Indicate in Each Case Whether the Item Has Been Handled

question 76

Essay

Indicate in each case whether the item has been handled in accordance with generally accepted accounting principles (GAAP). If so, indicate the key basic concept that has been followed. If not, indicate which concept has been violated and tell how the item should have been recorded or presented.
1. A piece of machinery has a book value (cost less accumulated depreciation)of $90,000. However, the machinery could not be sold for more than $70,000 today. The company's owner thinks that the machinery should nevertheless be reported on the balance sheet at $90,000 and depreciated over its useful life, because the equipment is being used regularly in the business and it is expected to be used for the next five years-the remaining useful life that is being used for depreciation purposes.
2. At the beginning of the year, the company bought a building for $1,000,000. At the end of the year, the building's value was appraised at $1,220,000. Since there was an increase in value, the company did not record depreciation on the building.
3. The assets listed in the accounting records of the company, which is operated as a sole proprietorship, include a savings account of the owner of the business. The owner established the savings account so that if she needs to invest more cash in the business, it will be readily available.
4. Three years ago, the company paid for a three-year insurance policy on its automobiles by writing a check for $6,000. At the end of the current year, the balance sheet of the company reported prepaid insurance at $6,000.

Identify key legislative changes to bankruptcy law and their implications.

Differentiate between voluntary and involuntary bankruptcy filings.

Realize the significance of credit counseling and the debtor's engagement in the bankruptcy process.

Grasp the concept of liquidation and reorganization within bankruptcy proceedings.

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Definitions:

Retained Earnings Account

An equity account that represents the cumulative earnings of a company that have not been distributed to shareholders as dividends.

Statement of Stockholders' Equity

A financial statement that shows changes in the value of a company's equity over a specific period, including stocks and retained earnings.

Income Statement

A document detailing a company's income, outgoings, and financial performance for a set timeframe.

Balance Sheet

A financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of its financial condition.