E 1-13 Basic assumptions and principles
LO1-7 through LO1-9
For each of the following situations, state whether you agree or disagree with the financial reporting practice employed,
and briefly explain the reason for your answer.
1. The controller of the Dumars Corporation increased the carrying value of land from its original cost of $2 million to its
recently appraised value of $3.5 million.
2. The president of Vosburgh Industries asked the company controller to charge miscellaneous expense for the purchase of
an automobile to be used solely for personal use.
3. At the end of its 2018 fiscal year, Dower, Inc., received an order from a customer for $45,350. The merchandise will
ship early in 2019. Because the sale was made to a long-time customer, the controller recorded the sale in 2018.
4. At the beginning of its 2018 fiscal year, Rossi Imports paid $48,000 for a two-year lease on warehouse space. Rossi
recorded the expenditure as an asset to be expensed equally over the two-year period of the lease.
5. The Reliable Tire Company included a note in its financial statements that described a pending lawsuit against Page 41
the company.
6. The Hughes Corporation, a company whose securities are publicly traded, prepares monthly, quarterly, and annual
financial statements for internal use but disseminates to external users only the annual financial statements.
E 1-14 Basic assumptions and principles
LO1-7 through LO1-9
Listed below are accounting concepts discussed in this chapter.
a. Economic entity assumption
b. Going concern assumption
Periodicity assumption
