PPT Qustions CH.1-4 Flashcards
(33 cards)
Which of the following is not an advantage of accrual accounting?
A) Spreads out the influence of one-time events that affect multiple reporting periods
B) Highlights cash effects of operations
C) Captures long-run performance
D) Recognizes assets and liabilities associated with receivables and payables
B
The financial Accounting Standards Board FASB):
A) Is a division of the Securities and Exchange Commission (SEC).
B) Is a private body that helps set accounting standards in the United
States.
C) Is responsible for setting auditing standards that all auditors must follow.
D) Consists entirely of members of the American Institute of Certified Public Accountants.
B
Which of the following is not one of the ways in which high-quality accounting is encouraged by the U.S. financial reporting system?
A) Accounting standards encourage comparability
B) Auditors assess whether financial statements are materially misstated
C) Sarbanes-Oxley instituted reforms designed to improve the quality of financial reporting
D) Managers are required to use frameworks for ethical decision making when deciding how to account for transactions
D
Which of the following is not a component of faithful representation as defined in the FASB’s conceptual framework?
a. Free from error.
b. Neutrality.
c. Understandability.
d. Completeness.
C
Four different competent accountants independently agree on the amount and method of reporting an economic event. The concept demonstrated is:
A. Reliability
B. Comparability
C. Verifiability
D. Completeness
C
Primecoat Corporation could disseminate its annual financial statements two days earlier if it shifted substantial human resources from other operations to the annual report project. Management decided the value of the earlier report was not worth the added commitment of resources. The concept demonstrated is:
A) Timeliness
B) Materiality
C) Relevance
D) Cost-effectiveness
D
According to the FAB’s conceptual framework, comprehensive income includes which of the following?
A. Operating Income No; Investment by Owners Yes
B. Operating Income No; Investment by Owners No
C. Operating Income Yes; Investment by Owners No
D. Operating Income Yes; Investment by Owners Yes
C
The change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources.
Which of the following is not a measurement attribute defined in the FASB’s conceptual framework?
a. Net realizable value
b. Historical cost
c. List price
d. Fair value
C
The correct answer is c. List price is not a measurement attribute.
Rather, it is whatever sales price a seller indicates (which might be negotiable or subject to discounts).
Recording an expense for salaries incurred and paid in cash would be recorded by:
a. Debiting a liability
b. Debiting an expense
c. Debiting cash
d. Crediting an expense
B
The correct answer is b. When an expense is incurred, it is recorded as a debit to a temporary shareholders’ equity account, in this case salaries expense.
The journal entry to record the issuance of common stock in exchange for cash involves:
a. A debit to common stock and a credit to cash
b. A debit to cash and credits to common stock and retained earnings
c. A debit to cash and a credit to common stock
d. All of these answer choices are incorrect
C
The correct answer is c. Cash is an asset, so it is increased with a debit and common stock is a permanent equity account, so it is increased with a credit.
The correct amount of prepaid insurance shown on a company’s December 31, 2024, balance sheet was $1,400. On May 1, 2025, the company paid an additional insurance premium of $1,100. In the December 31, 2025, balance sheet, the amount of prepaid insurance was correctly shown as $1,000. The amount of insurance expense that should appear in the company’s 2025 income statement is:
a. $2,000.
b. $1,900.
c. $1,500.
d. $1,600.
C
Beginning Prepaid + Payment - Expense = Ending Prepaid
[$1,400 (beginning balance) + $1, 100 (additional payment) -
$1,000 (ending balance)] = $1,500
Dr Insurance expense 1,500
Cr Cash 1,100
Car Prepaid Insurance 400
The Contra Costa Times Company reported an $17,200 liability in its 2024 balance sheet for subscription revenue received in advance. During 2025, $68,000 was received from customers for subscriptions and the 2025 income statement reported subscription revenue of $69,700. What is the liability amount for deferred subscription revenue that will appear in the 2025 balance sheet?
a. $0.
b. $17,200.
c. $18,900.
d. $15,500.
D
$17,200 beginning balance
68,000 additional receipts
(69,700) subscription revenue recognized
= $15,500
The adjusting entry required to record accrued expenses includes:
a. A credit to an asset.
b. A credit to liability.
c. A credit to cash.
d. A debit to an asset.
B
An analysis of Georgia Corp.’s unadjusted prepaid insurance account at December 31, 2023, revealed the following
- 2023 beginning balance of prepaid insurance was $400. Georgia had paid an annual premium of $1,200 on May 1, 2022.
- A $1,800 annual insurance premium payment was made on May 1, 2023.
In its December 31, 2023 income statement, what amount should
Georgia report as insurance expenses?
a. $2,500
b. $1,600
c. $1,450
d. $750
B
4/121200+8/121,800=400+1,200
=1,600
Yummy Foods purchased a two-year fire and extended coverage insurance policy on August 1, 2025, and charged the $4,200 premium to Insurance expense. At its December 31, 2025, year-end, Yummy Foods would record which of the following adjusting entries?
a. Insurance expense 875
Prepaid insurance 875
b. Prepaid insurance 3,325
Insurance expense 3,325
c. Insurance expense 875
Prepaid insurance 3,325
Insurance payable 4,200
d. Prepaid insurance 875
Insurance expense 875
B
Yummy has consumed 5 months insurance and needs to reverse
19 months insurance 4,200 x (19/24) = 3,325
Temporary accounts would not include:
a. Supplies expense.
b. Depreciation expense.
c. Cost of goods sold.
d. Salaries payable.
D
Suppose a company paid $150,000 for salaries to employees during the year and you determine that salaries payable increases by $60,000, what is the salary expense for the year?
a. $150,000
b. $210,000
c. $60,000
d. All of these answer choices are incorrect.
B
Beg Salary Payable + Expense - Payment = End. Salary Payable
Expense = End. SP - Beg. SP + Payment
= 60,000 + 150,000 = $210,000
Dr. Salary expense 210,000
Cr. Cash 150,000
Cr. Salaries payable 60,000
TriFecta, a partnership, had revenues of $366,000 in its first year of operations. The partnership has not collected on $45,400 of its sales and still owes $39,200 on $165,000 of merchandise it purchased.
There was no inventory on hand at the end of the year. The partnership paid $30,800 in salaries. The partners invested $47,000 in the business and $27,000 was borrowed on a five-year note. The partnership paid $2,970 in interest that was the amount owed for the year and paid $8,300 for a two-year insurance policy on the first day of business.
Compute net income for the first year for Tri Fecta.
a. $ 163,080
b. $ 170,200
c. $ 243,070
d. $ 201,00.
A
Revenues: $366k
Expenses:
Cost of Goods Sold $165k
Salaries 30,800
Interest 2,970
Insurance 4,150 (202,920)
Net income $ 163,080
Compared to the accrual basis of accounting, the cash basis of accounting produces a higher amount of income by the net decrease during the accounting period of:
a. Accounts Receivable Yes; Accrued Liabilities No
b. Accounts Receivable No; Accrued Liabilities Yes
c. Accounts Receivable Yes; Accrued Liabilities Yes
d. Accounts Receivable No; Accrued Liabilities No
A
Dr. Cash xxx
Cr. AR
Cr. Revenue xxx
Decrease in AR increases cash
Dr. Expense
Dr. Accrued liability
Cr. Cash
Decrease in AL decreases cash
Cash equivalents would include:
a. Accounts receivable from a financial institution.
b. Highly liquid equity securities.
c. Restricted funds for bonds that mature in three years.
d. Debt instruments with maturity dates of less than three months from the date of the purchase.
D
Janson Corporation Co.’s trial balance included the following account balances at December 31, 2022. Investments consist of treasury bills that were purchased in November and mature in January. Prepaid insurance is for the next three years. What amount should be included in the current asset section of Janson’s December 31, 2022, balance sheet?
Accounts receivable $12,000
Inventories $40,000
Patent $12,000
Investments $30,000
Prepaid insurance $6,000
Note receivable, due 2025 $50,000
a. $88,000
b. $84,000
c. $55,000
d. $135,000
B
12,000 + 40,000 + 30,000 + (6,000/3) = 84,000
Which of the following represents tangible, long-lived assets used in the operations of the business?
a. Copyrights
b. Land held for investment
c. Machines
d. Accounts receivable
C
Current assets are not long-lived, investments are not used directly in operations, and intangible assets have no physical substance.
Which of the following would be commonly reported in the summary of significant accounting policies note?
a. Errors and fraud
b. Method used to record depreciation
c. Subsequent events
d. Related-party transactions
B
The summary of significant accounting policies details key policies and methods including inventory costing, depreciation methods, and revenue recognition.
Disclosures such as subsequent events, related-party transactions, and errors or fraud, if relevant, are explained in separate notes.
Which of the following would be disclosed in the summary of significant accounting policies disclosure note?
a. Composition of Long-term debt No; Depreciation Method Yes
b. Composition of Long-term debt Yes; Depreciation Method No
c. Composition of Long-term debt Yes; Depreciation Method Yes
d. Composition of Long-term debt No; Depreciation Method No
A
The summary of significant accounting policies details key policies and methods including depreciation methods.
Composition of long-term debt is reported in a separate footnote.
