1) Companies frequently disclose the effects of absorption costing on reported net
income.
2) Accounting standard-setting in the U.S. is a technical process and thus little affected
by political considerations.
3) A sale should not be recognized as revenue by the seller at time of sale if payment is
made by check.
4) The SEC requires that the 10-K report disclose the dollar impact of LIFO liquidation
whenever it occurs.
5) For companies whose transactions were all in dollars, cash is carried on the balance
sheet at its current market value instead of its historical cost.
6) It is never permissible to issue financial statements that depart from GAAP in any
material respect.
7) Expected return on pension plan assets causes reported pension expense to increase
for defined benefit plans.
8) The LIFO reserve disclosure was intended to remedy the difficulty investors face
when trying to compare LIFO versus FIFO firms in a meaningful manner.
9) Readers of financial statements must scrutinize the note disclosures, and the
financing activities section of the cash flow statement, for evidence of dispositions of
receivables that may be masking overly aggressive revenue recognition policies or bad
receivables management.
10) In the perpetual inventory system inventory losses must be recorded in the
accounts.
11) Costs incurred by the franchisor to provide initial and continuing services (for
example, counseling by a registered dietician or advertising) are expensed in the same
periods as the franchise revenue following the conservatism principle.
12) The write-off of obsolete inventory would be reported on the income statement as a
special item in continuing operations.
13) Early in 2012, a plant manager at one of ABC Corporation’s 19 manufacturing
facilities suffered a fatal heart attack. This information would normally be disclosed by
ABC in notes to its 2011 financial statements.
14) “Capacity swaps” have been used by telecommunications companies as a means to
prematurely recognize revenue.