a. ABC Inc purchased new vehicles and capitalized them as assets on the balance sheet. Vehicles generally can last up to 15 years. ABC's bookkeeper estimated that the vehicles will probably not last longer than 7 years but used 15 years as the estimated amortization period. Explain what qualitative characteristic the accountant violated and how would the bookkeeper's decision affect the balance sheet and income statement? b. BAK Inc is a large bakery that distributes its baked goods throughout Ontario to coffee shops. Due to the pandemic and shifting consumer demands, BAK had to take a close look at which baked goods are most and least profitable. It turned out that the least profitable and least popular was their carrot muffin. Management has made a decision to discontinue production of carrot muffins and would like to report revenues and expenses related to the muffins under discontinued operations. Do you agree / disagree and why? C. RISKY Inc is in a liquidity crisis. The company's regular customers are not able to make payments on their accounts receivable balances due to an economic recession. RISKY's management is still hoping that things will turn around but they are not sure about the eventual outcome. Explain what foundational principle should be considered when Risky prepares the financial statements and how will it affect the measurement and presentation of the balance sheet? d. LAM Inc is a manufacturer of tissue paper. Prior to the global pandemic, LAM recognized revenue upon delivery and client acceptance of the product. In the most recent fiscal year, LAM made a decision to recognize revenue upon shipment as that is consistent with other companies in the industry. Do the financial statements need to be retroactively restated? Why or why not? a. ABC Inc purchased new vehicles and capitalized them as assets on the balance sheet. Vehicles generally can last up to 15 years. ABC's bookkeeper estimated that the vehicles will probably not last longer than 7 years but used 15 years as the estimated amortization period. Explain what qualitative characteristic the accountant violated and how would the bookkeeper's decision affect the balance sheet and income statement? b. BAK Inc is a large bakery that distributes its baked goods throughout Ontario to coffee shops. Due to the pandemic and shifting consumer demands, BAK had to take a close look at which baked goods are most and least profitable. It turned out that the least profitable and least popular was their carrot muffin. Management has made a decision to discontinue production of carrot muffins and would like to report revenues and expenses related to the muffins under discontinued operations. Do you agree / disagree and why? C. RISKY Inc is in a liquidity crisis. The company's regular customers are not able to make payments on their accounts receivable balances due to an economic recession. RISKY's management is still hoping that things will turn around but they are not sure about the eventual outcome. Explain what foundational principle should be considered when Risky prepares the financial statements and how will it affect the measurement and presentation of the balance sheet? d. LAM Inc is a manufacturer of tissue paper. Prior to the global pandemic, LAM recognized revenue upon delivery and client acceptance of the product. In the most recent fiscal year, LAM made a decision to recognize revenue upon shipment as that is consistent with other companies in the industry. Do the financial statements need to be retroactively restated? Why or why not
