For each of the following cases, respond to the question asked and indicate the accounting principle or concept that applies.
1. Rigsby Company purchased many small tools during 2010 at a total cost of $9,500. Some tools were expected to last for a few weeks, some for several months, and some for several years. Rigsby’s income for 2010 will be about $5.2 million. How should Rigsby account for the small tools in order to be theoretically correct? As a practical matter, how should Rigsby account for these tools? Why?
2. Bill Evanston is the sole proprietor of Fast Serve Mini Market. Evanston’s accountant insists that he keep a detailed record of money and merchandise that he takes out of the business for his personal use. Why?
3. At the end of each fiscal period, the accountant for Eastern Company requires that a careful inventory be made of the office supplies and that the amount on hand be reported as an asset and the amount used during the period be reported as an expense. Why?
