For Each of the Following Situations, State Whether You Agree

question 32

Essay

For each of the following situations, state whether you agree or disagree with the financial reporting practice employed, and briefly explain the reason for your answer.
1. Cantor Corporation's accountant increased the book value of a patent from its original cost of $1 million to its recently appraised value of $6 million.
2. Stanton Corporation paid for the personal travel of its chief financial officer and charged travel expense.
3. At the end of its 2018 fiscal year, Dower, Inc., received an order from a customer for $60,000. The merchandise will ship early in 2019. Because the sale was made to a long-time customer and the invoice was paid in 2018, the controller recorded the sale in 2018.
4. In the middle of its 2018 fiscal year, Sanguinetti, Inc. paid $12,000 to its insurance company for one-year comprehensive insurance coverage. Sanguinetti recorded the entire expenditure as an expense in 2018.
5. The Churchill Pharmaceutical Company included a note in its financial statements that described a pending lawsuit against the company.
6. The Daily Corporation, a company whose securities are publicly traded, prepares monthly, quarterly, and annual financial statements for internal use but disseminates to external users only the annual financial statements.

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Definitions:

Return On Investment

Return on Investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment compared to its cost.

Residual Income

The income that remains after subtracting all required costs of capital from operating profit.

Throughput Time

The amount of time taken for a product to pass through all stages of production from start to finish, including processing time, wait time, and move time.

Manufacturing Cycle Efficiency

A metric that measures the efficiency of the manufacturing process, calculated as the value-added time divided by the total cycle time.