question

Which accounting concepts describe the two situations identified below? (i) Requires that accounting standards be followed for all items of significant size. (ii) Separates financial information into time periods for reporting purposes.

answer

Materiality and Periodicity assumption

question

The following independent situation requires professional judgment for determining when to recognize revenue from the transaction. In August, you order a sweater from Sears using its online catalog. The sweater arrives in September; which you charged to your Sears credit card. You receive and pay the Sears bill in October. Identify when revenue should be recognized in the above situation.

answer

Sears should recognize the revenue in September

question

Kwun Company accumulates the following adjustment data at December 31. Store supplies of $200 are on hand. The supplies account shows a $1,900 balance. Indicate the status of the account before adjustment (overstated or understated).

answer

Assets Overstated by $1,700 and Expenses Understated by $1,700

question

FastAct Company pays its employees their wages each Friday. The most recent payment occurred on Friday, December 28. The next payroll will be paid on January 4. There is one more work day in December after December 28th. Employees work 5 days a week and the company pays $2,000 per day in wages. What will the adjusting entry to accrue wages expense at the end of December include?

answer

A debit to Salaries and Wages Expense for $2,000

question

Which one of the following is not a justification for adjusting entries?

answer

Adjusting entries are necessary to bring the general ledger accounts in line with the budget.

question

Which principle dictates that efforts (i.e., expenses) be matched with results (i.e., revenues)?

answer

Expense recognition principle

question

historical cost principle

answer

states that when assets are purchased, they should be recorded at cost, not that efforts be matched with results.

question

revenue recognition principle

answer

states that revenue should be recorded in the period in which the performance obligation is satisfied, not that efforts be matched with results.

question

periodicity assumption

answer

states that the life of a business can be divided into artificial time periods, not that efforts be matched with results.

question

If revenues are recognized only when a customer pays, what method of accounting is being used?

answer

Cash-basis

question

accrual-basis of accounting

answer

recognizes revenue when a performance obligation is satisfied

question

Which account will have a zero balance after a company has journalized and posted closing entries?

answer

Service Revenue

question

Which of the following correctly describes the closing process?

answer

Net income or net loss is transferred to the Retained Earnings account

question

Which types of accounts will appear in the post-closing trial balance?

answer

permanent accounts

question

The closing entry process consists of closing

answer

all temporary accounts

question

Which of the following is not a typical example of a prepaid expense?

answer

Wages

question

Although steps are missing, which of the following lists steps of the accounting cycle in their correct order?

answer

Journalize the transactions, journalize the adjusting entries, journalize the post-closing entries.

question

Dorcas Corporation reported sales revenue of $257,000, net income of $45,300, cash of $9,300, and net cash provided by operating activities of $23,200. Accounts receivable have increased at three times the rate of sales during the last 3 years. Explain what is meant by high quality of earnings.

answer

Earnings have high quality if they provide a full and transparent depiction of how a company performed.`

question

Which statement is true when recording the sale of goods for cash in a perpetual inventory system?

answer

Two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and to reduce inventory.

question

In a perpetual inventory system, which accounts will the seller credit when merchandise is returned by a customer?

answer

Accounts Receivable and Cost of Goods Sold

question

Which statement is true when goods are purchased for resale by a company using a periodic inventory system?

answer

Purchases on account are debited to the Purchases account.

question

What quality of earnings ratio might a company have if it is using more aggressive accounting techniques in order to accelerate income recognition?

answer

Significantly less than 1

question

Which of the following is classified in an income statement as a non-operating activity?

answer

Receiving dividend revenue from an investment

question

Which of these transactions would cause the inventory turnover ratio to increase the most?

answer

Decreasing the amount of inventory on hand and increasing sales

question

Specific identification method inventory valuation

answer

requires physical flow of goods to be representative of the cost flow

question

Two companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, which statement is true? The company using

answer

The company using FIFO will have the highest ending inventory.

question

In periods of deflation, what will LIFO produce?

answer

Higher net income than FIFO

question

Which is true if the ending inventory is overstated?

answer

Net income will be overstated and the stockholders' equity will be overstated

question

Fran Company's ending inventory is understated by $4,000. What are the effects of this error on the current year's cost of goods sold and net income, respectively?

answer

Overstated and understated

question

Which one of the following is not a consideration that affects the selection of an inventory costing method?

answer

Perpetual versus periodic inventory system

question

On what amount is a sales discount based?

answer

Invoice price less returns and allowances

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