option

Answer 1

Answer:

(a) Measurement (historical cost) principle.

(b) Full disclosure principle.

(c) Expense recognition principle.

(d) Measurement (fair value) principle.

(e) Economic entity assumption.

(f) Full disclosure principle.

(g) Revenue recognition principle.

(h) Full disclosure principle.

(i) Expense recognition and

revenue recognition principles.

(j) Economic entity assumption.

(k) Periodicity assumption.

(l) Expense recognition principle.

(m) Measurement (historical cost) principle.

(n) Expense recognition principle.

Explanation:

• A full disclosure in financial statements is an accounting principle which states that businesses should give a well detailed information or description about their financial statements for interested public view.

• Economic entity assumption is an accounting principle which states that economic activities can be identified with a particular unit of accountability.

• Historical cost principle is an accounting principle which states that assets should be recorded at the cost at which they were acquired i.e their acquisition cost.

• Periodicity assumption states that the economic life of a business can be divided into artificial time periods. It is also known as the Time period assumption.

• The expense recognition principle is an accounting principle which is typically used on accrual basis accounts and it states that expenses incurred by an individual or business entity should be recognized and matched in the same period with respect to the revenues they are related to.

a) Fair value changes are not recognized in the accounting records: Measurement (historical cost) principle.

(b) Financial information is presented so that investors will not be misled: Full disclosure principle.

(c) Intangible assets are amortized over periods benefited: Expense recognition principle.

(d) Agricultural companies use fair value for purposes of valuing crops: Measurement (fair value) principle.

(e) Each enterprise is kept as a unit distinct from its owner or owners: Economic entity assumption.

(f) All significant post-balance-sheet events are disclosed: Full disclosure principle.

(g) Revenue is recorded when the product is delivered: Revenue recognition principle.

(h) All important aspects of bond indentures are presented in financial statements: Full disclosure principle.

(i) Rationale for accrual accounting: Expense recognition and

revenue recognition principles.

(j) The use of consolidated statements is justified: Economic entity assumption.

(k) Reporting must be done at defined time intervals: Periodicity assumption.

(l) An allowance for doubtful accounts is established: Expense recognition principle.

(m) Goodwill is recorded only at time of purchase: Measurement (historical cost) principle.

(n) A company charges its sales commission costs to expense: Expense recognition principle.