Question
Evans Company uses accrual accounting. Based on a review of Evans Company's records, the following practices are revealed. The company records revenue after billing clients
Evans Company uses accrual accounting. Based on a review of Evans Company's records, the following practices are revealed.
The company records revenue after billing clients for services to be provided during the next accounting period. As a result, Evans Company's income statement includes 13 months of revenue. Evans Company's accountant contends that the company's revenue recognition practice is consistent with accrual accounting since the company recorded revenue when it billed clients for services.
On March 1, 2018, Evans Company negotiated a deal and paid $5,000 for inventory that was valued at $8,000. The company recorded the inventory at $8,000 on its balance sheet. Evans Company's accountant claims that this practice is acceptable under generally accepted accounting principles because the $8,000 value is more consistent with marketplace expectations.
Is Evans Company's revenue recognition practice consistent with accrual accounting? Why or why not?
Did Evans Company violate generally accepted accounting principles by including 13 months of revenue on its income statement? Why or why not? Explain.
Did Evans Company violate generally accepted accounting principles by recording inventory at $8,000? Why or why not? Explain.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started