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Each of the Following Statements Violates a Concept or Convention

Question 22

Matching

Each of the following statements violates a concept or convention of accounting. Match each statement corresponding to the concept or convention violated.

Premises:

Responses:

A note to the financial statements indicating a change in inventory methods is omitted.

Consistency

When management is unsure of which estimates to use in a given situation, the estimate resulting in the largest net income is always used.

Materiality

In 2009, a company uses straight-line depreciation and in 2010 the company uses declining-balance depreciation.

Conservatism

A small company expenses all expenditures under $10,000.

Full disclosure

A small company purchases a $50,000 computer to save $3,000 per year in bookkeeping wages.

Cost-benefit

Premises:

A note to the financial statements indicating a change in inventory methods is omitted.

When management is unsure of which estimates to use in a given situation, the estimate resulting in the largest net income is always used.

In 2009, a company uses straight-line depreciation and in 2010 the company uses declining-balance depreciation.

A small company expenses all expenditures under $10,000.

A small company purchases a $50,000 computer to save $3,000 per year in bookkeeping wages.

Responses:

Consistency

Materiality

Conservatism

Full disclosure

Cost-benefit

Correct Answer:

Premises:

Responses:

A note to the financial statements indicating a change in inventory methods is omitted.

When management is unsure of which estimates to use in a given situation, the estimate resulting in the largest net income is always used.

In 2009, a company uses straight-line depreciation and in 2010 the company uses declining-balance depreciation.

A small company expenses all expenditures under $10,000.

A small company purchases a $50,000 computer to save $3,000 per year in bookkeeping wages.