Concept explainers
(a)
Introduction: The going concern concept indicates that the company will continue its operations for an indefinite period and will not liquidate in the early future. As per the accounting principles, company is considered as a going concern when there is no evidence to believe that it will cease its operations in near future.
To find:The description of continuity by Sprouse and Moonitz.
(b)
Introduction: The going concern concept indicates that the company will continue its operations for an indefinite period and will not liquidate in the early future. As per the accounting principles, company is considered as a going concern when there is no evidence to believe that it will cease its operations in near future.
To find:Whether historical cost of company’s assets is relevant while planning to buy a business. Also, determine the asset values that would be relevant to the decision of investment.
(c)
Introduction: The going concern concept indicates that the company will continue its operations for an indefinite period and will not liquidate in the early future. As per the accounting principles, company is considered as a going concern when there is no evidence to believe that it will cease its operations in near future.
To find: Whether continuity is presumed when company is bankrupt and plans to liquidate its assets. Also, determine the impact of lack of continuity on measurement of assets.
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EBK FINANCIAL ACCOUNTING THEORY AND ANA
- Under standard accounting rules, it is possible for a company’s liabilities to exceed its assets. When this occurs,the owners’ equity is negative. Can this happen with market values? Why or why not?arrow_forwardWhich of the following terms defines the underlying assumption of Going Concerns? A The company is expected to continue to operate indefinitely as a financially viable enterprise. The company expected to continue until it is evidence that bankruptcy or liquidation is likely When accountants prepare financial statements they do so with the underlying assumption that the company is a going concern. D All of statements are correct for going concern assumptionarrow_forwardMatch each concept with the definition that best describes it. Expense recognition principle (matching [ Choose] principle) [ Choose ] Accounting basis in which companies record transactions that change a company's financial statements in the periods in which the events occur. Accounting basis in which companies record revenue when they receive cash and an expense when they pay out cash. The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied. Information that accurately depicts what really happened. The principle that companies recognize expense in the period in which they make efforts (consume assets or incur liabilities) to generate revenue. An assumption that accountants can divide the economic life of a business into artificial time periods. Monthly or quarterly accounting time periods. An accounting period that extends from January 1 to December 31. Revenue recognition principle Time period assumption Calendar year…arrow_forward
- use legal basis in answering 1. If your company would suffer financial liquidity problems but is not yet insolvent, although the management foresees its inability to pay its obligations as they fall due, what do you propose to be done, and how it would be done? In outline form, please provide the steps/procedures to be undertaken. 2. In case your company is insolvent, can the - (1) individual stockholders, (2) creditors, or (3) any officer of the company- file an insolvency petition? 3. Assuming that there are pending suits against your company, what would be the effect of filing an insolvency proceeding on such pending suits?arrow_forwardIf an outside investor decides to invest in a company, which financial statement is more essential, the Balance Sheet or the Income Statement? Explain why you made the decision you did.arrow_forwardMatch the correct term with its definition.A. Cost principlei. if uncertainty in a potential financial estimate, a company should err on the side ofcaution and report the most conservative amount B. Full disclosureprinciple ii. also known as the historical cost principle, states that everything the company ownsor controls (assets) must be recorded at their value at the date of acquisition C. Separateentity concept iii. (also referred to as the matching principle) matches expenses with associatedrevenues in the period in which the revenues were generated D. Monetarymeasurementconcept iv. business must report any business activities that could affect what is reported onthe financial statements E. Conservatismv. system of using a monetary unit by which to value the transaction, such as the USdollar F. Revenuerecognitionprinciple vi. period of time in which you performed the service or gave the customer theproduct is the period in which revenue is recognized G. Expenserecognitionprinciple…arrow_forward
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