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Indicate Which Item (Or Items) on the List Was (Were)

Question 85

Matching

Indicate which item (or items) on the list was (were) violated in each description by placing the appropriate letter(s) in the space provided.

Premises:

Responses:

The company signs a contract to produce four machines according to the customer's specifications. On the date of the contract, the customer pays one half of the total contract price, and the company records the cash receipt as a sale. The machines will be manufactured and delivered during the next year.

full disclosure

The company delayed issuing its annual financial statements in order to include a large sale expected early in the next year.

historical cost

The market value of the company's inventory declined sharply. The president, optimistically predicting a rise in value, insisted that the inventory be reported at its historical cost.

revenue recognition

The market value of the company's large inventory rose sharply. The inventory was reported on the balance sheet at current market value.

conservatism

Although the company can estimate its uncollectible accounts receivable, it does not recognize the bad debts expense until it determines that an account receivable is uncollectible.

monetary-unit assumption

matching principle

period of time

Premises:

The company delayed issuing its annual financial statements in order to include a large sale expected early in the next year.

The market value of the company's inventory declined sharply. The president, optimistically predicting a rise in value, insisted that the inventory be reported at its historical cost.

The market value of the company's large inventory rose sharply. The inventory was reported on the balance sheet at current market value.

Although the company can estimate its uncollectible accounts receivable, it does not recognize the bad debts expense until it determines that an account receivable is uncollectible.

Responses:

full disclosure

historical cost

revenue recognition

conservatism

monetary-unit assumption

matching principle

period of time

Correct Answer:

Premises:

Responses:

full disclosure