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Chapter 4: Income Measurement and Accrual Accounting
True / False
1. Recognition is the process of formally recording or incorporating an item into the financial statements.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
KEYWORDS:
Bloom's: Remembering
2. When initially recording the cost of land purchased, most companies use the current value.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
KEYWORDS:
Bloom's: Remembering
3. The process of recording an item in the financial statements is called measurement.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
KEYWORDS:
Bloom's: Remembering
4. The amount of cash that could be received by selling an asset currently is called historical cost.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
KEYWORDS:
Bloom's: Remembering
5. Under the accrual method, expenses are recognized when revenue is earned.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Remembering
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
6. When a company recognizes the portion of supplies used during a year, the effect is to decrease net income.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Remembering
7. All financial statements are prepared using the accrual basis of accounting.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Remembering
8. Most companies use the cash basis of accounting.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Remembering
9. Revenue is always earned continuously over time.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
KEYWORDS:
Bloom's: Remembering
10. An asset is always involved when revenue is recognized.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
KEYWORDS:
Bloom's: Remembering
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
11. The recognition of revenue may result from the settlement of a liability rather than from the acquisition of an asset.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
KEYWORDS:
Bloom's: Remembering
12. Expired costs are called assets.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-04 - LO: 04-04
KEYWORDS:
Bloom's: Remembering
13. Three months before year-end, Billings Company signed a $100,000, 12%, 6-month note. Principal and interest will
be paid at maturity. No interest should be accrued at year-end because the company has no obligation to pay the interest
until the note matures.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-04 - LO: 04-04
KEYWORDS:
Bloom's: Applying
14. Matching can occur directly (like cost of goods sold), indirectly (like plant assets), or immediately when no future
benefits from the cost are expected.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-04 - LO: 04-04
KEYWORDS:
Bloom's: Remembering
15. A cost can be an asset or expense depending on whether the future economic benefits have expired or not.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-04 - LO: 04-04
KEYWORDS:
Bloom's: Remembering
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
16. One effect of recognizing depreciation is to decrease net income.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
17. A company that forgets to recognize depreciation for the year overstates its income and assets.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
18. An entry that includes the Cash account is probably an adjustment.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
19. Every company prepares only four adjustments—one for each of the four types of adjustments.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
20. When cash is paid before an expense is incurred, an accrual is necessary.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
21. The amount of interest accrued is added to the note payable account and reported in the liabilities section of the
balance sheet.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
22. Accumulated depreciation is increased when depreciation is recognized.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
23. Adjustments are recorded for all transactions involving outside entities.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
24. When revenue is earned before the receipt of cash, an adjustment that increases a receivable and decreases a liability
account is recorded.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
25. Every adjustment involves at least one income statement and one balance sheet account.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
26. When an expense is incurred prior to the payment of cash for that expense, an adjustment that increases an expense
account and decreases an asset is prepared.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
27. The balance in the account, Rent Collected in Advance, is reported as an asset on the balance sheet of the landlord.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Remembering
28. While most companies make adjustments and prepare statements monthly, many companies complete the accounting
cycle only once per year.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
KEYWORDS:
Bloom's: Remembering
29. Accountants often prepare work sheets at the end of an accounting period in place of financial statements.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
KEYWORDS:
Bloom's: Remembering
30. Financial statements should be prepared before any adjustments are made.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
KEYWORDS:
Bloom's: Remembering
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
31. Interim financial statements are prepared annually.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
KEYWORDS:
Bloom's: Remembering
32. Adjusting entries are recorded at the end of each accounting period so that net income is accurately reflected in the
financial statements for the period.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
KEYWORDS:
Bloom's: Remembering
33. Income summary does not appear on the income statement.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-07 - LO: 04-07
KEYWORDS:
Bloom's: Remembering
34. Balance sheet accounts are called real accounts.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-07 - LO: 04-07
KEYWORDS:
Bloom's: Remembering
35. Expense accounts are debited in the closing process.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-07 - LO: 04-07
KEYWORDS:
Bloom's: Remembering
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
36. Closing entries serve two important purposes: (1) to return the balances in all temporary or nominal accounts to zero
to start the next accounting period and (2) to transfer the net income (or net loss) and the dividends of the period to the
Retained Earnings account.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-07 - LO: 04-07
KEYWORDS:
Bloom's: Remembering
37. There is one single format for a work sheet.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-08 - LO: 04-08
KEYWORDS:
Bloom's: Remembering
38. According to the text, the income statement is in fact a subset of the balance sheet, because information from the
income statement columns flows into the balance sheet columns.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-08 - LO: 04-08
KEYWORDS:
Bloom's: Remembering
39. The unit of measure in Japan is the U.S. dollar.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
KEYWORDS:
Bloom's: Remembering
40. The accounting profession is currently experimenting with financial statements adjusted for the changing value of the
dollar since inflation is increasing.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
KEYWORDS:
Bloom's: Remembering
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
41. Because of its objective nature, historical cost is the attribute used to measure many of the assets recognized on the
balance sheet.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
KEYWORDS:
Bloom's: Remembering
42. The income statement tells the reader about the actual cash inflows during a period of time.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Remembering
43. The statement of cash flows reflects the revenues actually earned by the business, regardless of whether cash has been
collected.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Remembering
44. The justification for the accrual basis of accounting lies in the needs of financial statement users for periodic
information on the financial position and the profitability of the entity.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Remembering
45. The revenue recognition principle involves two factors: paid and incurred.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
KEYWORDS:
Bloom's: Remembering
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
46. The revenue recognition principle does not pertain to long-term contracts, franchises, commodities, and installment
sales.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
KEYWORDS:
Bloom's: Remembering
47. Conceptually, anytime a cost is incurred, an asset is acquired.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-04 - LO: 04-04
KEYWORDS:
Bloom's: Remembering
48. Costs incurred for purchases of merchandise result in an asset, Merchandise Inventory, and are eventually matched
with revenue at the time the product is sold.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-04 - LO: 04-04
KEYWORDS:
Bloom's: Remembering
Multiple Choice
49. Measurement of the economic effects on an entity involves each of the following except
a.
Quantification of effects
b.
Identification of the attribute to be measured
c.
Selection of an appropriate unit of measure
d.
Recording the economic effects in the financial statements
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
50. The selection of historical cost over current value as the attribute to be measured for assets is an example of the trade-
off of
a.
Reliability over relevance
b.
Costs over benefit
c.
Comparability over consistency
d.
Understandability over verifiability
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
KEYWORDS:
Bloom's: Understanding
51. An accountant describes the effects of an economic event on an entity by recording the transaction and reporting the
amount on the financial statements. What is this called?
a.
Measurement
b.
Recognition
c.
Disclosure
d.
Matching
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
KEYWORDS:
Bloom's: Understanding
52. Which of the following is the attribute used to measure many assets that are recognized on a balance sheet, because it
is more objective and verifiable?
a.
Market value
b.
Historical cost
c.
Liquidation value
d.
Current replacement cost
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
KEYWORDS:
Bloom's: Understanding
53. Why is the use of the U.S. dollar as a unit of measure for financial statement data in the U.S. widely accepted?
a.
U.S. dollar remains stable over a long period of time.
b.
U.S. dollar is universally recognized as a reliable financial measure.
c.
U.S. dollar is the medium of monetary exchange in the U.S.
d.
U.S. dollar is required for financial statement presentation by the FASB and SEC.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
54. Which one of the following statements is true?
a.
Recognition is concerned with the dollar amount of each economic effect that should be reported in the
financial statements.
b.
Measurement is concerned with how economic effects should be quantified.
c.
The stability concept is concerned with identification of the specific entity for which economic effects are to
be recognized and measured.
d.
The monetary unit assumption is concerned with the valuation of economic effects in terms of current
purchasing power.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-01 - LO: 04-01
KEYWORDS:
Bloom's: Understanding
55. Sally's Choice sells season memberships for $200 each. During January of 2016, 60 season memberships were sold.
As of March 31, 2016, only $3,000 of season membership fees had been collected from customers. The season runs for 4
months starting May 15, 2016. Which one of the following is an amount reported on the financial statements for the
period ending March 31, 2016?
a.
Unearned membership revenue of $3,000
b.
Unearned membership revenue of $9,000
c.
Accounts receivable of $3,000
d.
Membership revenue of $9,000
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Applying
56. Dom's Motor Mart sold merchandise to a customer for $3,000 on credit on March 10. The customer paid Fox Auto the
amount due on March 31. Under the accrual basis of accounting, which of the following statements is true?
a.
Fox Auto will recognize the revenue on March 31.
b.
The March 10th transaction increases revenue, but has no effect on assets because cash has not been received.
c.
Revenue is recognized after the cost of the merchandise sold has been paid by Fox Auto.
d.
The March 31st transaction has no effect on total assets under the accrual basis.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Applying
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
57. Alexander City Consultants started business on January 1, 2016, and immediately purchased $1,000 of supplies to use
in the business. At the end of the month, 25 percent of the supplies remains unpaid and 20% are still on hand. What
amounts should appear on the financial statements for January, 2016?
Income Statement Statement of Cash Flows
a.
($ 1,000)
($ 1,000)
b.
($ 1,000)
($ 750)
c.
($ 800)
($ 25)
d.
($ 800)
($ 750)
ANSWER:
d
RATIONALE:
$1,000 (Immediate Purchase) – $200 (or 20% of $1,000) = $800 $1,000 (Immediate
Purchase) – $250 (or 25% of $1,000) = $750
DIFFICULTY:
Hard
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Analyzing
58. During December, Horn Inc. purchased $800 of supplies for use in its business. At the end of December, 20% of the
supplies were still on hand, but only 75% had been paid. What amounts will appear on the company’s balance sheet on
December 31?
Supplies on Hand Accounts Payable
a.
$800
$600
b.
$160
$200
c.
$640
$200
d.
$160
$800
ANSWER:
b
RATIONALE:
$800 (December purchase) × 20% = $160 $800 (December purchase) × (100% – 75% or
25%) = $200
DIFFICULTY:
Hard
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
59. Camp Consulting Services started business on January 1, 2016. Camp performed services for customers totaling
$100,000 of which 40% remain uncollected at the end of December. Under the accrual basis, what amounts would appear
on Camp Consulting's financial statements for 2016?
Income Statement Statement of Cash Flows
a.
$100,000
$ 60,000
b.
$100,000
$100,000
c.
$ 60,000
$ 60,000
d.
$ 60,000
$100,000
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Analyzing
60. Hensley Painting Company painted four houses in June at $500 each. At the end of June, three homeowners had paid
Hensley cash for the jobs. Under the accrual basis, what amounts will be reported on the income statement and the
statement of cash flows for June?
Income Statement Statement of Cash Flows
a.
$2,000
$2,000
b.
$2,000
$1,500
c.
$1,500
$1,500
d.
$ 500
$ 500
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
61. Holten Farm sells new tractors and pays each salesperson a commission of $1,000 for each tractor sold. During the
month of August, a salesperson, Fred, sold 3 new tractors. Jacob pays Jason on the 10th day of the month following the
sale. Fred operates on the cash basis; the tractor dealer operates on the accrual basis. Which of the following statements is
true?
a.
Fred will recognize commission revenue earned in the amount of $3,000 in August.
b.
Jacob will recognize commission expense in the amount of $3,000 in August.
c.
Fred will recognize commission expense in the amount of $3,000 in September.
d.
Fred will recognize revenue in the same month that the tractor dealer recognizes expense.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Applying
62. A pool cleaning service signs a contract with a new customer on May 1. The pool is vacuumed and “shocked” for the
customer on June 1, and the bill for the services is paid on July 1. Under the accrual basis, the business should recognize
revenue on:
a.
December 31
b.
July 1
c.
June 1
d.
May 1
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Applying
63. When are revenues and expenses recognized in the same accounting period that cash receipts and payments occur?
a.
Under the cash basis of accounting
b.
Under the accrual basis of accounting
c.
Under the adjusting method of accounting
d.
Under both the cash and accrual bases of accounting
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
64. On January 1, 2016, ABC, Inc. purchased a copier for $9,000 cash and decided to depreciate it over 5 years. What
amounts associated with the copier will appear on ABC’s financial statements for the year ending December 31, 2016?
Income Statement Statement of Cash Flows
a.
($1,800)
($9,000)
b.
($1,800)
$ 0
c.
($9,000)
$ 0
d.
None of these choices.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Analyzing
65. Which of the following concepts is important to accrual accounting?
a.
Time period, because accrual accounting divides earnings into time periods
b.
Monetary unit, because inflation is a big factor in the environment
c.
Cash basis, because if cash is not received, revenue is not accrued
d.
Entity concept, because personal transactions must be separated from business transactions
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Understanding
66. Which of the following statements does not present financial information based on the accrual basis of accounting?
a.
Balance Sheet
b.
Income Statement
c.
Statement of Retained Earnings
d.
Statement of Cash Flows
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-02 - LO: 04-02
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
67. Harvest Catering is a local catering service. Conceptually, when should Harvest recognize revenue from its catering
service?
a.
At the date the customer places the order
b.
At the date the meals are served
c.
At the date the invoice is mailed to the customer
d.
At the date the customer's payment is received
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
KEYWORDS:
Bloom's: Understanding
68. When is revenue from the sale of merchandise normally recognized?
a.
On the date the sale is made.
b.
When the customer pays for the merchandise.
c.
Either on the date on which the sale occurs, or the date on which the customer pays
d.
When the merchandise is sold, if sold for cash, or when payment is received, if sold on credit
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
KEYWORDS:
Bloom's: Understanding
69. Sun Corp. sells merchandise to customers. Sun should normally recognize
a.
Cash revenue only and the related expenses in the same accounting period as earned whether payment is
received or not
b.
Revenue when the cash is collected and the expenses when Mendes pays its creditor for the merchandise
c.
Revenue and expenses after all payments are collected
d.
Cash and credit revenue and the related expenses in the same accounting period as earned whether payment is
received or not
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
FACC.PONO.13.04-04 - LO: 04-04
KEYWORDS:
Bloom's: Understanding
70. As a general rule, revenue is recognized at the point of sale. Which one of the following situations illustrates this rule?
a.
Products are sold to customers on credit with payment due in 30 days.
b.
Employees are paid wages the week after the wages are earned.
c.
Products are purchased for resale purposes.
d.
Interest is collected from amounts loaned to employees.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
71. What does the phrase, "Revenue is recognized at the point of sale" mean?
a.
Revenue is recorded in the accounting records when the goods are received from a supplier, and reported on
the income statement when sold to the customer.
b.
Revenue is recorded in the accounting records and reported on the income statement when the cash is received
from the customer.
c.
Revenue is recorded in the accounting records when the goods are sold to a customer, and reported on the
income statement when the cash payment is received from the customer.
d.
Revenue is recorded in the accounting records and reported on the income statement when goods are sold and
delivered to a customer.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
KEYWORDS:
Bloom's: Understanding
72. On October 31, Michael Corporation signed a one-year contract to provide services to Love Company for $80,000.
Love will pay for the services on November 1. Using the accrual basis of accounting, when should Michael Corporation
recognize revenue?
a.
November 1 of the current year when the cash is received from Harris
b.
On October 31 of the next year when all services have been provided
c.
Throughout the year as the revenue is earned
d.
At December 31 of the current year, and October 31 of the next year
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-03 - LO: 04-03
KEYWORDS:
Bloom's: Understanding
73. Expenses originate from
a.
using an asset or recognizing liabilities.
b.
incurring liabilities or providing services to customers.
c.
collecting cash from customers.
d.
paying off liabilities.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-04 - LO: 04-04
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
74. Which one of the following is not a recognized method of recognizing assets as expenses in a particular accounting
period?
a.
Customers’ account balances in accounts receivable are assigned to expense in the period in which each
customer pays.
b.
Prepaid insurance is assigned to expense as the insurance expires.
c.
A building is depreciated and its cost is assigned to the current and future accounting periods in which the
building is expected to be used.
d.
Merchandise inventory is assigned to cost of goods sold in the period the goods are sold.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-04 - LO: 04-04
KEYWORDS:
Bloom's: Understanding
75. Expenses can be matched against revenue
a.
if the earnings process is not complete.
b.
when cash is collected from the sale of products.
c.
through allocation to the accounting periods in which the benefits are recognized.
d.
when payment is made for costs related to revenue.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-04 - LO: 04-04
KEYWORDS:
Bloom's: Understanding
76. Remaz Corp. purchased equipment at a cost of $220,000 in January, 2015. As of January 1, 2016, depreciation of
$160,000 had been recorded on this asset. Depreciation expense for 2014 is $50,000. After the adjustments are recorded
and posted at December 31, 2016, what are the balances for the Equipment and Accumulated Depreciation?
Equipment Accumulated Depreciation
a.
$220,000
$210,000
b.
$220,000
$ 0
c.
$160,000
$ 50,000
d.
$120,000
$210,000
ANSWER:
a
RATIONALE:
$160,000 (Accumulated Depreciation at Jan. 1, 2016) + $40,000 (Depreciation Expense for
2016) = $210,000 (Accumulated Depreciation at Dec. 31, 2016)
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-04 - LO: 04-04
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
77. Grove Corp. purchased equipment at a cost of $260,000 in January, 2012. As of January 1, 2016, depreciation of
$88,000 had been recorded on this asset. Depreciation expense for 2016 is $22,000. After the adjustments are recorded
and posted at December 31, 2016. What are the balances for the Depreciation Expense and Accumulated Depreciation?
Depreciation Expense Accumulated Depreciation
a.
$ 22,000
$110,000
b.
$ 22,000
$ 88,000
c.
$110,000
$110,000
d.
$110,000
$ 88,000
ANSWER:
a
RATIONALE:
$88,000 (Accumulated Depreciation at Jan. 1, 2016) + $22,000 (Depreciation Expense for
2016) = $110,000 (Accumulated Depreciation at Dec. 31, 2016)
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-04 - LO: 04-04
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
78. Which of the following statements is true concerning assets?
a.
Assets represent future economic sacrifices.
b.
Assets are expired costs.
c.
Assets become expenses at the time they are paid in cash.
d.
Assets become expenses when their economic benefits expire.
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
79. Which one of the following is an example of a deferred revenue?
a.
Sales are made to customers on credit.
b.
Interest has been earned by a bank deposit, but it has not been recorded.
c.
Cash is received prior to providing the services to customers.
d.
Cash sales are made to customers.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
