Question 1

The convention of consistency refers to consistent use of accounting principles

Accepted Answer

The convention of consistency refers to the consistent use of accounting principles among different accounting periods. This means that a company should use the same accounting methods and principles year after year, unless there is a justifiable reason to change them. This ensures that financial statements are comparable over time, allowing investors and creditors to make informed decisions. The convention of consistency does not apply to firms or industries, but rather to an individual company's own accounting practices.

Question 2

The convention of consistency relates most closely to

Accepted Answer

The convention of consistency requires that a company use the same accounting methods and procedures from one period to the next. This enhances comparability between financial statements both within a company and between companies in the same industry.

Question 3

An investment is classified as short term or long term based on

Accepted Answer

The length of time the investor expects to hold the investment determines whether it is classified as short term (usually under one year) or long term (over one year). The option to sell immediately (A) may be available but is not necessarily the defining factor. The purpose for which it is held (C) and the dollar amount (D) do not determine the classification.

Question 4

The accounting convention that is most responsible for the increase in the number of notes to financial statements is

Accepted Answer

Full disclosure is the accounting convention that requires a company to disclose all necessary information in the financial statements and to provide additional explanations or details in footnotes or supplementary schedules. As companies operate in industries that are becoming more complex and dynamic, it is increasingly important to provide relevant and complete information so that financial statement users can make informed decisions. This has led to an increase in the number and complexity of notes to financial statements.

Question 5

Which of the following accounts is most likely to appear on the balance sheet as a current liability?

Accepted Answer

Wages Payable is a current liability because it represents wages that have been earned by employees but not yet paid by the company. Accumulated Depreciation is a contra-asset account that appears on the balance sheet but is not a liability. Bonds Payable and Mortgage Payable are long-term liabilities.

Question 6

A practical decision to expense small capital expenditures rather than record them as property, plant, and equipment and depreciate them probably is made on the basis of the convention of

Accepted Answer

The practical decision to expense small capital expenditures rather than record them as property, plant, and equipment and depreciate them is usually made based on the materiality convention. Materiality convention suggests that financial statements should only include information that is significant or material to its users. For small expenditures, the cost of recording and depreciating them may outweigh the benefits of providing that information. Therefore, it is appropriate to expense such costs when they are not material.

Question 7

Expensing a building in the year of purchase represents an abuse of which of the following accounting conventions?

Accepted Answer

Expensing a building in the year of purchase violates the conservatism convention, which states that accountants should err on the side of caution in order to avoid overstating assets or income. In this case, the building should be capitalized and depreciated over its useful life, rather than expensed all at once.

Question 8

Which accounting convention requires a note to the financial statements explaining the company's method of revenue recognition?

Accepted Answer

Full disclosure requires that any significant accounting policies or practices that may affect the interpretation of financial statements are disclosed. This includes the method of revenue recognition, which is a critical accounting policy that can have a significant impact on a company's reported revenue and profitability. Therefore, a note to the financial statements explaining the company's method of revenue recognition is necessary to meet the full disclosure accounting convention.

Question 9

To obtain a slightly more accurate measure of net income, Gabrielli Company has determined that it must hire two full-time accountants. However, if it decides against the hiring, it has followed the convention of

Accepted Answer

The choice of whether or not to hire two full-time accountants is based on a cost-benefit analysis, as the company must weigh the cost of hiring them against the potential increase in accuracy of net income. This aligns with the principle of cost-benefit, which requires companies to consider the costs and benefits of their accounting decisions.

Question 10

Which of the following accounting conventions would an accountant most likely apply when facing major uncertainties?

Accepted Answer

When facing major uncertainties, an accountant would likely apply conservatism as an accounting convention. This convention requires accountants to anticipate any losses or expenses but only recognize potential gains or income when they are certain. This helps to ensure that financial statements are not overstated and provide a more accurate representation of a company's financial position. Full disclosure, materiality, and consistency are also important accounting conventions but are not specifically related to dealing with uncertainties.

Question 11

A corporation's stockholders' equity section of the balance sheet may contain all except

Accepted Answer

The name T. McDonald, Capital in option A suggests that it is a specific individual's capital rather than a general term for stockholders' equity. Therefore, it is incorrect as an option in a corporation's balance sheet. The other options commonly appear in the stockholders' equity section of the balance sheet. Common stock represents the par value of the outstanding shares, retained earnings show the accumulated profits that the company has not distributed as dividends, and additional paid-in capital indicates the amount of money the shareholders have contributed to the company above the common stock's par value.

Question 12

On a corporate balance sheet, earned capital is also known as

Accepted Answer

Earned capital is the same as retained earnings, which represents the portion of a company's profits that is kept and reinvested in the business rather than paid out as dividends to shareholders. Common stock, paid-in capital, and contributed capital are all related to the amount of money raised by the company through the sale of stock, and do not represent earnings.

Question 13

Which accounting term does not mean the same as the others?

Accepted Answer

Retained earnings specifically refer to the portion of net income that is retained by the corporation rather than distributed to its owners as dividends. Net worth, Capital, and Owner's Equity generally refer to the value of an owner's interest in a business, making them conceptually similar, whereas Retained Earnings is a component of Owner's Equity but not synonymous with the entire concept.

Question 14

Use this information to answer the following question.  The total dollar amount of assets to be classified as investments is

Accepted Answer

The answer of Use this information to answer the following...

Question 15

Which of the following appears on the balance sheet?

Accepted Answer

Merchandise inventory is a current asset that appears on the balance sheet. The other options do not typically appear on the balance sheet - interest income and income taxes are found on the income statement, and net sales is a calculation derived from the income statement.

Question 16

Which of the following should be classified as an intangible asset?

Accepted Answer

A trademark is a type of intangible asset that represents a recognizable symbol, word, or phrase associated with a company or product. Land, buildings, and accounts receivable are all tangible assets.

Question 17

A company should classify land held for a planned manufacturing facility as

Accepted Answer

The answer of A company should classify land held for...

Question 18

Which accounting convention could cause an overload of information for the financial statement user?

Accepted Answer

Full disclosure requires including all relevant information in the financial statements or footnotes, regardless of its impact on decision-making. This can result in an overload of information for the financial statement user.

Question 19

Use this information to answer the following question.  The total dollar amount of assets to be classified as property, plant, and equipment is

Accepted Answer