Identifying accounting principles. Indicate the accounting principle or method described in each of the following statements. Explain your reasoning.
a. This inventory cost-flow assumption results in reporting the largest net income during periods of rising acquisition costs and non-decreasing inventory levels.
b. This method of accounting for uncollectible accounts recognizes the implied income reduction in the period of sale.
c. This method of accounting for long-term investments in the common stock of other corporations usually requires an adjustment to net income to calculate cash flow from operations under the indirect method in the statement of cash flows.
d. This method of accounting for long-term leases by the lessee gives rise to a noncurrent liability.
e. This inventory cost-flow assumption results in approximately the same balance sheet amount as the FIFO cost-flow assumption.
f. This method of recognizing interest expense on bonds provides a uniform annual rate of interest expense over the life of the bond.
g. The accounting for this type of hedging instrument designated as a hedge results in a change in other comprehensive income each period.
h. This method of accounting for intercorporate investments in securities can result in a decrease in the investor’s total shareholders’ equity without affecting the Retained
Earnings account.
i. This method of recognizing income from a long-term contract generally results in the least amount of fluctuation in earnings over several periods.
j. When a firm identifies specific customers’ accounts as uncollectible and writes them off, this method of accounting results in no change in working capital.
k. The accounting for this type of hedging instrument designated as a hedge affects net income each period but not other comprehensive income.
l. This method of accounting for long-term teases of equipment by the lessor shows on the income statement an amount for depreciation expense.
m. This inventory cost-flow assumption results in inventory balance sheet amounts closest to current replacement cost.
n. This method of accounting for long-term investments in common stock results in recognizing revenue for dividends received or receivable.
o. This method of depredation generally results in the largest amounts for depreciable assets on the balance sheet during the first several years of an asset’s life.
p. This inventory cost-flow assumption results in reporting the smallest net income during periods of falling acquisition costs
q. This method of accounting for long-term leases of equipment by the lessee results in showing an amount for rent expense on the income statement.
r. This inventory cost-flow assumption results in inventory balance sheet amounts that may differ significantly from current replacement Cost.
s. This method of accounting for long-term leases of equipment by the lessor results in showing revenue at the time of signing a lease.
t. This inventory cost-flow assumption can result in substantial changes in the relation between cost of goods sold and sales if inventory quantities decrease during a period.