Exercise 14.5 Objective 14-6 Applying accounting principles and concepts. Ryan & Sabo sells copy equipment. It grants all customers a 12-month warranty, agreeing to make necessary repairs within the following 12-month after- sale period free of charge. At the end of each year, the company estimates the total cost to be incurred during the next period under the warranties for equipment sold during the current period and charges that amount to expense, crediting a liability account. Is this appropriate accounting? Why or why not? Exercise 14.6 Objective 14-6 Applying accounting principles and concepts. Diamond Jewelers has never borrowed money. Because of rapid growth, on June 25, 20X1, John Peoples, the owner, applied for a loan of $300,000 from his bank. The banker asked Peoples for copies of financial reports of Diamond Jewelers for 20X0 and quarterly statements for 20X1. Peoples had never prepared formal financial statements for the business. He and the company's bookkeeper obtained some information from his 20X0 income tax return and estimated other items for which information was not readily available. He took the statements to the banker on July 2. The banker expressed his concern over the statements. What are the most important fundamental financial reporting concepts that seem to have been violated? >