ACT-240 Quiz #3

One of the accounting concepts upon which adjustments for prepayments and accruals are based is: a. expense recognition b.cost c.monetary unit d. economic entity

a. expense recognition

Receiving payment of a portion of an accounts receivable will : a. not affect total assets b. increase liabilities c. increase stockholders equity d. decrease net income

a. not affect the total assets

The two fundamental qualities of useful information is : a. relevance and faithful representation b. verifiability and timeliness c. compatibility and flexibility d. understandability and consistency

a. relevance and faithful representation

On March 1, 2017 Freeze Company hires a new employee who will starts to work on March 6. The employee will be paid on the last day of each month. Has an accounting transaction occurred on March 6? Why or Why not? a. Yes, the company is now obligated to pay the employee thus an accounting transaction has occurred. b. No, hiring an employee is an important event; however it is not an accounting transaction c. Yes, failure to recognize the event would cause the financial statements to be misleading d. No the financial position of the company has been changed however the dollar amount of the transaction is not yet known

b. No, hiring an employee is an important event however it is not an accounting transaction

Failure to prepare an adjustment at the end of a period to record an accrued revenue would cause: a.net income to be overstated b.an understatement of assets and an understatement of revenues c.an understatement of revenues and an understatement of liabilities d. an understatement of revenues and an overstatement of liabilities

b. an understatement of revenues and an overstatement of liabilities

Valuing assets at their fair value rather than at their cost is an exception to the : a. economic entity assumption b. historical cost principle c. periodicity assumption d. full disclosure principle

b. historical cost principle

At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. Which of the following statements is true? a. salaries and wages expense for the year is overstated b. liabilities at the end of the year are understated c. assets at the end of the year is the understated d. stockholders equity at the end of the year is understated

b. liabilities at the end of the year are understated

At October 1, 2017, Metz industries had an accounts payable balance of $140,000. During the month, the company made purchases on an account of $100,000, and make payments on account of $160,000. At October 31, 2017 the accounts payable balance is : a. $140,000 b. $20,000 c. $80,000 d. $160,000

c. $80,000

A flower shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,000 considered to be recognized? a. December 5 b. December 10 c. November 30 d. December 1

c. November 30

If a company issues common stock for $40,000 and uses $30,000 of the cash to purchase a truck : a. assets will be increased by $10,000 b. equity will be reduced by $40,000 c. assets will be increase by $40,000 d. assets will be unchanged

c. assets will increase by $40,000

Accounting information is relevant to business decisions when it : a. has been verified by an external audit b. is prepared on an annual basis c. confirms prior expectations d. understandability and consistency

c. confirms prior expectations

An adjustment can include a: a. increase to an asset and an increase to a liability b. decrease to a revenue and a decrease to an asset c. decrease to a liability and an increase to a revenue d. increase to an expense and an increase in revenue

c. decrease to a liability and an increase in revenue

Mary Richardo has performed $500 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Mary make? a. increase cash and increase unearned service revenue b. decrease accounts receivable and increase in unearned service revenue c. increase in accounts receivable and increase in service revenue d. decrease in unearned service revenue and increase in service revenue

c. increase in accounts receivable and increase in service revenue

If a company buys a $700 machine on credit, this transaction will affect the: a. income statement and retained earnings statement only b. income statement only c. income statement, retained earnings, and balance sheet d. balance sheet only

d. balance sheet only

The Periodicity Assumption states that a. a transaction can only affect one period of time b. estimates should not be made if a transaction affects more than one time period c. adjustments to the enterprise's accounts can only be made in the time period when the business terminates its operation d. the economic life of a business can be divided into artificial time periods

d. The economic life of a business can be divided into artificial time periods.

A company spends $20 million dollars for an office building. Over what period should the cost be written off? a. when the $20 million is expended in cash b. All in the first year c. After $20 million in revenue is earned d. none of these answers are correct

d. none of the answers are correct

A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause: a. expenses to be overstated b. net income to be overstated c. liabilities to be understated d. revenues to be understated

d. revenues to be understated

The going concern assumption assumes that the business: a. will be liquidated by the near future b. will be purchased by another business c. is in a growth industry d. will remain in operation for the foreseeable future

d. will remain in operation for the foreseeable future