Basic Concepts of Financial Accounting

a. The Acme Trailer Company produces trailers in Indiana.

Acme owns 100 percent of two of its suppliers, the Ace Wheel and Bearing Company and the Omega Wood Products Company. Which companies should be included in Acme’s financial statements? Explain.

b. Aftel Company received an order for its products three months prior to the date of requested delivery. It produced the products two months before the delivery date. At the time the order was received, Aftel knew the sale price, and at the time it produced the products, it knew the cost of producing and shipping the products to the customer.

When should revenue on the sale be recorded? What accounting concepts apply to the recognition of revenue?

c. Land held for future plant expansion was purchased some years ago and is worth a great deal more today than was paid at the time of purchase. Should the company’s balance sheet report the higher amount? What accounting concepts apply to the valuation of the land?

d. What does it mean when a company is considered to be a going concern? Why might investors and creditors value the assets of a company differently if they conclude that a company is no longer a going concern?