Question & Answer: Exercise 2-13…..

Exercise 2-13

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Garcia Co. had three major business transactions during 2014.

In each situation, identify the assumption or principle that has been violated.

		Violation
(a)		Historical cost Princi-principle periodicity-Tio economic entity assumption		Reported at its fair value of $260,000 merchandise inventory with a cost of $208,000.
(b)		Historical cost principle economic entity assumption periodicity assumption		The president of Garcia Co., Sal Garcia, purchased a truck for personal use and charged it to his expense account.
(c)		Historical cost principle economic entity assumptionPeriodicity assumption		Garcia Co. wanted to make its 2014 income look better, so it added 2 more weeks to the year (a 54-week year). Previous years were 52 weeks.