Accounting Concepts I
ACC 1093
CHAPTER 1
WORKSHEETS
1
, QUESTION 1 - EXERCISE 1–2 (LO3) Accounting Principles
Business entity Full disclosure Materiality
Consistency Going concern Monetary unit
Cost Matching Recognition
Required: Identify whether each of the following situations represents a violation or a correct
application of GAAP, and which principle is relevant in each instance.
a. A small storage shed was purchased from a home supply store at a discount sale price of $5,000
cash. The clerk recorded the asset at $6,000, which was the regular price.
b. One of the business partners of a small architect firm continually charges the processing of his
family vacation photos to the business firm.
c. An owner of a small engineering business, operating as a proprietorship from his home office,
also paints and sells watercolour paintings in his spare time. He combines all the transactions in
one set of books.
d. ABS Consulting received cash of $6,000 from a new customer for consulting services that ABS is
to provide over the next six months. The transaction was recorded as a credit to revenue.
e. Tyler Tires, purchased a shop tool for cash of $20 to replace the one that had broken earlier
that day. The tool would be useful for several years, but the transaction was recorded as a debit
to shop supplies expense instead of to shop equipment (asset).
f. Embassy Lighting, a small company operating in Canada, sold some merchandise to a customer
in California and deposited cash of $5,000 US. The bookkeeper recorded it as a credit to
revenue of $7,250 CAD, which was the Canadian equivalent currency at that time.
g. An owner of a small car repair shop purchased shop supplies for cash of $2,200, which will be
used over the next six months. The transaction was recorded as a debit to shop supplies (asset)
and will be expensed as they are used.
h. At the end of each year, a business owner looks at his estimated net income for the year and
decides which depreciation method he will use in an effort to reduce his business income taxes
to the lowest amount possible.
i. XYZ is in deep financial trouble and recently was able to obtain some badly needed cash from
an investor who was interested in becoming an equity partner. However, a few days ago, the
investor unexpectedly changed the terms of his cash investment in XYZ company from the
proposed equity partnership to a long-term loan. XYZ does not disclose this to their bank, who
they recently applied to for an increase in their overdraft line-of-credit.
2
ACC 1093
CHAPTER 1
WORKSHEETS
1
, QUESTION 1 - EXERCISE 1–2 (LO3) Accounting Principles
Business entity Full disclosure Materiality
Consistency Going concern Monetary unit
Cost Matching Recognition
Required: Identify whether each of the following situations represents a violation or a correct
application of GAAP, and which principle is relevant in each instance.
a. A small storage shed was purchased from a home supply store at a discount sale price of $5,000
cash. The clerk recorded the asset at $6,000, which was the regular price.
b. One of the business partners of a small architect firm continually charges the processing of his
family vacation photos to the business firm.
c. An owner of a small engineering business, operating as a proprietorship from his home office,
also paints and sells watercolour paintings in his spare time. He combines all the transactions in
one set of books.
d. ABS Consulting received cash of $6,000 from a new customer for consulting services that ABS is
to provide over the next six months. The transaction was recorded as a credit to revenue.
e. Tyler Tires, purchased a shop tool for cash of $20 to replace the one that had broken earlier
that day. The tool would be useful for several years, but the transaction was recorded as a debit
to shop supplies expense instead of to shop equipment (asset).
f. Embassy Lighting, a small company operating in Canada, sold some merchandise to a customer
in California and deposited cash of $5,000 US. The bookkeeper recorded it as a credit to
revenue of $7,250 CAD, which was the Canadian equivalent currency at that time.
g. An owner of a small car repair shop purchased shop supplies for cash of $2,200, which will be
used over the next six months. The transaction was recorded as a debit to shop supplies (asset)
and will be expensed as they are used.
h. At the end of each year, a business owner looks at his estimated net income for the year and
decides which depreciation method he will use in an effort to reduce his business income taxes
to the lowest amount possible.
i. XYZ is in deep financial trouble and recently was able to obtain some badly needed cash from
an investor who was interested in becoming an equity partner. However, a few days ago, the
investor unexpectedly changed the terms of his cash investment in XYZ company from the
proposed equity partnership to a long-term loan. XYZ does not disclose this to their bank, who
they recently applied to for an increase in their overdraft line-of-credit.
2
