E2-7B (Assumptions, Principles, and Constraint) Presented below are a number of operational guidelines
and practices that have developed over time.
Select the assumption, principle, or constraint that most appropriately justifies these procedures and
practices. (Do not use qualitative characteristics.)
(a) All significant post-balance sheet events are reported.
(b) Intangibles are capitalized and amortized over periods benefited.
(c) Price-level changes are not recognized in the accounting records.
(d) Brokerage firms use market value for purposes of valuation of all marketable securities.
(e) Financial information is presented so that reasonably prudent investors will not be misled.
(f) Lower-of-cost-or-market is used to value inventories.
(g) Repair tools are expensed when purchased.
(h) Each enterprise is kept as a unit distinct from its owner or owners.
(i) All important aspects of bond indentures are presented in financial statements.
(j) Revenue is recorded at point of sale.
(k) A company charges its sales commission costs to expense.
(l) An allowance for doubtful accounts is established.
(m) Reporting must be done at defined time intervals.
(n) Goodwill is recorded only at time of purchase.
(o) The use of consolidated statements is justified.
(p) All payments out of petty cash are charged to Miscellaneous Expense.
(q) Rationale for accrual accounting is stated.
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