Question 1

Which of the following concepts is important to accrual accounting?

Accepted Answer

Accrual accounting divides earnings into time periods, which means that revenue and expenses are recorded when they are earned or incurred, not when cash is received or paid out. This concept is important in order to provide a more accurate picture of a company's financial health over a longer period of time.

Question 2

Harvest Catering is a local catering service.Conceptually,when should Harvest recognize revenue from its catering service?

Accepted Answer

Harvest should recognize revenue from its catering service at the date the meals are served because that is when the service is provided and the customer receives the benefit of the service. Placing the order, mailing the invoice, or receiving payment are all events that occur before or after the service is provided, and therefore do not represent the appropriate timing of revenue recognition.

Question 3

Clayton City Consultants started business on January 1,2014,and immediately purchased $1,000 of supplies to use in the business.At the end of the month,25 percent of the supplies remains unpaid and 20% are still on hand.What amounts should appear on the financial statements for January,2014? Income Statement Statement of Cash Flows

Accepted Answer

The income statement should reflect the cost of supplies used, which is $800 ($1,000 - 20% still on hand). The statement of cash flows should show the cash paid for supplies, which is $750 ($1,000 - 25% unpaid).

Question 4

The selection of historical cost over current value as the attribute to be measured for assets is an example of the trade-off of

Accepted Answer

The selection of historical cost over current value prioritizes reliability over relevance. Historical cost is a more reliable measure of an asset's value because it is based on an actual transaction that has already occurred, whereas current value can be more subjective and uncertain. While current value may be more relevant in certain situations, such as when assets need to be revalued due to changes in market conditions, historical cost is generally considered a more reliable measure for financial reporting purposes.

Question 5

Which one of the following statements is true?

Accepted Answer

Recognition is concerned with identifying economic effects that should be reported in the financial statements, while measurement is concerned with how those effects should be quantified. Stability concept is related to the period for which financial statements are prepared and not the identification of the specific entity. The monetary unit assumption means transactions are recorded in a specific currency without adjusting for inflation.

Question 6

When is revenue from the sale of merchandise normally recognized?

Accepted Answer

Revenue from the sale of merchandise is normally recognized on the date the sale is made, according to the revenue recognition principle, which states that revenue is recognized when it is earned, regardless of when payment is received.

Question 7

When are revenues and expenses recognized in the same accounting period that cash receipts and payments occur?

Accepted Answer

This is the defining characteristic of the cash basis of accounting, where recognition of revenue and expenses is based on actual cash receipts and payments. This is in contrast to the accrual basis of accounting, which recognizes revenue and expenses when they are earned or incurred, regardless of when the actual cash transaction takes place.

Question 8

Hensley Painting Company painted four houses in June at $500 each.At the end of June,three homeowners had paid Hensley cash for the jobs.Under the accrual basis,what amounts will be reported on the income statement and the statement of cash flows for June? Income Statement Statement of Cash Flows

Accepted Answer

Under the accrual basis, revenue is recognized when earned, so $2,000 will be reported on the income statement. The statement of cash flows will report $1,500, the amount actually received in cash.

Question 9

Why is the use of the U.S.dollar as a unit of measure for financial statement data in the U.S.widely accepted?

Accepted Answer

The U.S. dollar is the medium of monetary exchange in the U.S., which is why it is widely accepted as a unit of measure for financial statement data.

Question 10

Camp Consulting Services started business on January 1,2014.Camp performed services for customers totaling $100,000 of which 40% remain uncollected at the end of December.Under the accrual basis,what amounts would appear on Camp Consulting's financial statements for 2014? Income Statement Statement of Cash Flows

Accepted Answer

Under the accrual basis, revenue is recognized when earned, not when cash is received. Therefore, the income statement would show $100,000 in revenue. The statement of cash flows would show $60,000, which is the cash actually collected.

Question 11

An accountant describes the effects of an economic event on an entity by recording the transaction and reporting the amount on the financial statements.What is this called?

Accepted Answer

Recognition refers to the process of identifying and recording a financial transaction in a company's books. This includes determining the amount involved as well as which accounts should be debited and credited. Once a transaction is recognized, it can then be reported on the company's financial statements.

Question 12

A pool cleaning service signs a contract with a new customer on May 1.The pool is vacuumed and "shocked" for the customer on June 1,and the bill for the services is paid on July 1.Under the accrual basis,the business should recognize revenue on:

Accepted Answer

Under the accrual basis, revenue should be recognized when the service is performed, regardless of when payment is received. In this case, the pool cleaning service performed the service of vacuuming and shocking the pool on June 1, so that is when revenue should be recognized. May 1 is when the contract was signed but no service was performed yet, July 1 is when payment was received but revenue should have already been recognized, and December 31 is not relevant to this specific transaction.

Question 13

During December,Dearborne Inc.purchased $800 of supplies for use in its business.At the end of December,20% of the supplies were still on hand,but only 75% had been paid.What amounts will appear on the company's balance sheet on December 31? Supplies on Hand Accounts Payable

Accepted Answer

Supplies on hand are 20% of $800, which is $160. Accounts payable is 25% of $800, which is $200.

Question 14

Which of the following statements does not present financial information based on the accrual basis of accounting?

Accepted Answer

The statement of cash flows presents financial information based on the cash basis of accounting, not the accrual basis.

Question 15

Market Club Center sells season memberships for $200 each.During January of 2014,60 season memberships were sold.As of March 31,2014,only $3,000 of season membership fees had been collected from customers.The season runs for 4 months starting May 15,2014.Which one of the following is an amount reported on the financial statements for the period ending March 31,2014?

Accepted Answer

Only $3,000 of season membership fees had been collected from customers, indicating that the remaining amount of $9,000 ($200 x 60) is unearned membership revenue. Therefore, the correct choice is A) Unearned membership revenue of $3,000.

Question 16

On January 1,2014,Renshaw Avenue Associates,Inc.purchased a copier for $6,000 cash and decided to depreciate it over 5 years.What amounts associated with the copier will appear on Renshaw's financial statements for the year ending December 31,2014? Income Statement Statement of Cash Flows

Accepted Answer

The answer of On January 1,2014,Renshaw Avenue Associates,Inc.purchased a copier...

Question 17

Corrine Auto sold merchandise to a customer for $3,000 on credit on July 10.The customer paid Corrine Auto the amount due on July 31.Under the accrual basis of accounting,which of the following statements is true?

Accepted Answer

Under the accrual basis of accounting, revenue is recognized when earned, not when cash is received. On July 10, revenue is recognized, and accounts receivable (an asset) increases. On July 31, cash increases and accounts receivable decreases, with no net effect on total assets.

Question 18

Which of the following is the attribute used to measure many assets that are recognized on a balance sheet,because it is more objective and verifiable?

Accepted Answer

Historical cost is the attribute used to measure many assets that are recognized on a balance sheet. It is more objective and verifiable compared to other options such as market value, liquidation value, and current replacement cost. The historical cost is the original purchase price of an asset, which is adjusted for depreciation or amortization. This method is used as it is based on actual transactions and provides a reliable and consistent basis for accounting measurement.

Question 19

Stanfield Equipment sells new tractors and pays each salesperson a commission of $1,000 for each tractor sold.During the month of August,a salesperson,Jason,sold 3 new tractors.Stanfield pays Jason on the 10th day of the month following the sale.Jason operates on the cash basis;the tractor dealer operates on the accrual basis.Which of the following statements is true?

Accepted Answer

The answer of Stanfield Equipment sells new tractors and pays...

Question 20

Measurement of the economic effects on an entity involves each of the following except

Accepted Answer

Recording the economic effects in the financial statements is not involved in the measurement process itself, but rather is the end result of the measurement process. The other three options (quantification of effects, identification of the attribute to be measured, selection of an appropriate unit of measure) are all involved in the measurement process.

Quiz 4: Income Measurement and Accrual Accounting