Assignment
Five so-called broad principles of accounting were prepared by the AICPA's Special Committee on Cooperation with the Stock Exchange and approved by the Committee on Stock List in 1932. They 'were to be followed by all firms listed on the exchange. Subsequently, these principles (along with a sixth item) were codified as Chapter 1 of ARB 43 and are printed here.
a. Unrealized Profit should not be credited to income account of the corporation either directly or indirectly, through the medium of charging against such unrealized profits amounts which would ordinarily fail to be charged against income account. Profit is deemed to be realized when a salein the ordinary course of business is effected, unless the circumstances are such that the collection of the sale price is not reasonably assured. be made in respect of inventories in industries (such as the packing-house industry) in which owing to the impossibility of determining costs it is a trade custom to take inventories at net selling prices, which may exceed cost.
b. Capital surplus, however correlated, should not be used to relieve the income account of the current or future yea'rs of charges that would otherwise fail to be made there against. This rule might be subject to the exception that where, upon reorganization, a reorganized company would be relieved of charges which would require to be made against income if the existing corporation were continued, it might be regarded as permissible to accomplish the same result with out reorganization provided the facts were as fully revealed to and the action as formally approved by the shareholders as in re organization.
c. Earned surplus of a subsidiary company created prior to acquisition does not farm a part of the consolidated earned surplus of the parent company and subsidiaries; nor can any dividend declared out of such surplus properly be credited to the income account of the parent company.
d. l-Y7Lileit is perhaps in some circumstances permissible to show stock of a corporation held in its oum treasury as an asset, if adequately disclosed; the dividends on stock so held should not be treated as a credit to the income account office company.
e. Notes or accounts receivable due from officers, employees,.M affiliated com~' ponies must be shown separately and not included under a general heading such as notes receivable or accounts receivable. . .... '. J If capital st.fJck is issued nominals [or the acquisition of property and it appears that at about the same time, and pursuant to a previous agreement or understanding, some portion of the stock so issued is donated to the corporation, it is not permissible to treat the par nominally issued for the Jumpers as the cost of that 1)f(J/Jettied stock so donated is subsequently sold. it is not per1llissibl.t:' to treat the proceeds as a credit to surplus of the corporation.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.