Read each of the situations described below and decide whether each situation illustrates a violation of operating guidelines or accepted accounting practices. Designate the guideline or practice that is most clearly violated using the following codes:

Codes

A. Business entity concept

B. Monetary unit assumption

C. Time period assumption

D. Going concern assumption

E. Revenue recognition principle

F. Matching principle

G. Materiality

H. Full disclosure principle

I. Cost principle

J. Conservatism

K. No violation of operating guidelines

Situations

1. Joe Winowski, owner of the Trudeau Hotel, contributed $60 000 of capital to his business in 2015. This contribution was reported as revenue on the 2015 income statement.

2. Carson Paperweights values the marble it has in inventory at its expected selling price since this is its expected value to the business. The marble's expected selling price exceeds the price Carson paid for it.

3. Ming Company reports its inventory at cost even though current replacement cost is significantly below cost.

4. Bailey's Novelties has 100 000 whistling dolls in inventory at a cost of $5 each. Only eight were sold last month. Not wanting to write off this inventory and report a loss, Bailey has decided not to issue financial statements until at least half of the dolls have been sold.

5. Antonio's Pizza is being liquidated because it has sustained losses for many years. It continues to amortize its assets and prepare financial statements on the cost basis.

6. Jim Jenkins, president of Jenkins Machinery, took a power saw out of inventory to use as a birthday present for his son.

7. Blake Industries has developed an automobile engine that will run on lake water instead of gasoline, while providing equal performance. They have chosen not to release reports of this engine to the public.

8. Sam Linberg made no entry to record amortization on its equipment for 2015.

9. Stevens Brokerage bought each of its 5 000 employees new staplers for their desks. Each stapler cost $10 and was embossed with the company's logo. Since Stevens expenses assets that cost less than $25, no asset was recorded.

10. Joyner Lumber Company lost all of its standing timber due to a major forest fire early in January of 2015. The trees were not insured. No mention was made of this loss in Joyner's 2014 financial statements (which were published in March 2015), since the trees were still growing on December 31, 2014.

Answer rating: 100% (QA)

Lets go through each situation and determine whether it illustrates a violation of operating guidelines or accepted accounting practices 1 Violation The situation violates the revenue recognition prin... View the full answer