The Following Situations Involve Accounting Principles and Assumptions

question 117

Essay

The following situations involve accounting principles and assumptions.
1. Bullock Company owns buildings that are worth much more than they originally cost. In an effort to provide more relevant information, Bullock reports the buildings at fair value in its accounting reports.
2. Pennyworth Corporation reports its revenues using numbers and descriptions that match what really happened.
3. Falcone Company includes in its accounting records only transaction data that can 4. Galavan, Inc. owns investment securities that are worth much more than they originally cost. In an effort to provide more relevant information, Galavan reports the investments at fair value in its accounting reports.
5. Butch Gilzean, the owner of Gilzean Photography, records his personal living costs as expenses of the business.
6. Dent Company does not report in its financial statements some financial information that is capable of making a difference in a decision.
For each of the six situations, indicate if the accounting method used is correct or incorrect. If correct, identify which principle or assumption supports the method used. If incorrect, identify which principle or assumption has been violated.

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Definitions:

Extreme Inertia

The resistance of an organization to change, even in the face of required adjustments or obvious opportunities for improvement or innovation.

Stinky Cheese

A type of cheese known for its strong, pungent odor, which can be due to the particular bacteria or molds used in its production.

Rigidly

In a strict or inflexible manner.

Dynamic Environment

Contexts that are constantly changing and require organizations or individuals to adapt rapidly to new challenges.