Question
Suppose you are confronted with the following accounting dilemmas. In each case, what decision would you make and what accounting principles are relevant to the
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Suppose you are confronted with the following accounting dilemmas. In each case, what decision would you make and what accounting principles are relevant to the resolution:
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An employee has been discharged and this month is being paid severance pay equal to two months salary. Should this severance pay be considered an expense of this month, or should it be split between the next two months?
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Certain items have been in inventory for more than a year; there is only a 30 percent probability that they will ever be sold or used. Should their value be removed from the total inventory value?
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A manufacturer of sophisticated analysis instruments ships a new model to an important customer; the customer agrees to try the new model for two months and then either return the instrument or pay full price for it. Should this shipment be counted as a sale this month? If not, should you account for a decrease in inventory value and, if so, how?
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The company president purchases 1,000 shares of stock from a former employee of the company. How should the company account for this transaction?
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The company provides a $1,000 travel advance to the sales manager, who is about to depart on a business trip to Japan. What entries, if any, would you make?
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A major customer with a $400,000 outstanding account receivable declares bankruptcy. What entries, if any, would you make?
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Your company purchases $500 of merchandise from a vendor who offers a 10% discount if your company pays the invoice within 15 days. In the past, your company has always taken such lucrative discounts for prompt payment. At what value should you record this inventory and the corresponding account payable?
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Your company pays $120 for telephone classified advertising for the coming year. Should you treat that as an advertising expense of the current period? If yes, why? If not, how might you account for it?
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Annual interest charges on your five-year loan are $1,200, payable at the end of each calendar quarter. Should you recognize any interest expense in February? If so, how?
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Your company owns a computer for which it paid $8,000 two years ago. The computer is still carried at that value in your fixed asset valuation. You now believe that the computer will be worthless in two more years. Should you adjust the value of the computer at this time? If so, how?
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