Violations of accounting conventions
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Presented below are a number of accounting procedures and practices in Sanchez Corp. For each of these items, list the assumption, principle, information characteristic, or modifying convention that is violated.
1. Because the company's income is low this year, a switch from accelerated amortization to straight-line amortization is made this year.
2. Sanchez Corp. decides to establish a large loss and related liability this year because of the possibility that it may lose a pending patent infringement lawsuit. The possibility of loss is considered remote by its attorneys.
3. An officer of Sanchez Corp. purchased a new home computer for personal use with company money, charging miscellaneous expense.
4. A machine that cost $40,000 is reported at its current market value of $50,000.
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Solution Summary
Violations of the assumption, principle, information characteristic, or modifying conventions.
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1. Because the company's income is low this year, a switch from accelerated amortization to straight-line amortization is made this year.
This violates the consistency principle. The same methods and procedures should be used from one time period to the next.
2. Sanchez Corp. decides to establish a ...
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