Intermediate Accounting (2nd Edition)
2nd Edition
ISBN: 9780134730370
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Textbook Question
Chapter 2, Problem 2.21BE
Assumptions in Financial Reporting. Indicate the assumption (going concern, business/economic entity, monetary unit, or periodicity) that best fits the following scenarios.
| Scenario | Related Assumption |
| a. Monro Manufacturing requires that its division managers report to corporate headquarters on a monthly basis. | |
| b. Rainbow Paints, Inc. owns 15% of New Eljam Company. Rainbow does not consolidate this affiliate company because it cannot control New Eljam’s operations. | |
| c. Financial analysts at Nelson Corporation use an infinite-growth assumption in building a model to value the company. | |
| d. Factory buildings are reported on Jack Jones Warehousing Inc.’s balance sheet as the sum of the total cost of two plants; one of the plants was acquired m 1951 and the other was purchased in 2011. |
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The fact that generally accepted accounting principles allow companies flexibility in choosing between certain allocation methods can
make it difficult for a financial analyst to compare periodic performance from firm to firm.
Suppose you were a financial analyst trying to compare the performance of two companies. Company A uses the double-declining-
balance depreciation method. Company B uses the straight-line method. You have the following information taken from the 12/31/2024
year-end financial statements for Company B:
Income Statement
Book
Depreciation expense
$ 5,000
Balance Sheet
Assets:
Print
Plant and equipment, at cost
Less: Accumulated depreciation
Net
$ 100,000
(20,000)
Ferences
$ 80,000
You also determine that all of the assets constituting the plant and equipment of Company B were acquired at the same time, and that
all of the $100,000 represents depreciable assets. Also, all of the depreciable assets have the same useful life and residual values are
zero.
Required:
1. In…
Based on the background example of this assignment, kindly provide answer/working of this assignment please.
1) The person in charge of the finances of the company MGT, S.A. wants to know the company's situation concerning the industrial sector to which it belongs. For this, it has the following information regarding the industry:
a) General liquidity ratio is 1.55; the acid test is 1.20, and the ratio between the available and the current liabilities is 0.95.
b)The debt ratio stands at 1.25. The margin on sales is 21%. The investment rotation is 1.45 times.
c) Economic profitability is around 23%, and financial profitability is 29%
The data referred to the company (in thousands of €) are the following:
Assets
Liability and Net Equity
Non-current asset (net)
170
Equity
125
Stocks of finished products
45
Reservations
25
Clients
65
External Resources
105
Banks
70
Loans
65
Supplier
30
Total Assets
350
Total Net Equity…
Listed below are the current Accounting Assumptions and Principles
Economic Entity Assumption
Monetary Unit Assumption
Historical Cost Principle
Going Concern Assumption
Revenue Recognition Principle
Full Disclosure Principle
Time Period Assumption
Matching Principle
Required:
For the following situations, identify whether the situation represents a violation or a correct application of GAAP, and which assumption/principle is applicable.
g. Buckner Corp is being sued for $1,000,000. There is a probable chance they will lose. The company disclosed this fact in their notes to their financials.
Violation: (Yes/No)
Applicable Assumption/Principle:
h. Nixon Corp records and maintains their books at cost and/or current value, not at a liquidated value.…
Chapter 2 Solutions
Intermediate Accounting (2nd Edition)
Ch. 2 - Prob. 2.1QCh. 2 - Prob. 2.2QCh. 2 - Why is a conceptual framework of accounting...Ch. 2 - Prob. 2.4QCh. 2 - Prob. 2.5QCh. 2 - Prob. 2.6QCh. 2 - Prob. 2.7QCh. 2 - What is predictive value?Ch. 2 - Prob. 2.9QCh. 2 - When is financial information considered...
Ch. 2 - Prob. 2.11QCh. 2 - Prob. 2.12QCh. 2 - Prob. 2.13QCh. 2 - What is the recognition principle and when is an...Ch. 2 - What is the revenue recognition principle and when...Ch. 2 - Prob. 2.16QCh. 2 - When are expenses recognized under IFRS?Ch. 2 - How are transactions recorded under accrual...Ch. 2 - Prob. 2.19QCh. 2 - Prob. 2.20QCh. 2 - Prob. 2.1BECh. 2 - Prob. 2.2BECh. 2 - Objective of Financial Reporting. Explain the...Ch. 2 - Prob. 2.4BECh. 2 - Fundamental and Enhancing Characteristics....Ch. 2 - Prob. 2.6BECh. 2 - Prob. 2.7BECh. 2 - Prob. 2.8BECh. 2 - Fundamental and Enhancing Characteristics....Ch. 2 - Faithful Representation. Match the component of a...Ch. 2 - Prob. 2.11BECh. 2 - Prob. 2.12BECh. 2 - Capital Maintenance Adjustments, IFRS. Describe...Ch. 2 - Expense Recognition. Discuss the three main...Ch. 2 - Element Definitions. Identify whether the...Ch. 2 - Prob. 2.16BECh. 2 - Element Definitions, U.S. GAAP, IFRS. Identify...Ch. 2 - Prob. 2.18BECh. 2 - Measurement Bases. Match the measurement basis...Ch. 2 - Cash versus Accrual Bases of Accounting. The...Ch. 2 - Assumptions in Financial Reporting. Indicate the...Ch. 2 - Conceptual Framework. Noeleen Auto Mall, Ltd....Ch. 2 - Qualitative Characteristics. Referring to the...Ch. 2 - Prob. 2.3ECh. 2 - Prob. 2.4ECh. 2 - Terms and Concepts. Complete the following...Ch. 2 - Prob. 2.6ECh. 2 - Cash versus Accrual Bases of Accounting. Top Notch...Ch. 2 - Cash vs. Accrual. you are provided the following...
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