Principles of Accounting
12th Edition
ISBN: 9781133626985
Author: Belverd E. Needles, Marian Powers, Susan V. Crosson
Publisher: Cengage Learning
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Chapter 5, Problem 1P
To determine
Find out the qualitative characteristic or accounting convention that can be applied in each of the cases given and find out whether the treatment is in accordance with the accounting concept and GAAP.
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In May 20×5, the newly appointed controller of Butch Baking Corporation conducted a thorough review of past accounting, particularly of transactions that exceeded the company's normal level of materiality. As a result of his review, he instructed the company's chief accountant to correct the error below:
In 20×2, the company made extensive improvements to the baking process and installed a substantial amount of new equipment. The entire cost of the process improvements and equipment was accidentally charged to income as restructuring expense in 20×2. However, the equipment should have been capitalized and added to the factory equipment account. The cost of the equipment was $1,200,000. Butch depreciates its factory equipment on the straight-line basis over 10 years. A full year's depreciation is charged in the year that equipment is acquired. The company’s tax rate is 30%.Additional information: The Company’s net income before taxes was $3,500,000 for 20X2 and $4,400,000 for 20X3.…
Identify which qualitative characteristic of accounting information is best described in each item below. (Do not use relevance and faithful representation.)
a. The annual reports of Best Buy Co. are audited by certified public accountants.
b. Black & Decker and Cannondale Corporation both use the FIFO cost flow assumption.
c. Starbucks Corporation has used straight-line depreciation since it began operations.
d. Motorola issues its quarterly reports immediately after each quarter ends.
Charlie Brown, controller for Kelly Corporation, is preparing the company's income statement at year-end. He notes that the company lost a considerable sum on the sale of some equipment it had decided to replace. Since the company has sold equipment routinely in the past, Brown knows the losses cannot be reported as an unusual item. He also does not want to highlight it as a material loss since he feels that will reflect poorly on him and the company. He reasons that if the company had recorded more depreciation during the assets' lives, the losses would not be so great. Since depreciation is included among the company's operating expenses, he wants to report the losses along with the company's expenses, where he hopes it will not be noticed.
Answer the following questions:
(a) What are the ethical issues involved?
(b) What should Brown do?
Chapter 5 Solutions
Principles of Accounting
Ch. 5 - Prob. 1DQCh. 5 - Prob. 2DQCh. 5 - Prob. 3DQCh. 5 - Prob. 4DQCh. 5 - Prob. 5DQCh. 5 - Prob. 6DQCh. 5 - Prob. 7DQCh. 5 - Prob. 1SECh. 5 - Prob. 2SECh. 5 - Tell whether each of the following accounts is a...
Ch. 5 - Prob. 4SECh. 5 - Prob. 5SECh. 5 - Prob. 6SECh. 5 - Prob. 7SECh. 5 - The lettered items that follow represent a...Ch. 5 - Each of the statements that follow violates one or...Ch. 5 - The lettered items that follow represent a...Ch. 5 - Prob. 4EACh. 5 - Prob. 5EACh. 5 - Prob. 6EACh. 5 - Prob. 7EACh. 5 - Prob. 8EACh. 5 - Prob. 1PCh. 5 - The information that follows is from Jasons...Ch. 5 - Prob. 3PCh. 5 - Prob. 4PCh. 5 - Prob. 5APCh. 5 - The information that follows is from Matts...Ch. 5 - Prob. 7APCh. 5 - The information that follows is from Rodriguezs...Ch. 5 - Prob. 1CCh. 5 - Prob. 2CCh. 5 - Prob. 3CCh. 5 - Prob. 4CCh. 5 - Prob. 5C
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