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Week 4 Assignment Template

Accounting Theory and Merchandising Accounting

Respond to the following seven questions using grammatically correct language. Save the document and submit it in the courseroom.

1. Discuss the effects of all five major accounting assumptions on the accounting process.

[Answer here]

2. Describe all five concepts’ impact on the accounting process.

[Answer here]

3. GAAP set forth standards or methods for presenting financial accounting information. Describe all five major accounting principles.

[Answer here]

4. In certain instances, companies do not strictly apply accounting principles because of modifying conventions or constraints. Identify and describe the impact on the accounting process of the three modifying conventions.

[Answer here]

5. Correctly state the letter or letters of the principle(s), assumption(s), or concept(s) used to justify the accounting procedure followed for at least four of the accounting procedures. These procedures are all correct.

· Principle(s), Assumption(s), Concept(s):

A. Business entity.

B. Conservatism.

C. Earning principle of revenue recognition.

D. Going concern (continuity).

E. Exchange-price (cost) principle.

F. Matching principle.

G. Period cost (or principle of immediate recognition of expense).

H. Realization principle.

I. Stable dollar assumption.

· Accounting Procedures:

A. Inventory is recorded at the lower of cost or market value.

B. A truck purchased in January was reported at 80 percent of its cost even though its market value at year-end was only 70 percent of its cost.

C. The collection of $40,000 of cash for services to be performed next year was reported as a current liability.

D. The president’s salary was treated as an expense of the year even though he spent most of his time planning the next two years’ activities.

E. No entry was made to record the company’s receipt of an offer of $800,000 for land carried in its accounts at $435,000.

F. A supply of printed stationery, checks, and invoices with a cost of $8,500 was treated as a current asset at year-end even though it had no value to others.

G. A tract of land acquired for $180,000 was recorded at that price even though it was appraised at $230,000, and the company would have been willing to pay that amount.

H. The company paid and charged to expense the $4,200 paid to Craig Nelson for rent of a truck owned by him. Craig Nelson is the sole stockholder of the company.

[Answer here]


1) Inventory is recorded at the lower of cost or market value.

6. In each of the following equations supply the missing term(s):

· Net sales = Gross sales – (______________________ + Sales returns and allowances).

· Cost of goods sold = Beginning inventory + Net cost of purchases – ________ ________.

· Gross margin = ________ ________ – Cost of goods sold.

· Income from operations = __________ _________ – Operating expenses.

· Net income = Income from operations + _________ ________ – ________ ________.

7. As part of the calculation for cost of goods sold it is necessary to determine the value of goods on hand, termed merchandise inventory. Accountants use two basic methods for determining the amount of merchandise inventory. Identify the two methods and describe the circumstances (including examples of users of each method) under which each method would be used.

[Answer here]




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