Chapter 1
Recognition and Measurement
13
b) The total depreciation expense of Hernekein Ltd. is $750,000 for fiscal 2016. No
depreciation rates or classes of depreciation are provided in the notes to the financial
statements.
c) Smaugly Ltd. has changed its inventory valuation technique from FIFO to moving
weighted average this year with no substantial change observed in the nature of the
inventory or operations of the company. Virtually all of Smaugly’s competitors use FIFO.
Management justified this move by the fact that the new accountant they hired did not
understand FIFO.
d) Jaggernaut Co. provides a prepaid expense card to each of its field employees to
compensate them for travelling expenses. At the year-end, once reconciliation was
performed, the accountant realized that none of the employees had kept the receipts to
support the expenses incurred through the year.
e) Continental Moving Inc. has delayed the release of its financial statements for three
months past the due date as it was struggling to complete its truck inventory count. As a
result, the statements were released to the public seven months after the statement date.
f ) Poet Co. has prepared the notes to the financial statements using Shakesperean English
for fiscal 2016. The long-term debt note for instance states the following: “To pay or not to
pay, that is the question.”
