[batesmotel]

The trial balance of Lakewood Inc. included the following accounts as of December 31,
2009:

Sales revenue ----------------------------300,000
Interest revenue--------------------------- 80,000
Gains on sale of land
(infrequent but not unusual item)------------------- 50,000

Loss on expropriated foreign assets
(event is unusual, infrequent and material--------------300,000

Cost of Goods Sold -----------------------------1,100,000
Salaries and wages -------------------------------220,000
Write-off of obsolete equipment--------------- 30,000
Depreciation expense --------------------------150,000
Interest expense ----------------------------------40,000
Marketing and
Administrative expenses--------- 50,000


Lakewood Inc. had 100,000 shares of stock outstanding throughout the year. . Income tax
Expense has not yet been accrued. The effective tax rate is 30%.


Required: Prepare a single-step income statement with basic earnings per share disclosure.

[batesmotel]

For each of the following situations, state whether you agree or disagree with the financial reporting practice employed, and briefly explain the reason for your answer.

a. Cantor Corporation's accountant increased the book value of a patent from its original
cost of $1 million to its recently appraised value of $6 million.

b. Stanton Corporation paid for the personal travel of its chief financial officer and
charged travel expense.

c. At the end of its 2009 fiscal year, Dower, Inc. received an order from a customer for
$60,000. The merchandise will ship early in 2010. Because the sale was made to a longtime
customer and the invoice was paid in 2009, the controller recorded the sale in 2009.

d. In the middle of its 2009 fiscal year, Sanguinetti, Inc. paid $12,000 to its insurance
company for one-year comprehensive insurance coverage. Sanguinetti recorded the entire
expenditure as an expense in 2009.

e. The Churchill Pharmaceutical Company included a note in its financial statements that
described a pending lawsuit against the company.

f. The Daily Corporation, a company whose securities are publicly traded, prepares
monthly, quarterly, and annual financial statement for internal use but disseminates to
external users only the annual financial statements.


Agree/Disagree Reason
A Disagree - Historical Cost Principle
B
C
D
E
F

[batesmotel]

For each of the following situations, state whether you agree or disagree with the financial reporting practice employed, and briefly explain the reason for your answer.

a. Cantor Corporation's accountant increased the book value of a patent from its original
cost of $1 million to its recently appraised value of $6 million.

b. Stanton Corporation paid for the personal travel of its chief financial officer and
charged travel expense.

c. At the end of its 2009 fiscal year, Dower, Inc. received an order from a customer for
$60,000. The merchandise will ship early in 2010. Because the sale was made to a longtime
customer and the invoice was paid in 2009, the controller recorded the sale in 2009.

d. In the middle of its 2009 fiscal year, Sanguinetti, Inc. paid $12,000 to its insurance
company for one-year comprehensive insurance coverage. Sanguinetti recorded the entire
expenditure as an expense in 2009.

e. The Churchill Pharmaceutical Company included a note in its financial statements that
described a pending lawsuit against the company.

f. The Daily Corporation, a company whose securities are publicly traded, prepares
monthly, quarterly, and annual financial statement for internal use but disseminates to
external users only the annual financial statements.


Agree/Disagree Reason
A Disagree - Historical Cost Principle
B
C
D
E
F

[morgaine300]

Single step basically lumps all revenues/gains together and all expenses/losses together. That doesn't mean it necessarily lumps the dollar values together -- I mean that they aren't separated out into different categories such as a gross profit section, operating section, "other," etc. This also means EPS is going to be on the lump sum net income rather than the different "income points" within a multi-step statement.

Explanation and examples here:
Single-Step Income Statement | AccountingCoach.com

[morgaine300]

Please do not double-post. It just confuses things. I've merged your posts back into one thread.

While your first one is correct, you need to make some attempt to answer the rest. We don't just answer your homework for you. If you will at least give your thoughts on them, someone can help guide you from there.

[batesmotel]

Sorry didn't mean post twice. I'm new to this site.

Agree/Disagree Reason

A Disagree - Historical Cost Principle

B Disagree - Economic Entiy Assumption

C Agree - Realization Principle

D Disagree - Matching Principle

E Agree - Full Disllousure Principle

F Agree - Periodicity Assumption

Do you think these are right?

[morgaine300]

Oops, I seem to have gotten your double-posted one mixed up with your other one. Unfortunately that is confusing as well but that's my fault. (I'd fix it but I might screw it up further.)

I would agree with everything except C. There are no rules about "long-time customers." Merchandise is shipping in 2010. Think about it. (What is a realization principle anyway? Never heard of it and even looked it up.)

[batesmotel]

Thanks

In my text book it says:

Realization Principle - revenue should be recognized only after the earning process is virtually complete and collection is reasonably assured.


Would C. be an Unearned Revenue?

If so I would say DISAGREE but I am still not sure on which would be the reason.

I was thinking Matcing Principle?

[morgaine300]

Revenue Recognition.

Strange - I've got the entire framework and there's no Realization Principle in there. However, realization can be a method to recognize revenue, meaning it's kind of underneath it. But if the goods don't ship until 2010, the earning process has not been complete. The company has not done what they need to do to "earn" anything.

And yes, it's going to end up in unearned revenue.

(Matching principle is more about matching expenses to revenues, and not determining when the revenue would be recognized.)