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PART II (12 points) A number of operational guidelines used by accountants are described below. For each of the guidelines, list the assumption, principle or constraint that has been violated. List only one term for each case. 1) The treasurer of AEH, Inc. wishes to prepare financial statements only during downturns in its wine production, which occur periodically when the grape crop fails. She states that it is at such times that the statements could be most easily prepared. In no event would more than 30 months pass without statements being prepared. 2) S. Sondheim Manufacturing Company decided to manufacture its own widgets because it would be cheaper to do so than to buy them from an outside supplier. In an attempt to make its statements more comparable with those of its competitors, Sondheim charged its inventory account for what it believed the widgets would have cost if they had been purchased from an outside supplier. (Do not use the revenue recognition principle.) 3) Reny's Discount Center purchases its merchandise by the truck and train carload. Reny's does not defer any transportation costs in computing the cost of its ending inventory. That is, all transportation costs are treated as costs of the period in which the transportation costs occur. Such costs, although varying from period to period, are always material in amount. 4) Grab & Run, Inc., a fast-food company, sells franchises for $100,000, accepting a $5,000 down payment and a 30-year note for the remainder. Grab & Run promises to assist in site selection, building, and management training for three years. Grab & Run records the $100,000 franchise fee as revenue in the period in which the initial down payment is received PART II (continued) - Arlen Company "faces possible expropriation (i.e., takeover) of foreign facilities and possible losses on sums owed by various customers on the verge of bankruptcy." The company president has decided that these possibilities should not be noted on the financial statements because Arlen still hopes that these events will not take place. 6) Debbie Merchant, manager of College Bookstore, Inc., bought a computer for her own use. She paid for the computer by writing a check on the bookstore checking account and charged the "Office Equipment" account

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