You are reviewing the accounting records of Buddy's Foreign Automotive, Inc., owned by Bruce Jones. You...

  

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You are reviewing the accounting records of Buddy's Foreign Automotive, Inc., owned by Bruce Jones. You have uncovered the following situations. List the appropriate accounting principle related to each independent scenario and suggest a correct action for each. 1. In August, a check for $500 was written to Community Sports. This amount represents soccer camp for his daughter Cassie. 2. Bruce plans a Going Out of Business Sale for June, since he will be closing the business for a month-long vacation in July. He plans to reopen August 1 and will continue operating Buddy's Foreign Automotive indefinitely. 3. Buddy received a shipment of tools from Ontario, Canada. The invoice was stated in Canadian dollars. 4. Sandy Lane paid $1,500 for a major repair services. The amount was recorded as revenue. The parts for the repair must be ordered from overseas and the service won't be complete until the following month. 1. Business entity assumption. Buddy should refund the $500 to the business or record it as a dividend. In the future, he should use a personal check to pay for soccer camp. 2. Going-concern assumption. Buddy's Foreign Automotive is not going out of business. The business is just closing for vacation. He could hold an appropriate sale to generate extra business before going on vacation. 3. Monetary unit assumption. The invoice should be restated in U.S. dollars for accounting purposes. 4. Revenue recognition principle. Since the service has not been completed, revenue should not be recognized. The $1,500 should be placed in an account such as Deposits Received from Customers (a type of unearned revenue) until the service is completed. AACSB: Analytical Thinking AICPA: BB Industry AICPA: BB Lega AICPA: FN Measuremen Blooms: Apply Difficulty: 3 Hard Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Topic: Generally Accepted Accounting Principles You are reviewing the accounting records of Buddy's Foreign Automotive, Inc., owned by Bruce Jones. You have uncovered the following situations. List the appropriate accounting principle related to each independent scenario and suggest a correct action for each. 1. In August, a check for $500 was written to Community Sports. This amount represents soccer camp for his daughter Cassie. 2. Bruce plans a Going Out of Business Sale for June, since he will be closing the business for a month-long vacation in July. He plans to reopen August 1 and will continue operating Buddy's Foreign Automotive indefinitely. 3. Buddy received a shipment of tools from Ontario, Canada. The invoice was stated in Canadian dollars. 4. Sandy Lane paid $1,500 for a major repair services. The amount was recorded as revenue. The parts for the repair must be ordered from overseas and the service won't be complete until the following month. 1. Business entity assumption. Buddy should refund the $500 to the business or record it as a dividend. In the future, he should use a personal check to pay for soccer camp. 2. Going-concern assumption. Buddy's Foreign Automotive is not going out of business. The business is just closing for vacation. He could hold an appropriate sale to generate extra business before going on vacation. 3. Monetary unit assumption. The invoice should be restated in U.S. dollars for accounting purposes. 4. Revenue recognition principle. Since the service has not been completed, revenue should not be recognized. The $1,500 should be placed in an account such as Deposits Received from Customers (a type of unearned revenue) until the service is completed. AACSB: Analytical Thinking AICPA: BB Industry AICPA: BB Lega AICPA: FN Measuremen Blooms: Apply Difficulty: 3 Hard Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Topic: Generally Accepted Accounting Principles

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