Indicate in each case whether the item has been handled in accordance with gener
ID: 2370947 • Letter: I
Question
Indicate in each case whether the item has been handled in accordance with generally accepted accounting principles (GAAP). If so, indicate the key basic concept that has been followed. If not, indicate which concept has been violated and tell how the item should have been recorded or presented. Remember to explain your reasoning. 1.Lauren Fox owns a snow removal business in Maine. Customers who will be vacationing in Florida for the winter must make a deposit of one-half of the seasonal rate on September 1, the last date to make arrangements to have their sidewalks and driveways plowed throughout the winter while they are gone. The balance is due on November 1. At the time deposits are received, Fox records them as revenue. Refunds, if any, are treated as expenses at the time they are made. 2.. The Dollar Store sells such items as discontinued products and merchandise purchased from bankrupt companies. Freight costs on goods purchased are quite high. The company adds the freight costs to the purchase price and treats the total as cost of its merchandise inventory.Explanation / Answer
If it weren't for dollar stores, many of us would never have affordable party supplies, ceramic garden gnomes, bags of candy from unknown sources or DVDs featuring an action hero who vaguely resembles Chuck Norris. Dollar stores are outlets which offer a variety ofmerchandise for deep discounts, even for recognizable name brand items and clothing. All of the merchandise offered in dollar stores is one price, generally 99 cents or a dollar.
But how do dollar stores stay in business considering the incredibly low retail price for their offerings? The truth is that some dollar stores have indeed gone out of business or have consolidated with larger dollar store companies to survive. Others continue to do well, primarily because of high consumer foot traffic in a shopping mall or strip mall with a populardiscount store anchor such as Wal-Mart or Target.
One key to a dollar store's survival is the power of buying in bulk. Manufacturers of less expensive consumer items such as plastic toys, party supplies, paper goods and snack foods often have a problem with surplus inventory. Buyers for dollar stores can often negotiate a deal directly with manufacturers to retail their surplus or outdated merchandise through places such as Dollar Tree and Dealz. The wholesale cost per item can be slashed to literally pennies if the buyer agrees to accept bulk shipments or absorb shipping expenses.
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