Chapter 1 Homework

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Question #1

Identify the accounting concept that relates to the statement or phrase. Assumes the entity will continue indefinitely.

A Economic entity assumption

B Periodicity assumption

C Going concern assumption

D Cost effectiveness

Question #2

Identify the accounting concept that relates to the statement or phrase. Not a qualitative characteristic, but a practical justification for some accounting choices.

A Cost effectiveness

B Conservatism

C Periodicity assumption

D Economic entity assumption

Question #3

Identify the accounting concept that relates to the statement or phrase. A consequence is that GAAP need not be followed in all situations.

A Historical cost principle

B Full-disclosure principle

C Materiality

D Expense recognition

Question #4

Identify the accounting concept that relates to the statement or phrase. The benefits of providing accounting information should exceed the cost of doing so.

A Expense recognition

B Monetary unit assumption

C Cost effectiveness

D Full-disclosure principle

Question #5

Identify the accounting concept that relates to the statement or phrase. All economic events can be identified with a particular entity.

A Conservatism

B Economic entity assumption

C Materiality

D Going concern assumption

Question #6

Identify the accounting concept that relates to the statement or phrase. Relates to the qualitative characteristic of timeliness.

A Materiality

B Periodicity assumption

C Cost effectiveness

D Economic entity assumption

Question #7

Identify the accounting concept that relates to the statement or phrase. The basis for measurement of many assets and liabilities.

A Periodicity assumption

B Historical cost principle

C Economic entity assumption

D Cost effectiveness

Question #8

Identify the accounting concept that relates to the statement or phrase. Recognizing expenses in the period they were incurred to produce revenue.

A Cost effectiveness

B Materiality

C Expense recognition

D Economic entity assumption

Question #9

Identify the accounting concept that relates to the statement or phrase. Information that could affect decision making should be reported.

A Full-disclosure principle

B Periodicity assumption

C Historical cost principle

D Expense recognition

Question #10

Identify the accounting concept that relates to the statement or phrase. Inflation causes a violation of this assumption.

A Full-disclosure principle

B Monetary unit assumption

C Historical cost principle

D Expense recognition

Question #11

A Disagree, Historical cost (original transaction value) principle

B Agree, Materiality

C Agree, Revenue recognition

D Disagree, Monetary unit assumption

Question #12

For the following situation, indicate whether you agree or disagree with the financial reporting practice employed and state the accounting concept that is applied (if you agree) or violated (if you disagree).
Gigantic Corporation purchased two small calculators at a cost of $32.00. The cost of the calculators was expensed even though they had a three-year estimated useful life.

A Disagree, Historical cost (original transaction value) principle

B Agree, Revenue recognition

C Disagree, Periodicity assumption

D Agree, Materiality

Question #13

For the following situation, indicate whether you agree or disagree with the financial reporting practice employed and state the accounting concept that is applied (if you agree) or violated (if you disagree).
Davis Bicycle Company received a large order for the sale of 1,000 bicycles at $100 each. The customer paid Davis the entire amount of $100,000 on March 15. However, Davis did not record any revenue until April 17, the date the bicycles were delivered to the customer.

A Agree, Revenue recognition

B Disagree, Monetary unit assumption

C Disagree, Materiality

D Agree, Full disclosure principle

Question #14

For the following situation, indicate whether you agree or disagree with the financial reporting practice employed and state the accounting concept that is applied (if you agree) or violated (if you disagree).
Rudeen Corporation purchased equipment for $180,000 at a liquidation sale of a competitor. Because the equipment was worth $230,000, Rudeen valued the equipment in its subsequent balance sheet at $230,000.

A Agree, Full disclosure principle

B Disagree, Periodicity assumption

C Disagree, Monetary unit assumption

D Disagree, Historical cost (original transaction value) principle

Question #15

For the following situation, indicate whether you agree or disagree with the financial reporting practice employed and state the accounting concept that is applied (if you agree) or violated (if you disagree).
Cypress Manufacturing Company purchased machinery having a five-year life. The cost of the machinery is being expensed over the life of the machinery.

A Agree, Monetary unit assumption

B Disagree, Materiality

C Disagree, Historical cost (original transaction value) principle

D Agree, Expense recognition

Question #16

For the following situation, indicate whether you agree or disagree with the financial reporting practice employed and state the accounting concept that is applied (if you agree) or violated (if you disagree).
Spooner Oil Company changed its method of accounting for oil and gas exploration costs from successful efforts to full cost. No mention of the change was included in the financial statements. The change had a material effect on Spooner’s financial statements.

A Agree, Full disclosure principle

B Disagree, Full disclosure principle

C Agree, Expense recognition

D Disagree, Periodicity assumption

Question #17

For the following situation, indicate whether you agree or disagree with the financial reporting practice employed and state the accounting concept that is applied (if you agree) or violated (if you disagree).
Wagner Corporation adjusted the valuation of all assets and liabilities to reflect changes in the purchasing power of the dollar.

A Disagree, Materiality

B Agree, Full disclosure principle

C Agree, Revenue recognition

D Disagree, Monetary unit assumption

Question #18

IBM Corporation, a multibillion dollar company, purchased some small tools at a cost of $800. Even though the tools will be used for a number of years, the company recorded the purchase as an expense.

A The periodicity assumption

B Materiality

C Revenue recognition

D The economic entity assumption

Question #19

Liquidation values are not normally reported in financial statements even though many companies do go out of business.

A The historical cost (original transaction value) principle

B The periodicity assumption

C The going concern assumption

D Expense recognition (also the going concern assumption)

Question #20

Honeywell International Inc. records revenue when products are delivered to customers, even though the cash has not yet been received.

A Revenue recognition

B The periodicity assumption

C The economic entity assumption

D Expense recognition (also the going concern assumption)

Question #21

Crosby Company lists land on its balance sheet at $120,000, its original purchase price, even though the land has a current fair value of $200,000.

A Revenue recognition

B The going concern assumption

C The historical cost (original transaction value) principle

D Materiality

Question #22

Hewlett-Packard Corporation depreciates machinery and equipment over their useful lives.

A The going concern assumption

B The historical cost (original transaction value) principle

C Expense recognition (also the going concern assumption)

D Revenue recognition

Question #23

Apple Inc. distributes an annual report to its shareholders.

A Expense recognition (also the going concern assumption)

B The periodicity assumption

C Revenue recognition

D The historical cost (original transaction value) principle

Question #24

Jim Marley is the sole owner of Marley’s Appliances. Jim borrowed $100,000 to buy a new home to be used as his personal residence. This liability was not recorded in the records of Marley’s Appliances.

A Expense recognition (also the going concern assumption)

B The historical cost (original transaction value) principle

C The economic entity assumption

D The periodicity assumption

Question #25

Full-disclosure principle

A The original transaction value upon acquisition.

B All information that could affect decisions should be reported.

C The life of an enterprise can be divided into artificial time periods.

D Record expenses in the period the related revenue is recognized.

Question #26

Economic entity assumption

A The entity will continue indefinitely.

B The life of an enterprise can be divided into artificial time periods.

C Criteria usually satisfied for products at point of sale.

D The enterprise is separate from its owners and other entities.

Question #27

Monetary unit assumption

A The enterprise is separate from its owners and other entities.

B All information that could affect decisions should be reported.

C A common denominator is the dollar.

D The original transaction value upon acquisition.

Question #28

Going concern assumption

A The life of an enterprise can be divided into artificial time periods.

B Criteria usually satisfied for products at point of sale.

C The entity will continue indefinitely.

D The entity will continue indefinitely.

Question #29

Revenue recognition

A The entity will continue indefinitely.

B A common denominator is the dollar.

C Criteria usually satisfied for products at point of sale.

D The enterprise is separate from its owners and other entities.

Question #30

Materiality

A A common denominator is the dollar.

B The life of an enterprise can be divided into artificial time periods.

C The entity will continue indefinitely.

D Concerns the relative size of an item and its effect on decisions.

Question #31

Historical cost principle

A The original transaction value upon acquisition.

B The entity will continue indefinitely.

C Concerns the relative size of an item and its effect on decisions.

D Criteria usually satisfied for products at point of sale.

Question #32

Periodicity assumption

A A common denominator is the dollar.

B The life of an enterprise can be divided into artificial time periods.

C The enterprise is separate from its owners and other entities.

D The entity will continue indefinitely.

Question #33

Expense recognition

A Concerns the relative size of an item and its effect on decisions.

B The life of an enterprise can be divided into artificial time periods.

C The original transaction value upon acquisition.

D Record expenses in the period the related revenue is recognized.

Question #34

A company should disclose information only if the perceived benefits of the disclosure exceed the costs of providing the information. Which constraint does this statement describe?

A Consistency

B Neutrality

C Cost effectiveness

D Timeliness

Question #35

Jeff Brown is evaluating two companies for future investment potential. Jeff’s task is made easier because both companies use the same accounting methods when preparing their financial statements. Which characteristic does the information Jeff will be using possess?

A Comparability

B Neutrality

C Consistency

D Materiality

Question #36

When there is agreement between a measure or description and the phenomenon it purports to represent, information possesses which characteristic?

A Consistency

B Timeliness

C Predictive value and/or confirmatory value

D Faithful representation

Question #37

In general, relevant information possesses which qualities?

A Cost effectiveness

B Comparability

C Predictive value and/or confirmatory value

D Faithful representation

Question #38

National Bancorp, a publicly traded company, files quarterly and annual financial statements with the SEC. Which characteristic is relevant to the timing of these periodic filings?

A Neutrality

B Timeliness

C Consistency

D Materiality

Question #39

Allied Appliances, Inc., changed its revenue recognition policies. Which characteristic is jeopardized by this change?

A Consistency

B Timeliness

C Comparability

D Faithful representation

Question #40

Donald Kirk, former chairman of the FASB, once noted that “. . . there must be public confidence that the standard-setting system is credible, that selection of board members is based on merit and not the influence of special interests . . .” Which characteristic is implicit in Mr. Kirk’s statement?

A Timeliness

B Consistency

C Neutrality

D Materiality

Question #41

Which component would allow a large company to record the purchase of a $120 printer as an expense rather than capitalizing the printer as an asset?

A Consistency

B Timeliness

C Neutrality

D Materiality

Question #42

Identify the appropriate financial statement element. Outflow of an asset related to the production of revenue.

A Equity

B Net income

C Expense

D Asset

Question #43

Identify the appropriate financial statement element. An owner’s contribution of cash to a corporation in exchange for ownership shares of stock.

A Comprehensive income

B Asset

C Net income

D Investment by owner

Question #44

Identify the appropriate financial statement element. Revenues plus gains less expenses and losses.

A Equity

B Net income

C Loss

D Gain

Question #45

Identify the appropriate financial statement element. An item owned by the company representing probable future benefits.

A Investment by owner

B Asset

C Net income

D Expense

Question #46

Identify the appropriate financial statement element. The owners’ residual interest in the assets of a company.

A Asset

B Equity

C Investment by owner

D Net income

Question #47

Identify the appropriate financial statement element. Sale of an asset used in the operations of a business for less than the asset’s book value.

A Equity

B Revenue

C Loss

D Distribution to owners

Question #48

Identify the appropriate financial statement element. Increase in equity from peripheral or incidental transaction.

A Equity

B Asset

C Loss

D Gain

Question #49

Identify the appropriate financial statement element. Increase in equity during a period from nonowner transactions.

A Net income

B Asset

C Comprehensive income

D Investment by owner

Question #50

Identify the appropriate financial statement element. The financial position of a company.

A Assets, liabilities and equity

B Gain

C Loss

D Comprehensive income

Question #51

Identify the appropriate financial statement element. Inflow of an asset from providing a good or service.

A Revenue

B Net income

C Investment by owner

D Expense

Question #52

Identify the appropriate financial statement element. Dividends paid by a corporation to its shareholders.

A Assets, liabilities and equity

B Comprehensive income

C Distribution to owners

D Gain

Question #53

Identify the appropriate financial statement element. Obligation to transfer cash or other resources as a result of a past transaction.

A Revenue

B Liability

C Distribution to owners

D Equity

Question #54

For the following situation, (1) indicate whether you agree or disagree with the financial reporting practice employed and (2) state the accounting concept that is applied (if you agree), or violated (if you disagree).
Rockville Engineering records revenue only after products have been shipped, even though customers pay Rockville 50% of the sales price in advance.

A Agree, Expense recognition

B Disagree, Periodicity assumption

C Disagree, Expense recognition

D Agree, Revenue recognition

Question #55

For the following situation, (1) indicate whether you agree or disagree with the financial reporting practice employed and (2) state the accounting concept that is applied (if you agree), or violated (if you disagree).
Reliant Pharmaceutical paid rent on its office building for the next two years and charged the entire expenditure to rent expense.

A Agree, Revenue recognition

B Agree, Expense recognition

C Disagree, Full disclosure principle

D Disagree, Expense recognition

Question #56

For the following situation, (1) indicate whether you agree or disagree with the financial reporting practice employed and (2) state the accounting concept that is applied (if you agree), or violated (if you disagree).
Alliant Semiconductor Corporation files quarterly and annual financial statements with the SEC.

A Agree, Periodicity assumption

B Disagree, Expense recognition

C Agree, Full disclosure principle

D Disagree, Periodicity assumption

Question #57

For the following situation, (1) indicate whether you agree or disagree with the financial reporting practice employed and (2) state the accounting concept that is applied (if you agree), or violated (if you disagree).
Winderl Corporation did not disclose that it was the defendant in a material lawsuit because the trial was still in progress.

A Disagree, Full disclosure principle

B Disagree, Periodicity assumption

C Agree, Expense recognition

D Agree, Full disclosure principle

Question #58

Cash flows during the first year of operations for the Harman-Kardon Consulting Company were as follows: Cash collected from customers, $315,000; Cash paid for rent, $35,000; Cash paid to employees for services rendered during the year, $115,000; Cash paid for utilities, $45,000.

In addition, you determine that customers owed the company $55,000 at the end of the year and no bad debts were anticipated. Also, the company owed the gas and electric company $1,500 at year-end, and the rent payment was for a two-year period.

Calculate accrual net income for the year.

A $155,000

B $178,000

C $200,000

D $191,000

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