Which of the following statements is false regarding the reason that inventory costs are
recorded as expenses when sold rather than when incurred?
a. It gives the user’s of the company’s financial statements a clearer picture of
profitability.
b. It helps the company achieve a better matching of expenses with related revenues.
c. It gives the company’s accounting personnel more time to record inventory
transactions.
d. Inventory is an asset at the time it is acquired.
Expenses should be matched against revenue
a. before the earnings process is complete.
b. only after cash is collected from the customer.
c. in the same period as the revenue that they helped generate.
d. after payment has been made for any costs related to the revenue.
Refer to the information provided for Aaron Corporation. Calculate gross margin.
Aaron Corporation
Aaron Corporation is a merchandising company. Selected account balances are listed
below:
a. $120,500
b. $137,500
c. $144,500
d. $212,500
Represents an ownership interest in a corporation, usually common stock
Match the following terms to their correct definition:
a. equity security j. held-to-maturity securities
b. debt security k. amortized cost method
c. passive l. fair value method
d. significant influence m. unrealized gains and losses
e. control n. equity method
f. parent o. consolidation worksheet
g. subsidiary p. minority interest
h. trading securities q. business combination
i. available-for-sale securities r. Goodwill
Presented below is the operating activities section of a statement of cash flows for
2014:
Which method of preparing the operating activities section was used?
a. The direct method.
b. The indirect method.
c. Either method.
d. Cannot be determined without further information.
Each of the situations in A through C below applies to one of the assumptions or
principles included in the conceptual framework of accounting. Identify which
assumption or principles applies and explain why that assumption or principle applies.
A) High Collectibles is a U.S. company that has divisions in several countries around
the world. Each country has a currency different that the U.S. dollar. The company must
include the financial data of its worldwide divisions in its financial statements.
B) Howell Trucking operate as a partnership. The partners are considering a change to
the corporate form of business organization.
C) Holly Company is a local company. The owners have decided to expand into nearby
cities. Expansion will require more capital, but management does not expect it will stay
in business for more than one year or so regardless of its expansion plans.
If a company erroneously records a $50 check received from a customer as $500 in its
records, which of the following must occur when reconciling its bank statement?
a. The company must increase the balance per its records by $500.
b. The company must increase the balance per its records by $450.
c. The company must decrease the balance per its records by $500.
d. The company must decrease the balance per its records by $450.
Harlan Fuller needs $2,000 in 7 years. What amount must he invest in a 6% savings
bond?
a. $1,425.98
b. $1,330.12
c. $9,533.08
d. $8,200.40
This assumption requires that financial information be reported in monetary terms.
Match the following principles with their correct definition.
Match the following principles with their correct definition.
a. Comparability g. Historical cost
b. Conservatism h. Matching
c. Double-entry accounting i. Monetary unit
d. Economic entity j. Revenue recognition
e. Going concern k. Time period
f. Full disclosure
Payment is made for the telephone bill which was recorded previously. What effect
does this transaction have on the accounting equation?
a. Assets and liabilities increase.
b. Assets and retained earnings increase.
c. Liabilities increase and contributed decreases.
d. Assets and liabilities decrease.
Any expenditure necessary to acquire an asset and to prepare it for use Match these
terms with their correct definition.
a. Book value e. Depreciation
b. Cost f. Impairment
c. Depletion g. Involuntary disposal
d. Depreciable cost h. Residual value
An example of a current liability that must be accrued is
a. accounts payable.
b. current maturity of long-term debt.
c. revenue received in advance.
d. wages payable.
Which of the following is an example of liquidity analysis?
a. Total liabilities are divided by total assets.
b. Net income is divided by average total assets.
c. Net income is divided by the average number of common shares outstanding.
d. Quick assets are divided by current liabilities.
There are some liabilities, such as income taxes payable and the estimated warranty
liability, for which the amounts must be estimated so they can be recorded in the same
period as the related revenues. Failure to record these amounts in the same period as the
related revenues is a violation of the
a. concept of historical cost.
b. going concern assumption.
c. limitation of materiality.
d. matching principle.
The various rules and conventions that have evolved over time to guide the preparation
of financial statements in the U.S. are called ____________________.
The concept that assumes that assets are recorded at the amount to acquire them is
called the ____________________ principle.
Beginning equipment minus equipment sold and minus ending equipment equals
____________________.
GAAP has established a universal chart of accounts that is applicable to all businesses
in the United States.
The financial statement in which you list revenues, starting with sales revenue (service
revenue), is called the ____________________.
How does goodwill arise? How is it accounted for and reported on the financial
statements?
The names of the four basic financial statements are ____________________,
____________________, ____________________, and ____________________
Why do many companies use MACRS (Modified Accelerated Cost Recovery System)
depreciation for tax purposes? If a company uses MACRS for depreciation for tax
purposes, can it use a different method for financial reporting? Explain why or why not.