Here are some accounting reporting situations.
(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 debited the “Computers” account.
For each situation, list the assumption, principle, or constraint that has been violated, if any. (Some were presented in earlier chapters.) List only one answer for each situation.
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