Chapter 1, Problem 1.4BE

Basic assumptions and principles

• LO1–7 through LO1–9

Identify the accounting concept that was violated in each of the following situations.

1. Astro Turf Company recognizes an expense, cost of goods sold, in the period the product is manufactured.

2. McCloud Drug Company owns a patent that it purchased three years ago for $2 million. The controller recently revalued the patent to its approximate market value of $8 million.

3. Philips Company pays the monthly mortgage on the home of its president, Larry Crosswhite, and charges the expenditure to miscellaneous expense.