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ADMS 3585 (26)
Lecture 2

Week 2 - Review Questions - Solutions.docx

4 Pages

Administrative Studies
Course Code
ADMS 3585
Lykke Dela Cour

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ADMS 3585Summer 2014Solutions to Class review questions Week 2P25Agree This is a change in how Sheridan does businessThe revenue recognition principle requires that the risks and rewards of ownership be transferred to the purchaser in order for the sale to be recognized While the shipping terms have been changed further investigation should be undertaken to ensure that customer business practices are aligned with this changed policy For example if the company will continue to replace items lost or damaged in transit the risks have not passed irrespective of the change in shipping terms and the timing of revenue recognition should not changefurther discussed in Chapter 62Agree Depreciation is a means of cost allocation on a systematic charge against revenues As it is based on best estimates the useful life and resulting depreciation expense should be revised when economic or business events dictate that an asset will remain useful for a longer period While comparability is impaired changes in estimates are accounted for prospectively Restatement would not provide decision useful information since depreciation of the prior periods was determined with the best estimates available at the time All estimates and judgements used to prepare the financial information should be free from bias error or omissionThe change is acceptable as long as it is supported by evidence that the equipment is lasting longer and is not a change simply to reduce annual depreciation expense3Agree The full disclosure principle recognizes that reasonable condensation and summarization of the details of a corporations operations and financial position are essential to readability and comprehension Thus in determining full disclosure the accountant makes decisions on the basis of whether omission will cause a misleading inference by the reader of the financial statements Only the total amount of cash is generally presented on a balance sheet unless some special circumstance is involved such as a possible restriction on the use of the cash In most cases however the companys presentation would be considered appropriate and in accordance with the full disclosure principle Showing the additional detail on the balance sheet would not be relevant to the reader
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