Purchase Solution

GAAP and Financial Statement Preparation

Not what you're looking for?

Ask Custom Question

R&R Equipment Company is preparing its annual financial statements in anticipation of applying for a loan. During the last week of the year, R&R received a shipment of inventory but has not paid for it. The invoice indicates that R&R owes $5,000 for the purchase. The owner of R&R, Randy Ray, has decided to omit this asset and the related liability from the year-end balance sheet, reasoning that it is okay because he is omitting both of them, which means there is no difference in owners' equity. For this assignment you are to address the following:

What is your opinion of Randy's reasoning?

Discuss circumstances under which Randy's decision would be acceptable under GAAP and circumstances under which it would definitely be unacceptable.

Purchase this Solution
Solution Summary

This solution discusses Randy's reasoning in 409 words.

Solution Preview

1. What is your opinion of Randy's reasoning?

I believe that Randy's reasoning is faulty, because omitting this information misrepresents the company's financial picture on the loan application. Even though the value of the asset and the liability cancel each other out, the asset is a tangible shipment while the liability is a monetary debt. The company actually has $5,000 less in liquid capital available than it is stating on the financial statements, since it owes $5,000 for the purchase. Although it does have an asset of equal value, it is unlikely that in the event of a bankruptcy the company would be able to reclaim the full value of the asset in cash. ...

Purchase this Solution
Free BrainMass Quizzes
Operations Management

This quiz tests a student's knowledge about Operations Management

Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

View More Free Quizzes
Related BrainMass Solutions

  • management prefer tax over book depreciation

    This solution explains why management would prefer tax book depreciation over internal book depreciation for financial statement preparation in accordance with GAAP.

  • GAAP Questions: Purpose, Application and Consequences

    The reader of a financial statement expects that certain accounting procedures would have been followed in the preparation of the financial data, but there are many recognized non-GAAP applications also well-recognized.

  • Accounting and GAAP

    GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements. GAAP is important regarding the preparement of the financial statement.

  • Differences between financial and managerial accounting

    It provides us the financial statements such as balance sheet, income statement and cash flow statement.

  • Accounting Reporting Criteria of foreign company

    In case the foreign company have any subsidiary which does its accounting in any other currency, the company will have to translate every item of the financial statement into local currency.  Difference in GAAP: There are many provisions in the

  • Characteristics as to accounting

    It provides us the financial statements such as balance sheet, income statement and cash flow statement.

  • generally accepted accounting principles

    ., generally accepted accounting principles, commonly abbreviated as US GAAP or simply GAAP, are accounting rules used to prepare, present, and report financial statements for a wide variety of entities, including publicly-traded and privately-held companies

  • Pro forma financial statements.

    104646 Financial Executives Using Pro Forma Financial Statements How do financial executives use pro forma financial statements? How do organizational goals influence the preparation and evaluation of pro forma financial statements?

  • Financial Accounting Standard Board Website

    This project addresses the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP.

  • Fair Value Accounting for USA GAAP financial statement

    348955 Should Fair Value Accounting be required in the preparation of US GAAP financial statement? Should Fair Value Accounting be required in the preparation of US GAAP financial statement?

View More Related Solutions