Question 1

Which of the following statements concerning materiality is true?

Accepted Answer

Materiality refers to the significance of an item or event to a company's financial statements. Immaterial items are those that are not significant enough to impact the overall accuracy of the financial statements. In such cases, accountants should use the most expedient and cost-effective method to handle them, even if it means not recording them. This approach is known as the materiality concept. Therefore, option C is the correct statement about materiality. Statements A, B, and D are incorrect.

Question 2

Adjusting Entries
Identify four types of timing differences between cash flows and the recognition of expenses or revenues that may require adjusting entries.Give an example of each.

Accepted Answer

The answer of Adjusting Entries
Identify four types of timing differences...

Question 3

Adjusting entries help achieve the goals of accrual accounting by applying which two accounting principles?

Accepted Answer

Adjusting entries help achieve the goals of accrual accounting by applying the realization principle and the matching principle. The realization principle requires recognizing revenue when it is earned, not when payment is received, while the matching principle requires matching revenues with expenses in the same period in which they are incurred. Adjusting entries are necessary to ensure that revenues are recognized and expenses are matched properly, thereby achieving the goals of accrual accounting. Choice A is incorrect because the business entity concept focuses on keeping business transactions separate from personal transactions, while the realization principle focuses on recognizing revenue when it is earned. Choice B is incorrect because the cost principle states that assets should be recorded at their historical cost, and the accounting equation is a fundamental principle of accounting that ensures that the balance sheet remains balanced. Choice D is incorrect because there is no such thing as a "safety principle" in accounting.

Question 4

Which statement is true about an adjusted trial balance?

Accepted Answer

The adjusted trial balance is prepared after adjusting entries are made and before the financial statements are prepared. It lists all the accounts including revenue, expenses, assets, and liabilities, with their adjusted balances. Balance sheet items are indeed presented before income statement items, ensuring that assets, liabilities, and equity accounts are listed before revenues and expenses.

Question 5

Swordfish Co.earned $75,000 in 2018 and expects to receive 2/3 of the amount in 2019 and the remainder in 2020.How much revenue should Swordfish Co.report in 2018?

Accepted Answer

Swordfish Co. earned $75,000 in 2018, so that is the revenue they should report in 2018. The question only asks for the revenue in 2018, not in future years.

Question 6

Before making month-end adjustments,net income of Bobwhite Company was $232,000 for March.Adjusting entries are necessary for the following items: -Depreciation for the month of March: $4,300.
-Rental income accrued during March,tenant to pay in April: $900.
-Supplies used in March: $300.
-Fees earned in March that had been collected in advance: $3,600.
After recording these adjustments,net income for March is:

Accepted Answer

The answer of Before making month-end adjustments,net income of Bobwhite...

Question 7

On the adjusted trial balance,retained earnings is:

Accepted Answer

The adjusted trial balance is prepared after all the adjusting entries have been recorded and posted to the ledger accounts. Retained earnings account shows the total earnings of the company retained by the business over time. Since it is an ongoing cumulative account, the beginning balance of retained earnings is taken from the previous period's ending balance, and it is not adjusted on the current period's adjusted trial balance. Therefore, Option B is correct as the retained earnings account is stated at the period-beginning amount.

Question 8

Regal Real Estate,which maintains its accounts on the basis of a fiscal year ending June 30,began the management of an office building on June 15 for an agreed annual fee of $4,800.The first payment is due on July 15.The adjusting entry required at June 30 is:

Accepted Answer

The correct answer is A because Regal Real Estate earned a portion of the annual fee by managing the office building from June 15 to June 30, which is 15 days out of the 365 days in a year. The fee for this period is calculated as ($4,800/365) * 15 = $200. Since the payment is due after June 30, the amount earned but not yet received should be recorded as a receivable, thus requiring a debit to Management Fees Receivable and a credit to a revenue account for $200.

Question 9

The concept of materiality:

Accepted Answer

Materiality allows for the omission or simplification of accounting information that would not significantly influence the decision-making process of users of financial statements. This concept can justify deviations from certain accounting principles, like the matching or realization principles, when the impact of strictly following them is immaterial to the financial statements' overall presentation and users' decision-making.

Question 10

Which of the following is the accounting principle that governs the timing of revenue recognition?

Accepted Answer

The realization principle governs the timing of revenue recognition, which states that revenue should be recognized when it is earned and realized or realizable, regardless of when the payment is received.

Question 11

Dolphin Co.received $1,500 in fees during 2017,1/3 of which will be earned in 2018.The rest was earned when the amount was received.The company should report which of the following amounts as income in 2017?

Accepted Answer

Only $1,000 should be reported as income in 2017. This is because only 2/3 of the fees earned ($1,000) were actually earned and received in 2017, while the other 1/3 will be earned in 2018.

Question 12

Before making month-end adjustments,net income of Cardinal Company was $116,000 for March.Adjusting entries are necessary for the following items: -Depreciation for the month of March: $2,300.
-Rental income accrued during March,tenant to pay in April: $800.
-Supplies used in March: $100.
-Fees earned in March that had been collected in advance: $2,600.
After recording these adjustments,net income for March is:

Accepted Answer

Net income after adjustments = Original net income + Rental income accrued + Fees earned - Depreciation - Supplies used = $116,000 + $800 + $2,600 - $2,300 - $100 = $117,000.

Question 13

Which of the following would not be a proper application of the concept of materiality by Millridge Corporation?

Accepted Answer

Transactions involving small dollar amounts should still be recorded in a company's accounting records to ensure completeness and accuracy of financial information. Ignoring small transactions entirely could lead to inaccuracies in financial reporting.

Question 14

Great Kids Co.began providing day care for the children of employees of a large corporation on January 15 for an agreed monthly fee of $9,000.The first payment is to be received on February 15.The adjusting entry required by Great Kids Co.on January 30 includes:

Accepted Answer

The adjusting entry required by Great Kids Co. on January 30 includes a credit to Child Care Fees Earned of $4,500 because the company has earned $4,500 of revenue for the period January 15 to January 30.

Question 15

Purpose of adjusting entries
The president of Crown Construction was informed that the first quarter financial statements would be available "as soon as the adjusting entries are made." Being a non-accountant,the president feels adjustments should not be necessary if the accounting department is operating in a competent manner.Does the need for adjusting entries at the end of the quarter imply that transactions are not being recorded properly? Explain.

Accepted Answer

The answer of Purpose of adjusting entries
The president of Crown...

Question 16

The accountant for Perfect Painting forgot the following two adjustments at the end of 2018: (a)The entry to record depreciation: $3,000.
(b)The entry to record the portion of fees received in advance,which have now been earned: $3,000.
As a result of these two omissions:

Accepted Answer

The answer of The accountant for Perfect Painting forgot the...

Question 17

Before any month-end adjustments are made,the net income of Bennett Company is $76,000.The following adjustments are necessary: office supplies used,$3,160;services performed for clients but not yet recorded or collected,$3,640;interest accrued on note payable to bank,$3,040.After adjusting entries are made for the items listed above,Bennett Company's net income will be:

Accepted Answer

To calculate the adjusted net income, we need to subtract the total of the adjustments from the original net income. 
Adjusted net income = $76,000 - ($3,160 + $3,640 + $3,040) 
Adjusted net income = $76,000 - $9,840 
Adjusted net income = $66,160 
Therefore, the best choice is C) $73,440.

Question 18

Before any month-end adjustments are made,the net income of Russell Company is $38,000.However,the following adjustments are necessary: office supplies used,$3,160;services performed for clients but not yet recorded or collected,$3,040;interest accrued on a note payable to bank,$3,640.After adjusting entries are made for the items listed above,Russell Company's net income would be:

Accepted Answer

To determine the adjusted net income, we need to subtract the total of the adjustments from the original net income:
$38,000 - $3,160 - $3,040 - $3,640 = $34,240
Therefore, the correct answer is B) $34,240.

Question 19

The concept of materiality:

Accepted Answer

Materiality refers to the significance of an item or amount in the decision-making process of users of financial statements. It is not necessarily an exact percentage, and it can apply to both tangible and intangible assets, as well as both the income statement and balance sheet.

Question 20

Which of the following accounting principles is concerned with offsetting revenue with the expenses incurred in producing that revenue?

Accepted Answer

The matching principle states that expenses should be recognized when they are incurred in order to generate revenue. This means that expenses should be matched with the revenue they help to generate, in order to give an accurate picture of a company's profitability.

Quiz 4: The Accounting Cycle: Accruals and Deferrals

Which of the following statements concerning materiality is true?

Adjusting Entries Identify four types of timing differences between cash flows and the recognition of expenses or revenues that may require adjusting entries.Give an example of each.

Adjusting entries help achieve the goals of accrual accounting by applying which two accounting principles?

Which statement is true about an adjusted trial balance?

Swordfish Co.earned $75,000 in 2018 and expects to receive 2/3 of the amount in 2019 and the remainder in 2020.How much revenue should Swordfish Co.report in 2018?

On the adjusted trial balance,retained earnings is:

Regal Real Estate,which maintains its accounts on the basis of a fiscal year ending June 30,began the management of an office building on June 15 for an agreed annual fee of $4,800.The first payment is due on July 15.The adjusting entry required at June 30 is:

The concept of materiality:

Which of the following is the accounting principle that governs the timing of revenue recognition?

Dolphin Co.received $1,500 in fees during 2017,1/3 of which will be earned in 2018.The rest was earned when the amount was received.The company should report which of the following amounts as income in 2017?

Which of the following would not be a proper application of the concept of materiality by Millridge Corporation?

Great Kids Co.began providing day care for the children of employees of a large corporation on January 15 for an agreed monthly fee of $9,000.The first payment is to be received on February 15.The adjusting entry required by Great Kids Co.on January 30 includes:

The accountant for Perfect Painting forgot the following two adjustments at the end of 2018: (a) The entry to record depreciation: $3,000. (b) The entry to record the portion of fees received in advance,which have now been earned: $3,000. As a result of these two omissions:

The concept of materiality:

Which of the following accounting principles is concerned with offsetting revenue with the expenses incurred in producing that revenue?