Valix Finacc vol 1 Problem 1-18

Financial Accounting Volume 1 2008 Valix-Peralta
Chapter 1 Problem 1-18

1.       The cost of the asset should be the amount of cash paid. No income should be recognized when an asset is purchased at an amount less than its market value.  Revenue arises from the act of selling and not from the act of buying.

2.       The entry should be reversed because the pending lawsuit is a mere contingency. The contingent loss is simply disclosed. To be recognized in accordance with conservatism, the contingent loss must be both probable and measurable.

3.       The new car should be charged against the president and debited to receivable from officer, because the car is for personal use.

 4.       The entry is incorrect because no revenue shall be recognized until a sale has      taken place.

5.       Purchased goodwill should be recorded as an asset. Under the new standard, goodwill is not amortized anymore but on each balance sheet date it should be assessed for impairment.