Each of the Following Independent Situations Represents a Departure from Generally

question 10

Essay

Each of the following independent situations represents a departure from generally accepted accounting principles.
1. Strad Music Supplies is a proprietorship owned and operated by Giuseppe Amati. Giuseppe started the business with funds given to him by his uncle. He gives his uncle a copy of Strad's financial statements each year so that his uncle will see this was a good investment. In 2011 both Giuseppe and his uncle were disappointed that sales had decreased from the prior year. When Giuseppe wins $50,000 in a lottery during 2013, he decides to record the amount as revenue in the financial statements of the business to avoid disappointing his uncle even further.
2. Xavier Quinn, the owner of Quinn's Travel is thinking of retiring in two years time because the business is not as successful as he had hoped. Xavier has always been very careful to ensure that all assets and liabilities are recorded correctly. However, since he is thinking of retiring, Xavier decides that generally accepted accounting principles are no longer relevant, so he does not double check his work as carefully as he did previously.
Instructions
For each situation listed above:
a. identify which principle has been violated
b. describe what the correct accounting treatment would be, and
c. why the correct treatment provides better information.

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Definitions:

DSM-5

The Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition, a handbook used by healthcare professionals as the authoritative guide to diagnose mental disorders.

Diagnostic Criteria

A set of guidelines and symptoms used by healthcare professionals to identify and classify diseases or disorders.

Bipolar I Disorder

Mood disorder characterized by extremely elevated moods during manic episodes.

Auditory Stimulus

Any sound that elicits a response from the hearing system.