Question 1

The income statement shown below was prepared and sent by Jenna Preston, the owner of Preston Gifts, to several of her creditors. The business is a sole proprietorship that sells miscellaneous gifts. An accountant for one of the creditors looked over the income statement and found that it did not conform to generally accepted accounting principles. Using the following additional information provided by the owner, prepare an income statement in accordance with generally accepted accounting principles.

Additional information provided by owner:
1. All sales were for cash.
2. The beginning and ending merchandise inventories were valued at their estimated selling price. The actual cost of the ending inventory is estimated to be $12,000. The actual cost of the beginning inventory is estimated to be
$20,000.
3. On December 31, 2019, suppliers of merchandise are owed $11,000. On January 1, 2019, they were owed $14,000.
4. The owner paid herself a salary of $1,250 per month and charged this amount to the Salary of Owner account.
5. A check for $800 to cover the December rent on the owner's personal apartment was issued from the firm's bank account. This amount was charged to Rent Expense.

Accepted Answer

The answer of The income statement shown below was prepared...

Question 2

The ________ principle requires that if income is to be properly measured, all expired costs associated with the earning of revenue must be deducted from the revenue in the same accounting period.

Accepted Answer

The answer of The ________ principle requires that if income...

Question 3

What is meant by the concept of neutrality in accounting?

Accepted Answer

The answer of What is meant by the concept of...

Question 4

The SEC has authority to define accounting terms and to prescribe accounting procedures used by all ________ held corporations.

Accepted Answer

The answer of The SEC has authority to define accounting...

Question 5

The ________ principle requires important facts that would have an effect on an investor's decisions be included in the financial statements.

Accepted Answer

The answer of The ________ principle requires important facts that...

Question 6

The ________ assumption, which assumes that a firm will continue to operate indefinitely, permits carrying forward a portion of the cost of assets that will be used in future periods .

Accepted Answer

The answer of The ________ assumption, which assumes that a...

Question 7

Which of the following statements is NOT true?

Accepted Answer

The Sarbanes-Oxley Act does not specifically affect the importance of the FASB's conceptual framework in developing accounting principles and standards. This statement is therefore not true. The SEC does have authority to accept or reject financial accounting principles and standards developed by the FASB (A), the Sarbanes-Oxley Act places great emphasis on internal controls and fraud prevention (B), and the American Institute of CPA's has had strong influence on the development of accounting principles (D).

Question 8

The income statement shown below was prepared and sent by Curtis Brown, the owner of Curt's Crafts, to several of his creditors. The business is a sole proprietorship that sells crafts and toys. An accountant for one of the creditors looked over the income statement and found that it did not conform to generally accepted accounting principles. Using the following additional information provided by the owner, prepare an income statement in accordance with generally accepted accounting principles.
Income Statement
CURT'S CRAFTS
Year Ended December 31, 2019
 
Additional information provided by owner:
1.On December 31, 2019, accounts receivable from customers total $32,000. On January 1, 2019, accounts receivable totaled $52,000.
2.The beginning and ending merchandise inventories were valued at their estimated selling price. The actual cost of the ending inventory is estimated to be $6,000. The actual cost of the beginning inventory is estimated to be
$18,000.
3.On December 31, 2019 suppliers of merchandise are owed $16,000. On January 1, 2019, they were owed $11,000.
4.The owner paid himself a salary of $1,600 per month and charged this amount to the Salaries Expense account.
5.A check for $300 to cover the December electric bill on the owner's personal home was issued from the firm's bank account. This amount was charged to Utilities Expense.

Accepted Answer

The answer of The income statement shown below was prepared...

Question 9

Under the ________ basis of accounting, income is recorded in the period in which it is earned.

Accepted Answer

The answer of Under the ________ basis of accounting, income...

Question 10

Antonio Hanley owns a small automobile service center. He recently approached the local bank for a loan to finance an expansion of his service center. Antonio prepared the balance sheet given below and submitted it with his loan application. The balance sheet does not conform to generally accepted accounting principles. Using the additional information provided by the owner, prepare a corrected balance sheet in accordance with generally accepted accounting principles.

Additional information provided by owner:
1. The inventory has an original cost of $84,000. It is listed on the balance sheet at what it would cost to purchase today.
2. Included in the cash listed on the balance sheet is $8,000 in Antonio Hanley's personal checking account.
3. Depreciation allowable to date on the equipment is $10,000. Depreciation allowable to date on the truck is $6,000.

Accepted Answer

The answer of Antonio Hanley owns a small automobile service...

Question 11

Reporting the information on the income statement and the statement of owner's equity over a period of time and the balance sheet as of a specific date is complying with the

Accepted Answer

The periodicity of income assumption requires that financial statements be prepared for specific periods of time, such as months or years. To comply with this assumption, the income statement and statement of owner's equity are prepared for a specific period of time, while the balance sheet is prepared as of a specific date. Therefore, option B is the correct answer. The going concern assumption refers to the assumption that a business will continue to operate indefinitely, while the monetary unit assumption assumes that financial transactions are recorded in a stable currency. The time value of money principle relates to the concept that the value of money changes over time due to inflation and interest rates.

Question 12

Carlos Verde owns a small nursery. He recently approached the local bank for a loan to finance an expansion of his nursery. Carlos prepared the balance sheet given below and submitted it with his loan application. The balance sheet does not conform to generally accepted accounting principles. Using the additional information provided by the owner, prepare a corrected balance sheet in accordance with generally accepted accounting principles.
VERDE GARDEN SPOT
Balance Sheet December 31, 2019

Additional information provided by owner:
1. The inventory has an original cost of $42,000. It is listed on the balance sheet at what it would cost to purchase today.
2. Included in the cash listed on the balance sheet is $4,000 in Carlos Verde's personal checking account.
3. Depreciation allowable to date on the equipment is $5,000. Depreciation allowable to date on the truck is $3,000.

Accepted Answer

The answer of Carlos Verde owns a small nursery. He...

Question 13

The modifying constraint of ________ concerns the monetary or financial significance of an item in relation to the particular monetary or financial situation of which it is a part.

Accepted Answer

The answer of The modifying constraint of ________ concerns the...

Question 14

An accountant generally assumes that a firm is a(n) ________and will continue to operate indefinitely.

Accepted Answer

The answer of An accountant generally assumes that a firm...

Question 15

Revenue should not be recorded until it is ________; that is, until new assets are created in the form of money or receivables.

Accepted Answer

The answer of Revenue should not be recorded until it...

Question 16

The accountant records an expense for wages earned by employees during the last four days of the year, even though the wages will not be paid in that year. The accountant is following the________ principle.

Accepted Answer

The answer of The accountant records an expense for wages...

Question 17

Because of the modifying constraint of ________, if uncertainty exists, assets are understated rather than overstated.

Accepted Answer

The answer of Because of the modifying constraint of ________,...

Question 18

Financial accounting rules affect the recording of data used to prepare financial reports that go to________ and ________.

Accepted Answer

The answer of Financial accounting rules affect the recording of...

Question 19

In recent years, it has been reported that several large companies have manipulated business transactions and accounting records to change the net income reported on their income statements. Suggest five concepts, assumptions, principles, or conventions that such manipulation would violate.

Accepted Answer

The answer of In recent years, it has been reported...

Question 20

Match between columns
                        Premises: This qualitative characteristic means that accounting information is capable of making a difference in a decision by the report user.
This qualitative characteristic is indicated when independent measurers obtain similar results.
Often referred to as objectivity; it is the idea that the financial statements are not prepared in a way to favor one group of users (management, owners, creditors, employees, etc.)over other groups.
Information that helps the statement user confirm fulfillment or no fulfillment of prior expectations or decisions is said to have this qualitative characteristic.
This is the concept that data shown in the financial reports reflect what really happened.
Information that is presented soon enough after events are reported to be useful in decision making would meet this qualitative characteristic.
When the financial data is presented in such a manner that it can be meaningfully compared with the same data for other companies, it meets this qualitative characteristic.financial data is presented in such a manner that it can be meaningfully compared with the same data for other companies, it meets this qualitative characteristic.
This qualitative characteristic means simply that the information should be dependable; such information is verifiable, is a faithful representation of the company's financial affairs, and is reasonably free of error and bias.
If information is relevant, it will have this qualitative characteristic and enable statement users in making predictions about the meaning and ultimate outcome of events giving rise to the information.
If an entity uses the same accounting treatment for similar events and data from period to period, this qualitative characteristic is being met.

Accepted Answer

The Answer of Comparability and Reliability and Timeliness and Representational is...

Quiz 14: Accounting Principles and Reporting Standards