Question 1

Jeter Company ordered 400 toy wagons from Lamar, Inc. on May 1, 2010. Jeter Company paid for them on May 20 at a cost of $2 each. Jeter sold 50 of them on June 2, 2010, for $4 each to Gilloz Company. Gilloz Company paid Jeter on June 10. How much revenue should Jeter Company recognize at the preferred point of revenue recognition?

Accepted Answer

The answer of Jeter Company ordered 400 toy wagons from...

Question 2

Seinfeld Company has land with an original cost of $68,000 and a fair market value of $81,000. Seinfeld has considered selling its business next year and listing the land with a realtor for $100,000. At what amount would land be measured on the December 31, 2010 balance sheet?

Accepted Answer

Land is recorded on the balance sheet at its historical cost, which is $68,000 in this case.

Question 3

When in doubt, financial statements should:

Accepted Answer

This principle is known as conservatism in accounting. It advises that when there's uncertainty, accountants should err on the side of caution by understating assets and overstating liabilities, which can help prevent the overstatement of the company's financial position. Delaying the recognition of gains and accelerating the recognition of losses also align with this conservative approach.

Question 4

Which of the following represents two of the four criteria that must be met before revenue can be included in the income statement?

Accepted Answer

The answer of Which of the following represents two of...

Question 5

Jeter Company ordered 400 toy wagons from Lamar, Inc. on May 1, 2010. Jeter Company paid for them on May 20 at a cost of $2 each. Jeter sold 50 of them on June 2, 2010, for $4 each to Gilloz Company. Gilloz Company paid Jeter on June 10. Which amount represents Jeter Company's input markets related to this sale?

Accepted Answer

The answer of Jeter Company ordered 400 toy wagons from...

Question 6

Information is considered material if:

Accepted Answer

Materiality is determined by whether the information would have an impact on the decisions made by those who use the financial statements. It is not determined by the likelihood of an investor being concerned or whether an item is insignificant. The FASB may provide guidance on materiality, but they do not explicitly rule on every transaction or item.

Question 7

Which one of the following is considered an unrealistic assumption in accounting?

Accepted Answer

The assumption of a stable dollar is considered unrealistic because the value of money fluctuates over time due to inflation and changes in the economy.

Question 8

The matching principle states that:

Accepted Answer

The matching principle states that expenses should be recognized in the same period as the related revenue is recognized. This ensures that the expenses are properly matched to the revenue they helped generate, resulting in accurate financial statements. Option B is incorrect because it reverses the order in which expenses and revenue are recognized. Option C is incorrect because it pertains to consistency in accounting principles, not the matching principle. Option D is incorrect because it oversimplifies the matching principle and does not address the timing of recognition.

Question 9

Short-term investments have an original cost of $29,000 and a market price of $31,000 at December 31, 2010. At what amount would the investments be measured on the December 31, 2010 balance sheet?

Accepted Answer

Short-term investments are typically reported at their fair market value on the balance sheet, which in this case is $31,000.

Question 10

The principle of consistency states that:

Accepted Answer

The principle of consistency requires that a company should choose a set of accounting methods and use them consistently from one period to the next. This enables users of financial statements to make meaningful comparisons between periods. It does not require a company to continue using the same accounting methods indefinitely or to choose methods that consistently inflate profits, as suggested in choices B, C, and D.

Question 11

Objective accounting information:

Accepted Answer

Objective accounting information must be reliable, meaning it is accurate and free from error, and verifiable, meaning it can be confirmed by other sources. This ensures that users of financial accounting information can trust and rely on it when making decisions. Choices A, B, and C are incorrect because they do not accurately describe objective accounting information.

Question 12

Jeter Company ordered 400 toy wagons from Lamar, Inc. on May 1, 2010. Jeter Company paid for them on May 20 at a cost of $2 each. Jeter sold 50 of them on June 2, 2010, for $4 each to Gilloz Company. Gilloz Company paid Jeter on June 10. On which date should Jeter Company recognize revenue?

Accepted Answer

Revenue is recognized when the goods are delivered and the performance obligation is satisfied, which is when Jeter sold the wagons to Gilloz Company on June 2.

Question 13

Why would a company recognize the cost of an asset on its balance sheet rather than treat it as an expense on the date it is acquired?

Accepted Answer

The matching principle requires that expenses be matched against the related revenues of the asset. If the asset is expected to generate revenue over its useful life, treating the cost as an expense when acquired would not accurately reflect the matching principle. Therefore, recognizing the cost of an asset on the balance sheet is necessary to properly match revenues and expenses.

Question 14

Morgan Shipping held cash of $1 million throughout 2010 when the general price level decreased by over 30 percent. Morgan Shipping:

Accepted Answer

The answer of Morgan Shipping held cash of $1 million...

Question 15

Equipment with an original cost of $39,000 has a fair market value of $34,000, current replacement cost of $41,000, and a depreciated value of $36,000 on December 31, 2010. At what amount would net equipment be measured on the December 31, 2010 balance sheet?

Accepted Answer

The net equipment is measured at its depreciated value, which is $36,000, as per accounting standards for reporting on the balance sheet.

Question 16

Karr Construction built a levee for the state of Mississippi over a three-year period. The contracted price for the levee was $1,200,000. The costs incurred by Karr and the payments from the state over the three year period are as follows:  If revenue is recognized when payments are received, which of the following present the net income amounts reported in 2009, 2010, and 2011, respectively?

Accepted Answer

The answer of Karr Construction built a levee for the...

Question 17

Sheena Company has accounts receivable of $13,000, with an estimated net realizable value of $12,000 on December 31, 2010. At what amount would the accounts receivable be measured on the December 31, 2010 balance sheet?

Accepted Answer

Accounts receivable are measured at their net realizable value on the balance sheet, which is the estimated amount expected to be collected, $12,000 in this case.

Question 18

The most common point of revenue recognition is:

Accepted Answer

The most common point of revenue recognition is when the goods are delivered to the customer. This is known as the point of sale method and is in accordance with the generally accepted accounting principles (GAAP). At this point, the seller has fulfilled their obligation to the customer and can recognize the revenue earned from the sale. Collecting cash or issuing a check are simply methods of payment and do not indicate when the revenue should be recognized. Similarly, production of goods does not indicate that revenue has been earned, as the goods may not have been sold or delivered yet.

Question 19

Everett, Inc.'s reporting period ends on June 30th every year. This is an example of:

Accepted Answer

This is an example of the fiscal period, which is the designated period of time for which an organization prepares its financial statements and reports its financial performance.

Question 20

The monetary unit that a company uses to measure economic transactions is primarily determined by the:

Accepted Answer

The monetary unit used by a company is primarily determined by the markets it operates in. For example, a company operating in the United States would likely use the U.S. dollar as its primary monetary unit, while a company operating in Europe would likely use the euro. The choice of monetary unit may also be influenced by factors such as the company's suppliers, customers, and competitors.

Quiz 3: The Measurement Fundamentals of Financial Accounting