Intermediate financial accounting1

Paragraph Question 2 Styles The independent auditor of Eve Inc. found the following situations The company uses the straight-line method of measuring depreciation on manufacturing machinery, even though it knows that a method based on actual usage would provide better matching, more accurate income determination, and thus better information for financial statement users. However, the company uses the straight-line method because of the level of data needed to implement a usage method. The straight-line method is significantly cheaper to calculate. For inventory valuation, Eve Inc switched from FIFO to average cost and then back to FIFO for the same items during a five-year period. Eve follows a policy of depreciating plant and equipment on the straight-line basis over a period of time that is 50% longer than the historic use of similar equipment. In its annual financial statements, the company reports interest expense as the "net" amount of interest expense less interest revenue. The amounts are very small, relative to the scale of Eve's business activities. a. b. c. d. Required: 1. Identify and briefly explain the accounting principle that is directly involved in each situation 2. Indicate what, if anything, the company could (or should) do in the future by way of any change in accounting policy