Value in use (assets)/fulfillment value (liabilities). Assets are reported at the present value of future expected cash flows, after discounting to reflect the time value of money in terms of expected interest/inflation.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-05 Identify, explain, and apply accounting principles.
Topic: 01-20 Previewing Financial Statements
203. Why should assets be recorded at historical cost?
Historical cost is the most commonly adopted method to record accounting transactions. It requires that all transactions be recorded based on the actual cash amount received or paid. In the absence of cash, the cash equivalent amount of the exchange is recorded.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-05 Identify, explain, and apply accounting principles.
Topic: 01-18 GAAP for Public vs. Private Enterprises
204. How does the going concern principle affect reporting asset values of a business?
The going-concern principle means that financial statements reflect an assumption that the business will continue in operation instead of being closed or sold. Assets are therefore reported at historical cost rather than at liquidation value.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 01-05 Identify, explain, and apply accounting principles.
Topic: 01-18 GAAP for Public vs. Private Enterprises
205. A parcel of land is offered for sale at $135,000, is assessed for tax purposes at $60,000, is recognized by its purchasers as easily being worth $108,000, and is purchased for $106,000. At what amount should the land be recorded in the purchaser's books if the company employs the measurement method of historical cost?
$106,000. The historical cost principle requires the acquisition of an asset to be recorded in the accounting records at cost.
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 01-05 Identify, explain, and apply accounting principles.
Topic: 01-18 GAAP for Public vs. Private Enterprises
206. Before purchasing a parcel of land, Ming's Boutique had the land appraised at $90,000. The management of Ming's Boutique purchased the land for $85,000. At what amount should the land be recorded on Ming's Boutique's books? What accounting principle supports your answer?
$85,000. The Historical cost principle requires the acquisition of an asset to be recorded in the accounting records at cost.
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 01-05 Identify, explain, and apply accounting principles.
To
pic: 01-18 GAAP for Public vs. Private Enterprises
207. You are reviewing the accounting records of April's Attic, owned by April Lapierre. You have uncovered the following situations. Compose a memo to Ms. Lapierre. Cite the appropriate accounting principle and suggest an action for each separate item.
1)
April wrote a cheque for $350 to Wee Care Day Care Centre. The amount paid for day care for Justin Lapierre, April's son.
2)
April plans a Going Out of Business Sale for May, since she will be closing her business for a month-long vacation in June. She plans to reopen July 1 and will continue operating April's Attic indefinitely.
3)
April received a shipment of pine furniture from Maine, U.S.A. The invoice was stated in U.S. dollars.
4)
Martinique Gresham paid $1,000 for a dining table. The amount was recorded as revenue. The table will be delivered to Ms. Gresham in six weeks.
1)
Business entity principle. April should refund the $350 to the business, or, the business should record this as a withdrawal. In the future, she should use a personal cheque to pay for day care.
2)
Going-concern principle. April's Furniture Emporium is not going out of business. The business is just closing for vacation. She should hold an inventory reduction sale or other appropriate sale.
3)
Currency principle. The invoice should be recorded in Canadian dollars.
4)
Revenue recognition principle. Since the table has not been delivered, revenue should not be recognized. The $1,000 should be placed in an account such as Deposits Received from Customers. (Unearned Revenue)
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: Hard
Learning Objective: 01-05 Identify, explain, and apply accounting principles.