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For each of the following situations, state whether you agree or disagree with the financial reporting practice employed, and briefly explain the reason for your answer.
1. At the end of its 2013 fiscal year, Dower, Inc., received an order from a customer for $45,350. The merchandise will ship early in 2014. Because the sale was made to a long-time customer, the controller recorded the sale in 2013.
2. At the end of its 2013 fiscal year, Dower, Inc., received an order from a customer for $45,350. The merchandise will ship early in 2014. Because the sale was made to a long-time customer, the controller recorded the sale in 2013. 4. At the beginning of its 2013 fiscal year, Rossi Imports paid $48,000 for a two-year lease on warehouse space. Rossi recorded the expenditure as an asset to be expensed equally over the two-year period of the lease.
My answer
1. disagree, It's against the revenue recognition( or realization) principle
2. disagree. It violates the revenue recognition.
I'm not sure about 2, though I answered. When I focus on "recorded the expenditure as an asset to be expensed equally over the two-year period of the lease", it seems like I have to answer as "Agree. It complies with matching principle."
1. At the end of its 2013 fiscal year, Dower, Inc., received an order from a customer for $45,350. The merchandise will ship early in 2014. Because the sale was made to a long-time customer, the controller recorded the sale in 2013.
2. At the end of its 2013 fiscal year, Dower, Inc., received an order from a customer for $45,350. The merchandise will ship early in 2014. Because the sale was made to a long-time customer, the controller recorded the sale in 2013. 4. At the beginning of its 2013 fiscal year, Rossi Imports paid $48,000 for a two-year lease on warehouse space. Rossi recorded the expenditure as an asset to be expensed equally over the two-year period of the lease.
My answer
1. disagree, It's against the revenue recognition( or realization) principle
2. disagree. It violates the revenue recognition.
I'm not sure about 2, though I answered. When I focus on "recorded the expenditure as an asset to be expensed equally over the two-year period of the lease", it seems like I have to answer as "Agree. It complies with matching principle."