Match the important aspect of the definition of the element with the elements of financial statements by entering appropriate letters in the blanks. More than one letter can be placed in a blank. A Assets B. Liabilities C. Owners' equityet assets D. Revenues obtained by an entity E. Expenses F. Gains G. Losses H. None of the above Important Aspect of the Definition of the Element Elements of Financial Statements 1. Using up of assets or incurrence of liabilities 2. Probable future economic benefits 3. Enhancement of assets or settlements of liabilities 4. Residual interest in assets after deducting liabilities 5. Increases in net assets from peripheral or incidental activities 6. Changes in net assets from peripheral or incidental transactions of the entity 7 Future sacrifices arising from past transactions 8 Results from the entity's ongoing major or central operation For each of the following circumstances, give the letter item(s) indicating the accounting principle involved. Some letters may be used more than once, and some may not be used at all A. Continuity B. Neutrality C. Comparability D. Cost/benefit effectiveness E. Full disclosure F. Historical cost G. Relevance H. Nominal dollar financial capital maintenance I. Matching 3. Proprietary K. Faithful representation L. Revenue recognition M. Separate entity N. Time period 0. Unit of measure 1. Financial statements are prepared from the point of view of the owners. A note describing the company's possible liability in a lawsuit is included with the financial statements, even though no formal liability exists at the balance sheet date 3. Marketable securities are valued at current market value The personal assets of partners are excluded from the partnership balance sheet, even though they are pledged as security for partnership loans. 5 A retail store uses estimates rather than a complete physical count of its inventory for purposes of preparing monthly financial statements 6. Goodwill is recorded in the accounts only when it arises from the purchase of another entity An entity reports a $50 profit after buying a unit of inventory for $100 and selling it for $150. even though the cost to replace the unit has escalated to $112 due to inflation 8. An advance deposit on a sales contract is reported as unearned revenue Accounting policies chosen for revenue recognition are the same as those of the entity's major competitors. 10 Capital assets are depreciated over their useful lives Oundjian Corporation recently sold inventory for $140,000. The goods had originally cost $94.000. Inflation during the period was 5 The goods could be replaced from their long-time supplier for $115,000. For simplicity, assume that there are no other costs of doing business Required: 1. Calculate a measure of accounting income, consistent with: a Nominal dollar financial capital maintenance b. Constant dollar financial capital maintenance c. Physical capital maintenance, in nominal dollars 2. Assume in each case in requirement that the company collected revenue in cash and paid out 100% of net income in dividends to owners. Calculate the remaining cash balance. a. Nominal dollar financial capital maintenance b. Constant dollar financial capital maintenance c. Physical capital maintenance in nominal dollars Identify the level in the hierarchy that would be most appropriate for measuring the following items using the fair-value hierarchy. Assume similarity for each item listed, wherever required. Required: Identify the most appropriate value of the hierarchy to measure each item. 1. Shares in a public company 2. Land 3. Patent 4. Beef Cattle 5. Unique machinery Match the important aspect of the definition of the element with the elements of financial statements by entering appropriate letters in the blanks. More than one letter can be placed in a blank A Assets B. Liabilities C Owners' equityet assets D. Revenues obtained by an entity E Expenses F. Gains G. Losses H. None of the above Important Aspect of the Definition of the Element Elements of Financial Statements 1. Using up of assets or incurrence of liabilities 2. Probable future economic benefits 3. Enhancement of assets or settlements of liabilities 4. Residual interest in assets after deducting liabilities 5. Increases in net assets from peripheral or incidental activities 6. Changes in net assets from peripheral or incidental transactions of the entity 7. Future sacrifices arising from past transactions 8. Results from the entity's ongoing major or central operation Dorc For each of the following circumstances, give the letter item(s) indicating the accounting principle involved. Some letters may be used more than once, and some may not be used at all. A. Continuity B. Neutrality C. Comparability D. Cost/benefit effectiveness E. Full disclosure F. Historical cost G. Relevance H. Nominal dollar financial capital maintenance I. Matching 3. Proprietary K. Faithful representation L. Revenue recognition M. Separate entity N. Time period 0. Unit of measure 1. Financial statements are prepared from the point of view of the owners. A note describing the company's possible liability in a lawsuit is included with the financial statements, even though no formal liability exists at the balance sheet date. 3. Marketable securities are valued at current (market) value. The personal assets of partners are excluded from the partnership balance sheet, even *though they are pledged as security for partnership loans 5 A retail store uses estimates rather than a complete physical count of its inventory for purposes of preparing monthly financial statements 6. Goodwill is recorded in the accounts only when it arises from the purchase of another entity An entity reports a $50 profit after buying a unit of inventory for $100 and selling it for $150 even though the cost to replace the unit has escalated to $112 due to inflation 8. An advance deposit on a sales contract is reported as unearned revenue o Accounting policies chosen for revenue recognition are the same as those of the entity's major competitors. 10 Capital assets are depreciated over their useful lives. Oundjian Corporation recently sold inventory for $140,000. The goods had originally cost $94,000. Inflation during the period was 5% The goods could be replaced from their long-time supplier for $115,000. For simplicity, assume that there are no other costs of doing business. Required: 1. Calculate a measure of accounting income, consistent with: a. Nominal dollar financial capital maintenance b. Constant dollar financial capital maintenance c. Physical capital maintenance, in nominal dollars 2. Assume in each case in requirement that the company collected revenue in cash and paid out 100% of net income in dividends to owners. Calculate the remaining cash balance. a. Nominal dollar financial capital maintenance b. Constant dollar financial capital maintenance c. Physical capital maintenance, in nominal dollars Identify the level in the hierarchy that would be most appropriate for measuring the following items using the fair-value hierarchy. Assume similarity for each item listed, wherever required. Required: Identify the most appropriate value of the hierarchy to measure each item. 1. Shares in a public company 2. Land 3. Patent 4 Beef Cattle 5. Unique machinery