Chapter 2, Problem 19CE

To determine

Concept Introduction:

Revenue recognition principle- It states that revenue should be recognized and reported in financial statementswhen services or products are provided to the customers and not the payment is received. In other words, entity should not report income when they receive cash from their customers to record revenue from sales. This principle is consistent with accrual basis of accounting.

Requirement 1:

To determine the principle if Quagmire company recognizes revenue when goods are delivered to a customer, even though cash will not be collected from customer for 30 days.

To determine

Concept Introduction:

Conservatism principle- This principle states that the accountant should always be conservative in recording all uncertain or estimated revenue and always record and report all uncertain expense or loss.

Requirement 2:

To determine the principle when inventory, which was damaged by flood, is reported at the lower of its cost or market value.

To determine

Concept Introduction:

Historical cost- It states that the resources reported in financial statements should be recorded at initial acquisition cost that is the exchange price at the time the resource is acquired.

Requirement 3:

To determine the principle when land, located in a desirable location, is reported at original acquisition price, even though its value has increased by over 100% since it was purchased.

To determine

Concept Introduction:

Expense recognition principle- It states that all expenses in a business should be recognized and reported in the same time-period as the revenue the business generates. It can be the same time when the cash is paid, or it might predate or follow with the revenue amount realized. This is commonly referred as matching principle.

Requirement 4:

To determine the principle when the cost paid for a delivery truck is recorded as an asset and expensed over the next 5 years as it is used to help generate revenue.