Page 228 - Accounting Principles (A Business Perspective)

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General and administrative expenses incurred in 2010 amounted to USD 2 million, none of which is to be
considered a construction cost.
a. Compute net income for 2010 under the completed-contract method.

b. Compute net income for 2010 under the percentage-of-completion method.
Problem D For each of the following numbered items, state the letter or letters of the principle(s),
assumption(s), or concept(s) used to justify the accounting procedure followed. The accounting procedures are all
correct.
a. Business entity.
b. Conservatism.
c. Earning principle of revenue recognition.

d. Going concern (continuity).
e. Exchange-price (cost) principle.
f. Matching principle.
g. Period cost (or principle of immediate recognition of expense).
h. Realization principle.
i. Stable dollar assumption.
Inventory is recorded at the lower of cost or market value.
A truck purchased in January was reported at 80 per cent of its cost even though its market value at year-end
was only 70 per cent of its cost.

The collection of USD 40,000 of cash for services to be performed next year was reported as a current liability.
The president's salary was treated as an expense of the year even though he spent most of his time planning the
next two years' activities.
No entry was made to record the company's receipt of an offer of USD 800,000 for land carried in its accounts
at USD 435,000.
A supply of printed stationery, checks, and invoices with a cost of USD 8,500 was treated as a current asset at
year-end even though it had no value to others.

A tract of land acquired for USD 180,000 was recorded at that price even though it was appraised at USD
230,000, and the company would have been willing to pay that amount.
The company paid and charged to expense the USD 4,200 paid to Craig Nelson for rent of a truck owned by him.
Craig Nelson is the sole stockholder of the company.
Problem E Match the descriptions in Column B with the proper terms in Column A.
Column A Column B
1. Financial a. Information is free of measurement method bias.
reporting b. The benefits exceed the costs.
objectives. c. Relatively large items must be accounted for in a theoretically correct way.
2. Qualitative d. The information can be substantially duplicated by independent measurers
characteristics. using the same measurement methods.
3. Relevance. e. When information improves users' ability to predict outcomes of events.
4. Predictive value. f. Broad overriding goals sought by accountants engaging in financial reporting.
5. Feedback value. g. When information is pertinent or bears on a decision.
6. Timeliness. h. The characteristics that accounting information should possess to be useful
7. Reliability. in decision making.
8. Representational i. Information that reveals the relative success of users in predicting outcomes.
faithfulness. j. When accounting statements on economic activity correspond to the actual
9. Verifiability. underlying activity.
10. Neutrality. k. When information is provided soon enough that it may be considered in
11. Comparability. decision making.
12. Consistency. l. When information faithfully depicts for users what it purports to represent.
13. Cost-benefit. m. Requires a company to use the same accounting principles and reporting

Accounting Principles: A Business Perspective 229 A Global Text