Question 5

In each of the situations given below explain which accounting concept got violated if any. State the correct journal entry.

Case1

Beautiful Fragrance Company provided services $ 100,000 to a customer . However they failed to record the transaction in their books. What should the company do? Are they violating any GAAP? If so what is the concept violated? What is the required journal entry?

Case 2

Fragrance Company bought fragrances for $50,000 on Sept 30,000. On December 31 the inventory remained unsold, but the market price was $80,000. The company recorded as $80,000 since they felt it was a more realistic number. The journal entry they passed is shown below

Debit Credit

Inventory 30,000

Gain 30,000

What should the company do? Are they violating any GAAP? If so what is the concept violated? What is the required journal entry?

Case 3

Beautiful fragrance Company inventory lost value to $10,000 as at Dec 31. The company did nothing. What should the company do? Are they violating any GAAP? If so what is the concept violated? What is the required journal entry?

Case 4

Beautiful Fragrance bought fragrance manufacturing equipment for $100,000 with life span of 5 years

The journal entry they recorded is as follows.

Debit Credit

Equipment $100,000

Cash $100,000

What should the company do? Are they violating any GAAP? If so what is the concept violated? What is the required journal entry?

Case 5

Beautiful Fragrance Company failed to recognize a $ 4,500 utility bill at the end of the year. What should the company do? Are they violating any GAAP? If so what is the concept violated? What is the required journal entry?

Case 6

Beautiful Fragrance Company bought a small Xerox machine for $ 200. The life of the machine is 3 years. The company passed the following journal entry on purchase.

Debit Credit

Depreciation expense $66

Accumulated depreciation 66

Are they violating any GAAP? If so what is the concept violated? What is the required journal entry?

Case 7

Beautiful Fragrance is facing the possibility of bankruptcy due to increased competition. They valued their assets at cost ($500,000). The Fair market value (FMV) of the assets were $100,000. The company valued their assets at $500,000 because this is in accordance with the cost principle

Are they violating any GAAP? If so what is the concept violated? What is the required journal entry?

Case 8

The CEO of Beautiful Fragrance suddenly died of a heart attack. It was estimated that her leadership had increased the value of the company by approximately $2 million. This money was permanently lost as a consequence of the sudden negative event. The company chose to ignore the loss.

Is this in violation of GAAP? . If so, how should the company report this?

Case 9

Due to its deteriorating financial status the management of Beautiful Fragrance decided to postpone the reporting of its financial statements by one year. This, it was felt was needed to stabilize the companys shaky stock prices.

Are they violating any GAAP? If so what is the concept violated? What is the required journal entry if there is one?