Accounting

2) Explain each of the three major viewpoints regarding interest capitalization for self constructed assets. Be sure to illustrate each approach with detailed illustrations, with specific numbers. Provide the arguments in favor of each viewpoint by appealing to general accounting principles. Be sure to illustrate your discussion with examples that make the argument clear to your reader. Then, explain in detail the acceptable approach to interest capitalization. Be sure to clearly explain the steps and the reasons for each step, by means of a precise specific illustration.

3) Ordinarily, revenue is not recognized until it is earned. For example, an attorney may require payment in advance for her services. However, although she has received the cash, her firm cannot recognize the revenue until she has performed the services the payment was for. An exception to this principle is made with respect to long term construction contracts. Explain how such contracts are accounted for by means of a thorough illustration, and how this method violates the revenue recognition principle. Then, explain why this exception is allowed by appealing to basic accounting principles. Be sure to illustrate this by means of a specific illustration that clearly demonstrates how, if the exception were not allowed, one or more basic principles of accounting would be violated.

4) When a company purchases an asset like equipment, the cost is capitalized. However, costs of research and development and advertising are not capitalized, but expensed. Explain this apparent inconsistency. [To adequately answer this question, you must provide an illustration of the purchase of equipment, and an illustration of how the cost is allocated. You must do this without using any technical terms like capitalization, or depreciation, without illustrating them. You must tell exactly what the equipment is, describe in vivid detail what it does, so that your reader can see what you are talking about. You must then explain why accountants take all this trouble to record things this way. You must then convince your reader that, by the same argument, research and development and advertising costs SHOULD BE CAPITALIZED. Be sure your argument is so detailed and powerful, that no one could possibly disagree with it. Then, go on to completely demolish your own argument by showing why only no one could possibly think research and development costs and advertising should be capitalized. Be sure to make it clear why companies would want to capitalize costs rather than expense them

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