Accounting Assumptions

The following is a list of accounting assumptions that have an important impact on the development of GAAP and statements describing accounting practices.

A. Reporting entity

B. Going concern

C. Period of time

D. Historical cost

E. Monetary unit

F. Revenue recognition

G. Expense recognition

H. Conservatism

Required:

Select the accounting assumption that is associated with each accounting practice and place the appropriate letter on the line preceding the statement.

1.

Land was purchased for $200,000. A recent appraisal values the land at $500,000. The company reports the land at $200,000 on its current balance sheet.

2.	The CEO of the company purchased a laptop for their spouse. The purchase of the laptop is not recorded as increase in equipment by the company.

3.	An airline recognizes revenue when a flight occurs instead of when the ticket is sold and cash is collected.

4.	Because of a drop in the fair value of equipment below its book value and the uncertainty of whether the cost of equipment will be recovered, the equipment is reported at its lower fair value.

5.	Despite a worldwide pandemic that led to a shutdown of its business for 2 months, a company still prepares quarterly financial statements that show a single month of revenue.

6.	A machine is depreciated each period over its 10-year useful life.