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Finanacial Statement

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1. The president of your firm, Lesky and Lesky, has little background in accounting. Today, he walked in to your office and said, “A year ago we bought a piece of land for $100,000. This year, inflation has driven prices up by 6%, and an appraiser just told us we could easily resell the land for $115,000. Yet our balance sheet still shows it at $100,000. It should be valued at $115,000. That’s what it’s worth. Or, at a minimum, at $106,000.” Respond to this statement with specific reference to the accounting principles applicable in this situation.

2. Identify the accounting principle(s) applicable to each of the following situations: A. Tim Roberts owns a bar and a rental apartment and operates a consulting service. He has separate financial statements for each. B. An advance collection for magazine subscription is reported as a liability titled Unearned Subscriptions. C. Purchases for office or store equipment for less than $25 are entered in Miscellaneous Expense. D. A company uses the lower of cost or market for valuation of its inventory. E. Partially completed television sets are carried at the sum of the cost incurred to date. F. Land purchased 15 years ago for $40,500 is now worth $346,000. It is still carried on the books at $40,500. G. Zero Corporations is being sued for $1 million for breach of contract. Its lawyers believe that the damages will be minimal. Zero reports the possible loss in a note.

3. The primary current source of generally accepted accounting principles or nongovernmental operations is the A. New York Stock Exchange B. Financial Accounting Standards Board C. Securities and Exchange Commission D. American Institute of Certified Public Accountants E. None of the above. 4. What is the underlying concept that supports the immediate recognition of a loss? A. Matching B.

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