1) This is wrong because depreciation
means allocation of costs and it is not used to value the asset .even when the
the value of the building is increasing, all the cost related to this building
should be matched with revenues on the I.S It is not to be charged against
2) This is wrong because Revenue
recognition principles states that revenue must be recognized when amount has
been received and it is not recognized until it is realized. Therefore, a gain should be recognized when the
inventory is sold.
3) This is
wrong because. Assets should be recorded at the
fair value It is not considered as a violation of historical principle for
using the fair value of the stock. Recording the asset at the par value
is merely an arbitrary amount, which has been set by the company at the time of
4) This is wrong, to defer the gain as
the gain is realized because the equipment has been sold. It can not be
deferred till the next asset has been purchased.
5) Revenue recognition principles states
that revenue must be recognized when amount has been received and it is not
recognized until it is realized. Therefore the sale must be recorded in 2012
and not in 2011 as the goods were shipped in 2012.
In this entry,
there is violation
of the economic entity assumption.
Economic Entity Assumption means that the company keeps its activity separate
and distinct from its owners and any other business unit. In this situation the
company make mistake they charge the cost to the wrong economic entity. ( use
the company money for personal use), they record the personal expenses as
company expenses which is wrong.
historical cost principle indicates that assets and liabilities are reported at
their cost. Revenue should be recognized when we realized or realizable and
earned. In this situation, there is no earnings process.
this is right
because FASB Statement requires that a loss should be accrued only when there
is possibility that the company would lose the suit or when the amount of the
loss can be reasonably estimated. and in this situation the amount is probable
and can be reasonably estimated, the company should record the loss.
this is wrong
because we do not recognize price-level adjustments in the accounts
this is wrong
because there is a violation of the
expense recognition principle, expense recognition principle means that expenses
should be recognized in the same period as the revenues
to which they relate,