The following transactions fall somewhere in the continuum of the choices in accounting decision-making that are shown in Illustration 2-5.
1. The company president approaches one of the company's creditors to ask for a modification of the repayment terms so that they extend beyond the current year. This would make the liabilities long-term rather than short term and would improve the company\; current ratio.
2. The controller determines that significant amounts of capital assets are impaired and should be written off.
Coincidentally, the company is currently showing lower levels of net income, but expects better results in the following years.
3. The company management decides to use FIFO as opposed to weighted average since it more closely approximates the flow of costs.
4. The vice-president of finance decides to capitalize interest during the self-construction of only one of its properties.
This policy will increase net income and several profitability ratios.
5. The business owner enters into an arrangement with a business associate whereby they will buy each other's merchandise before year end. The merchandise will then be shipped to customers after year end from the holding company's warehouse.
6. The assets and liabilities of an investment have been consolidated into Maher Company's annual financial statements.
Maher Company does not have the power to direct the investee's activities.
For each situation, state where it falls in the continuum of choices in decision-making.

  • CreatedSeptember 18, 2015
  • Files Included
Post your question