Accounting Concepts The principles of conservatism, matching, going concern, and revenue recognition are important concepts in determining the amounts to be included in financial statements prepared in accordance with generally accepted accounting principles. Each of the four situations outlined below illustrates at least one of these concepts. In each case, indicate which concept is most applicable and explain why it is important for decision makers. Describe why decision makers might find it useful.

a. Elkport Manufacturing is considering going out of business. Although it reports equipment at $275,000 on its balance sheet, it estimates that it would receive only $125,000 if it sells the equipment and would incur costs of $50,000 for removing the equipment and getting it ready for sale.

b. Candy Corporation produces premium chocolates at a cost of $15 per box and sells them for $25 per box. During the current month, Candy sold chocolates for $75,000 and incurred $60,000 of costs in producing inventory, some of which was not sold.

c. Allstar Oil Company recently discovered new oil reserves that should produce 100 million to 200 million barrels of oil.

The current price of this grade of crude oil is $12 per barrel.

The management of Allstar is confident it can sign a contract with a major oil distributer to sell the oil at $18 per barrel.

d. Kipper Computer Company has just signed a contract with a major retail company under which the retailer will purchase at least 5,000 computers from Kipper at a price that will guarantee Kipper a profit of $150 per computer.

The computers will be delivered during the next two years, as instructed by the retailer.