For each of the following circumstances, give the letter item(s) indicating the accounting principle involved. Some letters may be used more than once, and some may not be used at all.
B. Freedom from bias
D. Cost/ benefit effectiveness
E. Full disclosure
F. Historical cost
H. Nominal dollar financial capital maintenance
K. Faithful representation
L. Revenue recognition
M. Separate entity
N. Time period
O. Unit of measure
1. Financial statements are prepared from the point of view of the owners.
2. A note describing the company’s possible liability in a lawsuit is included with the financial statements, even though no formal liability exists at the balance sheet date.
3. Marketable securities are valued at market value.
4. The personal assets of partners are excluded from the partnership balance sheet, even though they are pledged as security for partnership loans.
5. A retail store uses estimates rather than a complete physical count of its inventory for purposes of preparing monthly financial statements.
6. Goodwill is recorded in the accounts only when it arises from the purchase of another entity.
7. An entity reports a $ 50 profit after buying a unit of inventory for $ 100 and selling it for $ 150, even though the cost to replace the unit has escalated to $ 112 due to inflation. 8. An advance deposit on a sale contract is reported as unearned revenue.
9. Accounting policies chosen for revenue recognition are the same as those of the entity’s major competitors.
10. Capital assets are amortized over their useful lives.