CHAPTER 14 Accounting Principles and Reporting Standards 2. On March 15 of last year, Butler Inc. purchased land for $210,000, on which it planned to construct an office building. At the end of the year, the land had increased in value to $260,000. Nevertheless, Butler recognized no income as a result of the increase in value. Is this correct or incorrect accounting? Why? 3. Three years ago, Nicholson Company purchased a machine for $300,000. The machine is expected to have no salvage value. Nevertheless, Nicholson continues to keep the asset's cost in its accounting records and to depreciate the asset over its nine-year useful life. Is this correct or incorrect accounting? Why? jercise 14.4 jectives 14-6, 14-7 Applying accounting principles and concepts. For each of the following cases, respond to the question asked and indicate the accounting principle or concept that applies. 1. Baxter Company charges off the cost of all magazine advertising in the year it is incurred even though the advertising probably results in some sales in later years. Why? 2. Arlington Company's net income is about $1.5 million a year. Arlington charges to expense all property insurance premiums when paid. Last year approximately $4,800 of these premiums represented amounts applicable to future years. Is this proper? Why or why not? 3. Cortez Products Corporation charges all of its marketing costs to expense when incurred. Why? ercise 14.5 jective 14-6 ercise 14.6 ective 14-6 Applying accounting principles and concepts. Baxter & Baxter sells copy equipment. It grants all customers a 12-month warranty, agreeing to make necessary repairs within the following 12-month after-sale period free of charge. At the end of each year, the company estimates the total cost to be incurred during the next period under the war- ranties for equipment sold during the current period and charges that amount to expense, crediting a Hability account. Is this appropriate accounting? Why or why not? Applying accounting principles and concepts. Family Jewelers has never borrowed money. Because of rapid growth, on July 25, 2019. Saul Metcalf, the owner, applied for a loan of S150,000 from his bank. The banker asked Metcalf for copies of financial reports of Family Jewelers for 2018 and quarterly statements for 2019. Metcalf had never prepared formal financial statements for the business. He and the company's bookkeeper obtained some information from his 2018 income tax return and estimated other items for which information was not readily available. He took the statements to the banker on August 2. The banker expressed his concern over the statements. What are the most important fundamental financial reporting concepts that seem to have been violated