For each of the following situations, indicate whether you agree or disagree with the practice described, list one accounting concept/ assumption/ qualitative criteria/ measurement method that is related to the situation (either followed or violated), and indicate how it is related:
1. Inventory that the company paid $ 450 for is carried on the balance sheet at $ 620 because it can be easily sold for $ 620.
2. The Book Printer Ltd. has an operating cycle of three years. It takes three years to have a book written, published, and marketed. The company, therefore, produces financial statements every three years.
3. WLZ Co. must estimate and record a warranty liability and has obtained three estimates— one for $ 75,000, one for $ 92,000, and one for $ 106,000. The company records $ 75,000.
4. Cambria Corporation has purchased a rare manuscript wanted by the major shareholder, whose passion is antiquities. The manuscript is kept at the shareholder’s house for his sole use but is carried on the company’s books as a long- term investment.
5. Elocom Ltd. has an account receivable from Maddox Ltd. for $ 40,000, and an account payable to Maddox Ltd. for $ 37,000. Elocom shows a net account receivable of $ 3,000, and no accounts payable, on its balance sheet.
6. Darlington Designs Ltd. has not fixed a $ 5,000 error in inventory accounting because it would have a trivial effect on cost of goods sold and net income.