For Each of the Assumptions Listed Below, Fill in the Appropriate

question 140

Essay

For each of the assumptions listed below, fill in the appropriate letter to indicate which of the following accounting assumptions have been violated.
a) Monetary Unit Assumption
b) Cost Principle
1. Harvester International revalues its financial statements each year to take into consideration the effects of inflation. The company justifies its decision by stating the "inflation adjusted statements more fully reflect the purchasing power of the company's earnings."
2. Ernie began operations 11 years ago and purchased land for $200,000. Ernie has since built a manufacturing plant on this land to use in daily operations. Today Ernie has appraised the value of his land to be $1.5 million. He would like the increase in the value of his land to be reported on the financial statements at $1.5 million.

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Definitions:

Account Category

A way to organize various types of accounts in accounting, such as assets, liabilities, equity, revenue, and expenses, based on their nature.

Subsidiary Ledger

A detailed ledger that contains all the transactions of a particular account, which then summarizes into a single general ledger account.

Accounts Receivable

Represents money owed to a business by its clients or customers for goods or services delivered but not yet paid for.

Financial Statement

A documented summary of financial transactions and standing for a company, person, or alternative entity.