Question 1

For each transaction,the dollar total of the debits must equal the dollar total of the credits.

Accepted Answer

This is the fundamental principle of accounting known as double-entry bookkeeping. Every transaction has equal amounts of debits and credits to ensure that the accounting equation remains in balance.

Question 2

A contra account is an account that is subtracted from a related account.

Accepted Answer

A contra account is a type of account that is deducted from a corresponding account. It is used to offset and reduce the balance of the related account. Examples of a contra account include accumulated depreciation, allowance for doubtful accounts, and sales returns and allowances.

Question 3

One difference between U.S.GAAP and IFRS is that IFRS requires companies to present a single statement of comprehensive income while U.S.GAAP allows companies to alternatively present separately a net income statement and a statement of comprehensive income.

Accepted Answer

The answer of One difference between U.S.GAAP and IFRS is...

Question 4

Hickory Furniture Company had the following costs paid during the month of May:
$\begin{array}{lr}
\text { Inventory purchases } & \$ 40,000 \
\text { Advertising costs } & 8,000 \
\text { Delivery costs } & 2.000
\end{array}$
Hickory sold $32,000 of the inventory and has agreed to pay warranty expenses for its customers. These are expected to be $1,600 and occur evenly over the next four months (i.e., starting in June).
-What is the amount of Hickory's May expenses when applying the matching principle?

Accepted Answer

The answer of Hickory Furniture Company had the following costs...

Question 5

Both IFRS and U.S.GAAP require companies to report valuation changes to the company's expected liability to its retired employees due to changes in actuarial estimates in other comprehensive income each period.

Accepted Answer

Both IFRS and U.S.GAAP require companies to report changes in the valuation of the company's expected liability to its retired employees due to changes in actuarial estimates in other comprehensive income each period.

Question 6

U.S.GAAP permits companies to report components of other comprehensive income (OCI)as part of the statement of changes in stockholders' equity.

Accepted Answer

The answer of U.S.GAAP permits companies to report components of...

Question 7

Which of the following statements best describes expenses?

Accepted Answer

Expenses are the expired costs or assets "used up" during the accounting period. Option A refers to revenue, option B refers to expenditures, and option D refers to wages and salaries paid to employees.

Question 8

An adjusting entry is required whenever all economic events that have occurred are not already reflected in the accounts.

Accepted Answer

Adjusting entries are necessary to update the accounts to reflect unrecorded economic events or transactions. Without adjusting entries, the financial statements may not accurately represent the current financial status of the entity.

Question 9

Under IFRS if a company opts to present separately a net income statement and a statement of comprehensive income,the net income statement must immediately follow the statement of comprehensive income.

Accepted Answer

According to IFRS, if a company elects to present separately a statement of comprehensive income, it must present a statement of profit or loss and other comprehensive income immediately preceding the statement of comprehensive income.

Question 10

The Canon Corporation sells ten copiers to the Title Company on October 15 for $40,000. Canon delivers the copiers to Title on October 20; Title pays $16,000, and agrees to pay the balance on November 10.
-Under the accrual basis,how much revenue should Canon recognize in November?

Accepted Answer

Under the accrual basis of accounting, revenue is recognized when it is earned, not when payment is received. Canon should recognize the full $40,000 revenue in October when the copiers are delivered, not in November.

Question 11

Adjusting entries always fall into one of two categories: adjustments for prepayments or adjustments for unearned revenue.

Accepted Answer

Adjusting entries can also include adjustments for accrued expenses, accrued revenues, depreciation, and inventory valuation.

Question 12

To get revenue and expense account balances to zero an adjusting entry is made.

Accepted Answer

To get revenue and expense account balances to zero, a closing entry is made, not an adjusting entry. Adjusting entries are made to record transactions that have occurred but are not yet recorded in the financial statements.

Question 13

What type of cost is the advertising expense?

Accepted Answer

Advertising expense is a period cost because it is expensed in the period in which it incurred rather than being included in the cost of the product.

Question 14

Revenue increases owners' equity and expenses decrease owners' equity.

Accepted Answer

Revenue is considered a source of income for the business and increases the owner's equity. On the other hand, expenses are considered a reduction of the assets or increase in liabilities, which decreases the owner's equity.

Question 15

As a general rule,IFRS allows more opportunities for managers to change balance sheet valuations of certain assets even when management has no intention to sell these assets.

Accepted Answer

IFRS allows for more flexibility in certain areas of balance sheet valuation, such as determining the fair value of certain assets, which can lead to changes in valuation even if there is no intention to sell the assets. This can provide more opportunities for managers to manipulate the balance sheet.

Question 16

U.S.GAAP requires some firms to periodically recategorize a portion of actuarial adjustment losses relating to pensions into periodic net income.

Accepted Answer

Under U.S.GAAP, some firms are required to recategorize a portion of actuarial adjustment losses relating to pensions into periodic net income. This is known as "settlement accounting" and is required when certain events occur, such as a plan amendment or termination, that change the expected future cash flows of the pension plan.

Question 17

The Canon Corporation sells ten copiers to the Title Company on October 15 for $40,000. Canon delivers the copiers to Title on October 20; Title pays $16,000, and agrees to pay the balance on November 10.
-Under the cash basis,how much revenue should Canon recognize in October?

Accepted Answer

Under the cash basis accounting method, revenue is recognized when payment is received. Since Title Company paid $16,000 for the copiers in October, Canon can recognize $16,000 as revenue in October. The remaining balance of $24,000 will be recognized in November when Title Company pays it.

Question 18

Using the accrual basis,which one of the following entries would properly record Canon's revenue recognition for October?

Accepted Answer

Under the accrual basis of accounting, revenue is recognized when earned, regardless of when the cash is received. In this case, Canon would recognize the total revenue of $40,000 for copier sales in October, which includes both the cash received ($16,000) and the amount still owed by customers (accounts receivable, $24,000). Therefore, the correct entry is a debit to Cash for $16,000, a debit to Accounts Receivable for $24,000, and a credit to Copier Sales for the total revenue of $40,000.

Question 19

The shareholders' equity account,Revaluation Surplus,is likely to be found on the balance sheet of a company reporting under U.S.GAAP.

Accepted Answer

Revaluation surplus is not recognized under U.S. GAAP, but it may be recognized under other accounting frameworks such as IFRS or local GAAP.

Question 20

Hickory Furniture Company had the following costs paid during the month of May:
$\begin{array}{lr}
\text { Inventory purchases } & \$ 40,000 \
\text { Advertising costs } & 8,000 \
\text { Delivery costs } & 2.000
\end{array}$
Hickory sold $32,000 of the inventory and has agreed to pay warranty expenses for its customers. These are expected to be $1,600 and occur evenly over the next four months (i.e., starting in June).
-What is the amount of Hickory's cash-basis expenses for the month of May?

Accepted Answer

Cash-basis expenses for May include inventory purchases ($40,000), advertising costs ($8,000), and delivery costs ($2,000), totaling $50,000. Warranty expenses are not included as they are not paid in May.

Quiz 2: Accrual Accounting and Income Determination