Question

Question No. 2:                                    (LO2)                                                           

State the accounting assumption, principle, information characteristic, or constraint that is most applicable in the following cases.

1. All payments less than $25 are expensed as incurred. (Do not use conservatism.)
2. The company employs the same inventory valuation method from period to period.
3. A patent is capitalized and amortized over the periods benefited.
4. Assuming that dollars today will buy as much as ten years ago.
5. Rent paid in advance is recorded as prepaid rent.
6. Financial statements are prepared each year.
7. All significant post-balance sheet events are reported.
8. Personal transactions of the proprietor are distinguished from business transactions.

Answer 1

1. All payments less than $25 are expensed as incurred= Materiality constraint

2.The company employs the same inventory valuation method from period to period.= Consistency characteristic.

3.A patent is capitalized and amortized over the periods benefited. = Matching principle or going concern assumption.

4.Assuming that dollars today will buy as much as ten years ago.Assuming that dollars today will buy as much as ten years ago.= Monetary unit assumption.

5.Rent paid in advance is recorded as prepaid rent. = Matching principle or going concern assumption.

6.Financial statements are prepared each year.= Periodicity assumption.

7.All significant post-balance sheet events are reported.= Full disclosure principle.

8.Personal transactions of the proprietor are distinguished from business transactions. = Economic entity assumption.

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