Identify the accounting concept that describes each situation below.

(a) Is the rationale for why plant assets are not reported at liquidation value. (Do not use the historical cost principle.)

(b) Indicates that personal and business recordkeeping should be separately maintained.

d) Assumes that the dollar is the “measuring stick” used to report on financial performance

(e) Requires that accounting standards be followed for all items of significant size

(f) Separates financial information into time periods for reporting purposes.

(g)Requires recognition of expenses in the same period as related revenues.

(h)Indicates that fair value changes subsequent to purchase are not recorded in the accounts.

Here are some accounting reporting situations. For each situation, list the assumption, principle, or constraint that has been violated, if any. Note “No Violation” if no violation has occurred.

a) East Lake Company recognizes revenue at the end of the production cycle but before sale. The price of the product, as well as the amount that can be sold, is not certain.
b) Hilo Company is in its fifth year of operation and has yet to issue financial statements. (Do not use the full disclosure principle)
c) Gomez, Inc. is carrying inventory at its original cost of $100,000. Inventory has a fair value of $110,000.
d) Bly Hospital Supply Corporation reports only current assets and current liabilities on its balance sheet. Equipment and bonds payable are reported as current assets and current liabilities, respectively. Liquidation of the company is unlikely.
e) Chieu Company has inventory on hand that cost $400,000. Chieu reports inventory on its balance sheet at its current fair value of $425,000.
f) Toxy Syles, president of Classic Music Company, bought a computer for her personal use. She paid for the computer by using company funds and increased the “Computers’ account

In its first year of operations, Blossom Company recognized $29,120 in service revenue, $6,240 of which was on account and still outstanding at year-end. The remaining $22,880 was received in cash from customers.

The company incurred operating expenses of $16,432. Of these expenses, $12,480 were paid in cash; $3,952 was still owed on account at year-end. In addition, Blossom prepaid $2,496 for insurance coverage that would not be used until the second year of operations.

(a) Calculate the first year’s net earnings under the cash basis of accounting, and calculate the first year’s net earnings under the accrual basis of accounting.

Net Income

	Cash Basis	Accrual Basis
Net income

(b) Which basis of accounting (cash or accrual) provides more useful information for decision-makers?

A partial tabular summary for Windsor, Inc. on March 31 of the current year includes the selected accounts below before adjusting entries have been prepared.

An analysis of the accounts shows the following.

The equipment depreciates $260 per month.

2.Half of the rental services related to unearned rent revenue was provided during the quarter.

3.Interest of $368 is accrued on the notes payable.

4.Supplies on hand total $782.

5.Insurance expires at the rate of $368 per month.

Prepare a tabular summary to record adjustments at March 31, assuming that adjustments are made quarterly. (If a transaction results in a decrease in Assets, Liabilities or Stockholders’ Equity, place a negative sign (or parentheses) in front of the amount entered for the particular Asset, Liability or Equity item that was reduced.)