Question 1

If a company spends $25 on copy paper,the amount is not material compared with the total office supplies budget of $250,000.

Accepted Answer

The cost of $25 is insignificant when compared to the total office supplies budget of $250,000.

Question 2

The accounting rule which assumes that Team Shirts is continuing in business for an indefinite period of time is the ________.
A)separate-entity assumption
B)going-concern assumption
C)monetary-unit assumption
D)historical-cost principle

Accepted Answer

The going-concern assumption in accounting assumes that a company will continue its operations for the foreseeable future. Therefore, all financial statements and records are prepared assuming the company will not be liquidated or cease operations in the near future. This assumption is relevant to Team Shirts because it is a new business that intends to continue operations indefinitely.

Question 3

Comparability means that companies should use the same accounting rules from period to period.

Accepted Answer

Comparability refers to the ability to compare financial statements of different companies because they use the same accounting principles, not necessarily the consistency of using the same accounting rules by one company over different periods.

Question 4

State the most applicable accounting rule for each of the following situations.An accounting rule can be a principle,assumption,constraint,or information characteristic.
1.All purchases and expenses are recorded at the amount paid.
2.South Seas records items imported from Tahiti in U.S.dollars.
3.The owner intends to run South Seas for an indefinite period of time.
4.Jem's Jewelers sold a $5,000 diamond engagement ring on account and recorded it as a sale.
5.Inventory purchased last month and sold this month was deducted as a cost on this month's income statement.

Accepted Answer

The answer of State the most applicable accounting rule for...

Question 5

Busy Beaver,Inc.purchased land ten years ago for $30,000.At December 31,2012,similar land has been appraised at $50,000.Answer the following questions:
1.At what amount should land be reported on the balance sheet under U.S.GAAP?
2.Which basis is more reliable,historical cost,$30,000,or fair market value,$50,000?
3.Which basis is more relevant,historical cost,$30,000,or fair market value,$50,000?
4.How might the land be reported using IFRS?

Accepted Answer

The answer of Busy Beaver,Inc.purchased land ten years ago for...

Question 6

The owner of a sole proprietorship should not include personal financial records as part of the financial records and statements of the business.

Accepted Answer

In a sole proprietorship, the business and the owner are legally considered the same entity, but for accounting and financial clarity, personal financial records should be kept separate from the business's financial records. This separation helps in accurate financial reporting, tax preparation, and financial analysis.

Question 7

Which of the following is an example of using the materiality concept?
A)recording significant purchases as assets even though technically they are considered expenses
B)recording insignificant purchases as expenses even though technically they are considered assets
C)not recording insignificant purchases at all
D)recording insignificant liabilities as assets

Accepted Answer

The materiality concept in accounting allows for ignoring the strict rules of accounting when the impact of the financial information is not significant enough to influence the decision-making process of users. Option B, recording insignificant purchases as expenses even though technically they might be considered assets, is an application of this concept. It simplifies the accounting process for items that do not materially affect financial statements.

Question 8

Reliable information can be verified.

Accepted Answer

Reliable information can be confirmed or validated through multiple sources or evidence, making it trustworthy and accurate.

Question 9

For information to be useful,it must be relevant and reliable.

Accepted Answer

Information that is not relevant or reliable is not useful as it does not provide accurate or valuable insights. Therefore, it is crucial for information to meet both criteria of relevance and reliability to be useful.

Question 10

On December 31,2012,Twisted Pretzel was told by an appraiser that its land,which cost $100,000,was worth $120,000.Under IFRS,Twisted Pretzel would be allowed to: show the land on its financial statements as ________.
A)an expense of $100,000 on the income statement
B)an expense of $120,000 on the balance sheet
C)an asset of $120,000 on the income statement
D)an asset of $120,000 on the balance sheet

Accepted Answer

Under IFRS, an asset should be recognized at its fair value. Since the land has been valued at $120,000 by the appraiser, Twisted Pretzel can show it as an asset of $120,000 on its balance sheet. Option A is incorrect because land is a long-term asset and cannot be expensed immediately. Option B is incorrect because an expense cannot be reported on the balance sheet. Option C is also incorrect because it suggests reporting the land as an asset on the income statement, which is incorrect under any accounting framework.

Question 11

Two characteristics of useful information are comparability and consistency.

Accepted Answer

Comparability ensures that information can be compared across different entities or time periods, while consistency ensures that information is presented in a uniform and reliable manner. Both of these characteristics are important for useful information.

Question 12

Information that is relevant is both timely and useful in predicting the future.

Accepted Answer

Relevant information must be timely in order to be useful for predicting the future. It also must be useful or valuable in providing insight or guidance for decision making.

Question 13

Supplies expense on the Team Shirts' income statement represents only supplies that were used to earn revenue during the accounting period.The accounting rule that applies is the ________.
A)going-concern assumption
B)historical-cost principle
C)revenue-recognition principle
D)matching principle

Accepted Answer

The matching principle states that expenses should be matched with the revenues they helped generate in the same accounting period. Therefore, only supplies used to earn revenue during the accounting period should be included in the supplies expense on the income statement.

Question 14

State the most applicable accounting rule for each of the following situations.Each rule can be used more than once.An accounting rule can be a principle,assumption,constraint,or information characteristic.
1.Maids-R-Us recorded using supplies in the same period the supplies were used instead of expensing them in the period when they were purchased.
2.Clean Sweep cleaned an office building in October and was paid in November.Revenue was reported in October.
3.Team Shirts sends a set of financial statements prepared in accordance with GAAP to First Bank every month.
4.Mary Ellis,owner of Clean Sweep,has a bank account for her business separate from her personal bank account.
5.Jem's Jewelers purchased a three-month insurance policy on its diamond inventory.The cost of the policy was recorded as an asset.Later one-third of the asset was expensed each month over the three-month policy.

Accepted Answer

The answer of State the most applicable accounting rule for...

Question 15

State the most applicable accounting rule for each of the following situations.An accounting rule can be a principle,assumption,constraint,or information characteristic.
1.A $15 wastebasket was expensed when purchased even though it will be used for more than one year.
2.The owner of the business paid for private school tuition and did not list the amount on the books of his business.
3.Team Shirts prepares financial statements in the same manner each year.
4.South Sea's financial statements are prepared within the first week after the close of each accounting period.
5.An external auditor found receipts documenting the purchase of a computerized information system for Team Shirts.

Accepted Answer

The answer of State the most applicable accounting rule for...

Question 16

All of Team Shirts' financial statements are presented in U.S.dollars.The accounting rule that applies is the ________.
A)separate-entity assumption
B)going-concern assumption
C)monetary-unit assumption
D)historical-cost principle

Accepted Answer

The monetary-unit assumption assumes that financial transactions are measured and reported in the currency of a country. In this case, Team Shirts' financial statements are presented in U.S. dollars, which demonstrates the application of the monetary-unit assumption.

Question 17

On December 31,2012,Twisted Pretzel was told by an appraiser that its land,which cost $100,000,was worth $120,000.How should Twisted Pretzel show this information on its financial statements prepared under U.S.GAAP?
A)Report a gain of $20,000 on its income statement.
B)Report land at $100,000 on its income statement.
C)Report land at $120,000 on its income statement.
D)Continue showing the land at its cost of $100,000.

Accepted Answer

Under U.S.GAAP, land is generally recorded at its cost and is not adjusted to fair value unless there is a significant transaction such as a sale. Therefore, Twisted Pretzel should continue showing the land at its cost of $100,000 and not make any adjustments for the appraised value.

Question 18

The accounting rule which requires that only the business transactions of Team Shirts be shown on the balance sheet is the ________.
A)separate-entity assumption
B)going-concern assumption
C)monetary-unit assumption
D)historical-cost principle

Accepted Answer

The separate-entity assumption is an accounting principle that requires a business to be treated as a separate economic entity from its owners. This means that only the transactions and events that pertain to the business should be recorded in the financial statements. Therefore, only the business transactions of Team Shirts should be reflected on their balance sheet.

Question 19

The revenue reported on the Team Shirts' income statement has been earned during the accounting period.The accounting rule that applies is the ________.
A)going-concern assumption
B)historical-cost principle
C)revenue-recognition principle
D)matching principle

Accepted Answer

The revenue-recognition principle states that revenue should be recognized (reported on the income statement) when it is earned, regardless of when payment is received. Therefore, this principle applies to the revenue reported on the Team Shirts' income statement.

Question 20

The separate-entity concept means that a company and its owners should keep separate records.

Accepted Answer

The separate-entity concept requires companies to keep their records separate from their owners' personal records. This means that the company's financial transactions, assets, and liabilities should be recorded separately from those of the owners.

Quiz 2: Qualities of Accounting Information

If a company spends $25 on copy paper,the amount is not material compared with the total office supplies budget of $250,000.

The accounting rule which assumes that Team Shirts is continuing in business for an indefinite period of time is the ________.

Comparability means that companies should use the same accounting rules from period to period.

The owner of a sole proprietorship should not include personal financial records as part of the financial records and statements of the business.

Which of the following is an example of using the materiality concept?

Reliable information can be verified.

For information to be useful,it must be relevant and reliable.

On December 31,2012,Twisted Pretzel was told by an appraiser that its land,which cost $100,000,was worth $120,000.Under IFRS,Twisted Pretzel would be allowed to: show the land on its financial statements as ________.

Two characteristics of useful information are comparability and consistency.

Information that is relevant is both timely and useful in predicting the future.

Supplies expense on the Team Shirts' income statement represents only supplies that were used to earn revenue during the accounting period.The accounting rule that applies is the ________.

All of Team Shirts' financial statements are presented in U.S.dollars.The accounting rule that applies is the ________.

On December 31,2012,Twisted Pretzel was told by an appraiser that its land,which cost $100,000,was worth $120,000.How should Twisted Pretzel show this information on its financial statements prepared under U.S.GAAP?

The accounting rule which requires that only the business transactions of Team Shirts be shown on the balance sheet is the ________.

The revenue reported on the Team Shirts' income statement has been earned during the accounting period.The accounting rule that applies is the ________.

The separate-entity concept means that a company and its owners should keep separate records.