Claudia Mendoza Intermediate Accounting

Case: The Pastel Paint Company purchased land two years ago at a price of $250,000. Because the value of the land has appreciated to $400,000, the company has valued the land at $400,000 on its most recent balance sheet. Analysis: The Pastel Paint Company has violated The Historical Cost Principle, because the business should indicate the original purchased price of $250,000, instead they put the land value at $400,000. The measurements of the value of the land should represent the nominal or original cost when acquired by The Pastel Paint Company, which in this case is the $250.000.

Case: The Atwell Corporation has not prepared financial statements for external users for over three years. Analysis: The Atwell Corporation violated the Full Disclosure Principle by not preparing the financial statements for the past three years for the external users. Therefore, this company would not provide any financial information useful for the decision makers.

Case: The Klingon Company sells farm machinery. Revenue from a large order of machinery from new buyer was recorded the day the order was received. Analysis: Klingon Company violated the Realization Principle, because the company recorded the revenue the same day the order was received but not when the machinery was delivery. Based on the Realization Principle the revenue event is not recorded until all or most of the earnings activities have been performed.

Case: Don Smith is the sole owner of a company called Hardware City. The company recently paid $150 utility bill for Smiths personal residence and recorded as $150 expense. Analysis: Don Smith violated the Economic entity assumption by recording a personal bill as an expense in the company financial statement; therefore, external users would have the wrong information about the current financial status of the company. In addition, based on the guideline of the accounting principle the accountant needs to

keep the sole proprietors business transactions separate from the owners personal transactions.

Case: The Golden Book Company purchased a large printing machine for $1000, 000 (a material amount) and recorded the purchase as an expense. Analysis: The Golden Book Company violated The Materiality Principle because they purchased a machine that would be used as an asset for the company not as an expense. In addition, the large printing should be recorded as a company long term liability. The Materiality Principle it can have an effect on a decision made by users, therefore, the company needs to reflect the purchases in the right category in the financial statements.

Case: The Ace Appliance Company is involved in a major lawsuit involving injuries by some of its employees in the manufacturing plant. The company is being sued of $2,000,000, a material amount, and is not insured. The suit was not disclosed in the most recent financial statement because no settlement had been reached. Analysis: The Ace Appliance Company violated the Full Disclosure Principle by leaving out the employees law suit for $2,000.000 that is pending a verdict. The Ace Appliance did not bring forth all information that could affect decisions by external users.