Identifying Accounting Principles

question 138

Essay

Identifying accounting principles. Indicate the accounting principle or method described in each of the following statements.

a. This inventory cost-flow assumption results in reporting the largest net income during periods of rising acquisition costs and nondecreasing inventory levels.

b. This method of accounting for uncollectible accounts recognizes the implied income reduction in the period of sale.

c. This method of accounting for long-term investments in the common stock of other corporations usually requires an adjustment to net income to calculate cash flow from operations under the indirect method in the statement of cash flows.

d. This method of accounting for long-term leases by the lessee gives rise to a noncurrent liability.

e. This method of recognizing interest expense on bonds provides a uniform annual rate of interest expense over the life of the bond.

f. The accounting for this type of hedging instrument designated as a hedge results in a change in other comprehensive income each period.

g. This method of accounting for intercorporate investments in securities can result in a decrease in the investor’s total shareholders’ equity without affecting the Retained Earnings account.

h. This method of recognizing income from a long-term contract generally results in the least amount of fluctuation in earnings over several periods.

i. When a firm identifies specific customers’ accounts as uncollectible and writes them off, this method of accounting results in no change in working capital.

j. The accounting for this type of hedging instrument designated as a hedge affects net
income each period but not other comprehensive income.

k. This method of accounting for long-term leases of equipment by the lessor shows on the income statement an amount for depreciation expense.

l. This inventory cost-flow assumption results in inventory balance sheet amounts closest to current replacement cost.

m. This method of accounting for long-term investments in common stock results in recognizing revenue for dividends received or receivable.

n. This method of depreciation generally results in the largest amounts for depreciable assets on the balance sheet during the first several years of an asset’s life.

o. This inventory cost-flow assumption results in reporting the smallest net income during
periods of falling acquisition costs.

p. This method of accounting for long-term leases of equipment by the lessee results in
showing an amount for rent expense on the income statement.

q. This inventory cost-flow assumption results in inventory balance sheet amounts that may differ significantly from current replacement cost.

r. This method of accounting for long-term leases of equipment by the lessor results in showing revenue at the time of signing a lease.

s. This inventory cost-flow assumption can result in substantial changes in the relation between cost of goods sold and sales if inventory quantities decrease during a period.
(Identifying accounting principles.)

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Definitions:

Chi-squared Distribution

A statistical distribution that is used to describe the distribution of a sum of squared random variables, often used in hypothesis testing.

Chi-squared Distribution

A statistical distribution that describes the distribution of the sum of the squares of a set of variables that follow a normal distribution, commonly used in hypothesis testing.

Positively Skewed

A distribution shape where the tail is longer on the right side, indicating that the mean and median are greater than the mode.

Chi-squared Distribution

A probability distribution that describes the distribution of the sum of the squares of variables that are independently distributed according to a standard normal distribution.