12/17/2013
Unit 1 Assignments: 2-7, 2-8, 3-1, 3-4, 3-10, 3-14

E2-7: (Assumptions, Principles, and Constraints) Presented below are the assumptions, principles, and constraints used in this chapter.

1. Economic entity assumption 5. Historical-cost principle 9. Materiality
2. Going-concern assumption 6. Matching principle 10. Industry practices
3. Monetary unit assumption 7. Full disclosure principle 11. Conservatism
4. Periodicity assumption 8. Cost-benefit relationship

Instructions: Identify by number the accounting assumption, principle, or constraint that describes each situation below. Do not use a number more than once.

a) Recognizes expenses based on contribution to revenues in the proper period
b) Indicates that market value changes subsequent to purchase are not recorded in the amounts. (Do not use revenue recognition principle.)
c) Ensures that all relevant financial information is reported.
d) Rationale why plant assets are not reported at liquidation value. (Do not use historical cost principle.)
e) Anticipates all losses, but reports no gains.
f) Indicates that personal and business record keeping should be separately maintained.
g) Separates financial information into time periods for reporting purposes.
h) Permits that use of fair value valuation in certain specific situations.
i) Requires that information significant enough to affect the decision of reasonably informed users should be disclosed. (Do not use full disclosure principle.)
j) Assumes that the dollar is the “measuring stick” used to report on financial performance.

Answer: 1. F 2. 3. J 4. G 5. H 6. A 7. C 8. B 9. I 10. E 11. D

E2-8: (Assumptions, Principles, & Constraints) Presented below are a number of operational guidelines and practices that have