601 Assignment 1 – Problems (7)
Problem 1 Accounting concepts—identification. State the accounting assumption, principle, information characteristic, or constraint that is most applicable in the following cases. 1. All payments less than $25 are expensed as incurred. (Do not use conservatism.) 2. The company employs the same inventory valuation method from period to period. 3. A patent is capitalized and amortized over the periods benefited. 4. Assuming that dollars today will buy as much as ten years ago. 5. Rent paid in advance is recorded as prepaid rent. 6. Financial statements are prepared each year. 7. All significant post-balance sheet events are reported. 8. Personal transactions of the proprietor are distinguished from business transactions.

Problem 2 Accounting concepts—identification. Presented below are a number of accounting procedures and practices in Ramirez Corp. For each of these items, list the assumption, principle, information characteristic, or modifying convention that is violated. 1. Because the company's income is low this year, a switch from accelerated depreciation to straight-line depreciation is made this year. 2. The president of Ramirez Corp. believes it is foolish to report financial information on a yearly basis. Instead, the president believes that financial information should be disclosed only when significant new information is available related to the company's operations. 3. Ramirez Corp. decides to establish a large loss and related liability this year because of the possibility that it may lose a pending patent infringement lawsuit. The possibility of loss is considered remote by its attorneys. 4. An officer of Ramirez Corp. purchased a new home computer for personal use with company money, charging miscellaneous expense. 5. A machine, that cost $40,000, is reported at its current market value of $45,000.

601_Assignment 1