EBK FINANCIAL ACCOUNTING THEORY AND ANA
12th Edition
ISBN: 9781119299646
Author: CATHEY
Publisher: JOHN WILEY+SONS,INC.-CONSIGNMENT
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Chapter 2, Problem 2.4C
(a)
To determine
Introduction: The going concern concept indicates that the company will continue its operations for an indefinite period and will not liquidate in the early future. As per the accounting principles, company is considered as a going concern when there is no evidence to believe that it will cease its operations in near future.
To find:The description of continuity by Sprouse and Moonitz.
(b)
To determine
Introduction: The going concern concept indicates that the company will continue its operations for an indefinite period and will not liquidate in the early future. As per the accounting principles, company is considered as a going concern when there is no evidence to believe that it will cease its operations in near future.
To find:Whether historical cost of company’s assets is relevant while planning to buy a business. Also, determine the asset values that would be relevant to the decision of investment.
(c)
To determine
Introduction: The going concern concept indicates that the company will continue its operations for an indefinite period and will not liquidate in the early future. As per the accounting principles, company is considered as a going concern when there is no evidence to believe that it will cease its operations in near future.
To find: Whether continuity is presumed when company is bankrupt and plans to liquidate its assets. Also, determine the impact of lack of continuity on measurement of assets.
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Students have asked these similar questions
Which of the following concepts states that a business will continue its operations for the foreseeable future and the company will not be forced to liquidate in the near future?
a.
Accrual basis
b.
Materiality
c.
Consistency concept
d.
Going concern
What is Market Value? A. Any cost
that has not yet been charged to the
expense B. The amount of money a
business must currently spend to
replace an essential asset C.
Maintaining an account tied to a
certain asset D. The value of a
company according to the stock
market
Which of the following statement best describes the accounting concept of going concern?
O Expenses and revenue are matched to the same time period in which they relate.
O
The business will continue to trade the foreseeable future.
When a business produces its financial statement it should always adopt a conservati
figure for profit and/or the valuation of its assets.
O
Items with a low value should not be reported separately in the financial accounts.
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EBK FINANCIAL ACCOUNTING THEORY AND ANA
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- Under standard accounting rules, it is possible for a company’s liabilities to exceed its assets. When this occurs,the owners’ equity is negative. Can this happen with market values? Why or why not?arrow_forwardWhich of the following terms defines the underlying assumption of Going Concerns? A The company is expected to continue to operate indefinitely as a financially viable enterprise. The company expected to continue until it is evidence that bankruptcy or liquidation is likely When accountants prepare financial statements they do so with the underlying assumption that the company is a going concern. D All of statements are correct for going concern assumptionarrow_forwardMatch each concept with the definition that best describes it. Expense recognition principle (matching [ Choose] principle) [ Choose ] Accounting basis in which companies record transactions that change a company's financial statements in the periods in which the events occur. Accounting basis in which companies record revenue when they receive cash and an expense when they pay out cash. The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied. Information that accurately depicts what really happened. The principle that companies recognize expense in the period in which they make efforts (consume assets or incur liabilities) to generate revenue. An assumption that accountants can divide the economic life of a business into artificial time periods. Monthly or quarterly accounting time periods. An accounting period that extends from January 1 to December 31. Revenue recognition principle Time period assumption Calendar year…arrow_forward
- use legal basis in answering 1. If your company would suffer financial liquidity problems but is not yet insolvent, although the management foresees its inability to pay its obligations as they fall due, what do you propose to be done, and how it would be done? In outline form, please provide the steps/procedures to be undertaken. 2. In case your company is insolvent, can the - (1) individual stockholders, (2) creditors, or (3) any officer of the company- file an insolvency petition? 3. Assuming that there are pending suits against your company, what would be the effect of filing an insolvency proceeding on such pending suits?arrow_forwardIf an outside investor decides to invest in a company, which financial statement is more essential, the Balance Sheet or the Income Statement? Explain why you made the decision you did.arrow_forwardMatch the correct term with its definition.A. Cost principlei. if uncertainty in a potential financial estimate, a company should err on the side ofcaution and report the most conservative amount B. Full disclosureprinciple ii. also known as the historical cost principle, states that everything the company ownsor controls (assets) must be recorded at their value at the date of acquisition C. Separateentity concept iii. (also referred to as the matching principle) matches expenses with associatedrevenues in the period in which the revenues were generated D. Monetarymeasurementconcept iv. business must report any business activities that could affect what is reported onthe financial statements E. Conservatismv. system of using a monetary unit by which to value the transaction, such as the USdollar F. Revenuerecognitionprinciple vi. period of time in which you performed the service or gave the customer theproduct is the period in which revenue is recognized G. Expenserecognitionprinciple…arrow_forward
- Which of the following statements is correct? Options: • Going concern principle assume that in preparing the financial statements only properties, liabilities, income and expenses of a particular business are reported therein • The total value of debits in most cases is higher than the total value of credits • All accounting information must be free from error to be reliable • There is no effect in the amount of the accounting equation if an asset is changed into another form of assetarrow_forwardPlease quickly answerWhich of the following is / are correct? I. An enterprise established entirely with equity has no financial risk. II. All current and fixed assets owned by the business represent the financial structure of the business. III. Meeting the need for current assets with short-term liabilities and the need for fixed assets with long-term resources is called the “minimum financial balance rule”.arrow_forwardPlease answer with reason for all why the option is correct and why the other options are incorrect,, Please help with this Accounting type Question: Realisation concept would apply when: A. Money is realised from the debtors B. Goods are delivered to customer C. Order is received D. none of the abovearrow_forward
- Which of the following would result in the RETURN OF ASSETS for an accounting entity deteriorating. Answer Can be all of them, none of them or any combination of them. 1. Accrued interest revenue is adjusted 2. Share market price of the entity's shares increases 3. Cash receipt from a customer for amounts owing which was previously sold on creditarrow_forwardHow can companies improve their accounting quality, and what are some best practices for maintaining accurate financial information over time?arrow_forwardWhat are the ethical and legal implications of using accounting practices such as the book-and-hold technique to accelerate revenues and inflate corporate earnings?arrow_forward
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