1. The basic accounting equation can be described as: Shareholders ...
BUS 251 Chapter 2
1. The basic accounting equation can be described as: Shareholders' Equity (Net Assets) = Assets – Liabilities. A. True B. False 2. Under accrual accounting, costs incurred should be expensed in the same period that related revenue is recognized. This concept is known as: A. cost/benefit B. revenue recognition C. matching D. conservatism 3. If a company records an increase in sales revenue over the prior year, the company's net income will increase. A. True B. False 4. The purchase of inventory, for future resale to customers, would be classified as an operating transaction. A. True B. False 5. The requirement to calculate and record amortization expense for the period to reflect the use of a company's machinery is an example of: A. the matching principle B. the revenue recognition criteria C. a non-monetary exchange of goods D. residual value
1. Cost of Goods Sold can be calculated by using the following equation: A. Ending Inventory + Purchases – Beginning Inventory B. Cost of Goods Available for Sale – Sales C. Purchases – Ending Inventory + Beginning Inventory D. None of the above is correct. 2. Expenses appear on the income statement, and thus: A. do not affect shareholders' equity on the balance sheet B. increase shareholders' equity through an increase in net income C. increase retained earnings through an increase in net income D. decrease shareholders' equity through a decrease in net income 3. When an insurance policy is paid for in advance of the coverage period, this creates a/an: A. asset B. expense C. liability D. revenue 4. Company A borrows $24,000 from the bank on October 1, 2008. Interest, at 8% per year, is due quarterly on December 31st, March 31st, June 30th and September 30th. Company A does not make any principal repayments on the loan, but pays the interest owing on December 31st, 2008. The amount of interest paid on December 31st, 2008 is: A. $1,920 B. $480 C. $160 D. None of the above. 5. The operating section of the cash flow statements is useful because it : A. It should cash flows from the business's main source of operations.
B.
Provides information about a company's operations that is not provided by the income statement.
C.
They show the company's sources and uses of cash from continuing activities, which are recurring.
D. All of the above. 6. A company that has not yet started the normal day-to-day operations of selling goods to customers would have no need for: A. any financial statements B. a balance sheet C. an income statement D. a cash flow statement 7. What would be the effect on the basic accounting equation if inventory was purchased and paid for? A. One asset would increase and another asset would decrease. B. Expenses would increase and an asset would decrease. C. Expenses would increase and a liability would decrease. D. An asset would increase and a liability would increase. 8. Which of the following is a revenue recognition criterion? A. All amounts have been collected. B. All expenses have been paid. C. There is reasonable assurance that recorded expenses will ultimately be paid. D. When the earning process has been substantially completed 9. DEF Company uses machinery in its manufacturing operation. A machine was purchased on July 1st, 2011 for $37,500, and is immediately put into use. The machine is expected to be used for five years, after which it will be sold for scrap at an estimated amount of $2,500. The accountant is preparing financial statements at December 31st, 2011. Under accrual accounting, how much should be recorded in the income statement as amortization expense?
A. $37,500 B. $7,500 C. $7,000 D. $3,500 10. At December 31st, 2010, the end of the company's fiscal year, the accountant for Stanley Company counted inventory in the warehouse and determined that it had cost the company $36,000. At the beginning of the year, the company had inventory for resale costing $28,000 and during the year it had purchased more inventory for sale, at a cost of $284,000. What was the company's cost of goods sold expense for the year? A. $248,000 B. $284,000 C. $276,000 D. $312,000 11. Which of the following statements about dividends is not true? A. They are declared (made a legal liability) by a vote of the board of directors. B. Dividends declared appear on the income statement. C. They appear on the cash flow statement when they are paid. D. Dividends declared reduce shareholders' equity. 12. Which of the following is the best definition of the matching concept? Total assets are matched to the total of liabilities and shareholders' equity on the A. balance sheet. B.
The balance sheet date is matched in time to the date at the end of the period's income statement.
C.
All costs associated with generating sales revenue should eventually be recorded in the income statement.
D.
All costs associated with generating sales revenue should be recorded in the income statement in the same period as the revenues that they help to generate.
13. The requirement to record cost of goods sold in the same period that its corresponding revenue is recorded is an example of: A. the matching principle B. the revenue recognition criteria C. a non-monetary exchange of goods D. residual value 14. A company borrows $250,000 from the bank on January 1, 2011 at 6% annual interest. Interest is to be paid on June 30 each year, starting in 2011. The principal on the loan will be repaid in full on December 31, 2014. At March 31, 2011, the amount of the non-current “Bank loan payable” liability on the balance sheet will be: A. $250,000 B. $253,750 C. $265,000 D. None of the above. 15. On October 1, 2011, Oscar Company paid $1,800 cash for a one-year insurance policy on a truck used in the business for making deliveries. The insurance policy will be effective until September 30th, 2012. At December 31st, 2011, the financial statements of Oscar Company will include: A. $1,800 insurance expense B. $450 prepaid insurance (asset) C. $1,350 prepaid insurance D. $400 insurance expense
1. The basic accounting equation can be described as: Shareholders' Equity (Net Assets) = Assets – Liabilities. A. True B. False 2. Under accrual accounting, costs incurred should be expensed in the same period that related revenue is recognized. This concept is known as: A. cost/benefit B. revenue recognition C. matching D. conservatism 3. If a company records an increase in sales revenue over the prior year, the company's net income will increase. A. True B. False 4. The purchase of inventory, for future resale to customers, would be classified as an operating transaction. A. True B. False 5. The requirement to calculate and record amortization expense for the period to reflect the use of a company's machinery is an example of: A. the matching principle B. the revenue recognition criteria C. a non-monetary exchange of goods D. residual value
1. Cost of Goods Sold can be calculated by using the following equation: A. Ending Inventory + Purchases – Beginning Inventory B. Cost of Goods Available for Sale – Sales C. Purchases – Ending Inventory + Beginning Inventory D. None of the above is correct. 2. Expenses appear on the income statement, and thus: A. do not affect shareholders' equity on the balance sheet B. increase shareholders' equity through an increase in net income C. increase retained earnings through an increase in net income D. decrease shareholders' equity through a decrease in net income 3. When an insurance policy is paid for in advance of the coverage period, this creates a/an: A. asset B. expense C. liability D. revenue 4. Company A borrows $24,000 from the bank on October 1, 2008. Interest, at 8% per year, is due quarterly on December 31st, March 31st, June 30th and September 30th. Company A does not make any principal repayments on the loan, but pays the interest owing on December 31st, 2008. The amount of interest paid on December 31st, 2008 is: A. $1,920 B. $480 C. $160 D. None of the above. 5. The operating section of the cash flow statements is useful because it : A. It should cash flows from the business's main source of operations.
B.
Provides information about a company's operations that is not provided by the income statement.
C.
They show the company's sources and uses of cash from continuing activities, which are recurring.
D. All of the above. 6. A company that has not yet started the normal day-to-day operations of selling goods to customers would have no need for: A. any financial statements B. a balance sheet C. an income statement D. a cash flow statement 7. What would be the effect on the basic accounting equation if inventory was purchased and paid for? A. One asset would increase and another asset would decrease. B. Expenses would increase and an asset would decrease. C. Expenses would increase and a liability would decrease. D. An asset would increase and a liability would increase. 8. Which of the following is a revenue recognition criterion? A. All amounts have been collected. B. All expenses have been paid. C. There is reasonable assurance that recorded expenses will ultimately be paid. D. When the earning process has been substantially completed 9. DEF Company uses machinery in its manufacturing operation. A machine was purchased on July 1st, 2011 for $37,500, and is immediately put into use. The machine is expected to be used for five years, after which it will be sold for scrap at an estimated amount of $2,500. The accountant is preparing financial statements at December 31st, 2011. Under accrual accounting, how much should be recorded in the income statement as amortization expense?
A. $37,500 B. $7,500 C. $7,000 D. $3,500 10. At December 31st, 2010, the end of the company's fiscal year, the accountant for Stanley Company counted inventory in the warehouse and determined that it had cost the company $36,000. At the beginning of the year, the company had inventory for resale costing $28,000 and during the year it had purchased more inventory for sale, at a cost of $284,000. What was the company's cost of goods sold expense for the year? A. $248,000 B. $284,000 C. $276,000 D. $312,000 11. Which of the following statements about dividends is not true? A. They are declared (made a legal liability) by a vote of the board of directors. B. Dividends declared appear on the income statement. C. They appear on the cash flow statement when they are paid. D. Dividends declared reduce shareholders' equity. 12. Which of the following is the best definition of the matching concept? Total assets are matched to the total of liabilities and shareholders' equity on the A. balance sheet. B.
The balance sheet date is matched in time to the date at the end of the period's income statement.
C.
All costs associated with generating sales revenue should eventually be recorded in the income statement.
D.
All costs associated with generating sales revenue should be recorded in the income statement in the same period as the revenues that they help to generate.
13. The requirement to record cost of goods sold in the same period that its corresponding revenue is recorded is an example of: A. the matching principle B. the revenue recognition criteria C. a non-monetary exchange of goods D. residual value 14. A company borrows $250,000 from the bank on January 1, 2011 at 6% annual interest. Interest is to be paid on June 30 each year, starting in 2011. The principal on the loan will be repaid in full on December 31, 2014. At March 31, 2011, the amount of the non-current “Bank loan payable” liability on the balance sheet will be: A. $250,000 B. $253,750 C. $265,000 D. None of the above. 15. On October 1, 2011, Oscar Company paid $1,800 cash for a one-year insurance policy on a truck used in the business for making deliveries. The insurance policy will be effective until September 30th, 2012. At December 31st, 2011, the financial statements of Oscar Company will include: A. $1,800 insurance expense B. $450 prepaid insurance (asset) C. $1,350 prepaid insurance D. $400 insurance expense
