E2-7 (L05,6) (Assumptions, Principles, and Constraint Presented below are a number of operational guidelines and prac- tices that have developed over time. Instructions Select the assumption, principle, or constraint that most appropriately justifies these procedures and practices. (Do not use qualitative characteristics.) (a) Fair value changes are not recognized in the accounting records. (b) Financial information is presented so that investors will not be misled. (.) Intangible assets are amortized over periods benefited. (d) Agricultural companies use fair value for purposes of valuing crops. (e) Each enterprise is kept as a unit distinct from its owner or owners () All significant post-balance-sheet events are disclosed. (g) Revenue is recorded when the product is delivered. (h) All important aspects of bond indentures are presented in financial statements. (i) Rationale for accrual accounting. G] The use of consolidated statements is justified. (k) Reporting must be done at defined time intervals. (1) An allowance for doubtful accounts is established. (m) Goodwill is recorded only at time of purchase. (n) A company charges its sales commission costs to expense. E2-8 (L06) (Full Disclosure Principle) Presented below are a number of facts related to Weller, Inc. Assume that no mention of these facts was made in the financial statements and the related notes Instructions Assume that you are the auditor of Weller, Inc. and that you have been asked to explain the appropriate accounting and related disclosure necessary for each of these items. (a) The company decided that, for the sake of conciseness, only net income should be reported on the income statement. Details as to revenues, cost of goods sold, and expenses were omitted. (b) Equipment purchases of $170.000 were partly financed during the year through the issuance of a $110,000 notes pay- able. The company offset the equipment against the notes payable and reported plant assets at $60,000 (c) Weller has reported its ending inventory at $2.100.000 in the financial statements. No other information related to inventories is presented in the financial statements and related notes (d) The company changed its method of valuine inventories from weighted average to FIFO. No mention of this change was made in the financial statements