Financial statements are prepared according to a number of accounting principles, some of which are listed below:
1. Business entity
2. Going concern
3. Monetary unit
4. Historical cost
5. Recognition
6. Consistency
7. Full disclosure
8. Matching
9. Materiality
Required: Identify the principle that would apply in each of the following situations. Explain your choice.
___________ a. An accountant for Caldwell Corporation records a $25 stapler with a five year life as an expense. Caldwell has total assets of $1,000,000.
___________ b. Fred Rozak, an independent consultant, must keep a set of books for his consulting firm and a separate set of books for his personal records.
___________ c. A machine is recorded at its purchase price of $9,000 and is not revalued at the end of the accounting period to reflect its market value of $10,000.
___________ d. An asset purchased in 1985 for $10,000 is not revalued even though it would take $30,000 in equivalent money to purchase the land today.
___________ e. Accountants of Hull Corporation do not record the value of its equipment at the much lower amount for which it could be sold in the near future.
___________ f. Investors of Spellman Corporation note that the accounting policy for valuing inventory has not changed from the prior fiscal year.
___________ g. Looten Corporation senior managers decide to disclose a recent $2 million lawsuit in a note to the financial statements even though the case will not likely be settled for two years