Acct 201 Ch 3

What are generally accepted accounting principles? a) A set of accounting rules and practices that have authoritative support b) Usually established by the Internal Revenue Service c) The guidelines used to resolve ethical dilemmas d) Fundamental truths that can be derived from the laws of nature

a) A set of accounting rules and practices that have authoritative support All U.S. companies get guidance from a set of rules and practices that have authoritative support, referred to as generally accepted accounting principles (GAAP). Standard-setting bodies, in consultation with the accounting profession and the business community, determine these accounting standards.

What is the primary accounting standard-setting body in the United States? a) Financial Accounting Standards Board b) IFRS c) Securities and Exchange Commission d) Public Company Accounting Oversight Board (PCAOB)

a) Financial Accounting Standards Board The Financial Accounting Standards Board, or the "FASB," is the primary accounting standard-setting body in the U.S.

Which of the following is not a characteristic of relevance? a) Verifiability b) Materiality c) Confirmatory value d) Predictive value

a) Verifiability Verifiability refers to the process or capability of being able to prove or verify that the data is free from error. This is one of the enhancing qualities of useful information.

If an expense is paid with cash a) assets will decrease. b) retained earnings will increase. c) liabilities will increase. d) expenses will decrease.

a) assets will decrease

A paid dividend a) decreases assets and stockholders' equity. b) increases assets and stockholders' equity. c) decreases assets and increases stockholders' equity. d) increases assets and decreases stockholders' equity.

a) decreases assets and stockholders' equity

During 2017, Gibson Company assets decreased $50,000 and its liabilities decreased $90,000. Its stockholders' equity a) increased $40,000. b) decreased $140,000. c) decreased $40,000. d) increased $140,000.

a) increased $40,000 Since assets only decreased $50,000, and liabilities decreased by $90,000, stockholders' equity has to increase by $40,000 to keep the accounting equation balanced.

Collection of a $660 Accounts Receivable a) increases an asset $660; decreases an asset $660. b) decreases a liability $660; increases stockholders' equity $660. c) increases an asset $660; decreases a liability $660. d) decreases an asset $660; decreases a liability $660.

a) increases an asset $660; decreases an asset $660.

At February 1, 2017, the balance in Skysong Inc.'s supplies account was $2870. During February. Skysong purchased supplies of $2460 and used supplies of $3280. At the end of February, the balance in the Supplies account should be a) $2870 b) $2050 c) $8610 d) $3690

b) $2050 Ending supplies account = beginning supplies account + purchased supplies - used supplies

Are prepaid amounts received from customers treated as revenue at the time of receipt? Why or why not? a) No, the amount of revenue cannot be adequately determined until the company completes the work. b) No, revenue cannot be recognized until the work is performed. c) Yes, The intent of the company is to perform the work and the customer is confident that the services will be completed. d) Yes, they are treated as revenue at the time of receipt because the company has access to the cash.

b) No, revenue cannot be recognized until the work is performed.

Genesis Company buys equipment for $900 on account. This transaction will immediately affect the a) income statement only. b) balance sheet only. c) income statement and retained earnings statement only. d) income statement, retained earnings statement, and balance sheet.

b) balance sheet only When equipment is purchased on credit, assets are increased and liabilities are increased. These are both balance sheet accounts.

When collection is made on Accounts Receivable, a) total assets will decrease. b) total assets will remain the same. c) stockholders equity will increase. d) total assets will increase.

b) total assets will remain the same

At October 1, 2017, Blue Industries had an Accounts Payable balance of $162400. During the month, the company made purchases on account of $116000 and made payments on account of $185600. At October 31, 2017, the Accounts Payable balance is a) $185600 b) $162400 c) $92800 d) $23200

c) $92800 Step 1: Accts payable beginning balance + purchases on account - payments on account = accts payable ending balance

On March 1, 2017, Freeze Company hires a new employee who will start 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) Yes, failure to recognize the event would cause the financial statements to be misleading. c) No, hiring an employee is an important event; however it is not an accounting transaction. d) No, the financial position of the company has been changed, however, the dollar amount of the transaction is not yet known.

c) No, hiring an employee is an important event; however it is not an accounting transaction.

Retained earnings is decreased by a) revenues. b) assets. c) expenses. d) owner's investments.

c) expenses The costs that a firm incurs when operating its business (expenses) cause retained earnings to decrease.

The full disclosure principle dictates that: a) financial statements should not be relied on unless an auditor has expressed an unqualified opinion on them. b) financial statements should disclose only those events that can be measured in dollars. c) financial statements should disclose all events and circumstances that would matter to users of financial statements. d) financial statements should disclose all assets at their cost.

c) financial statements should disclose all events and circumstances that would matter to users of financial statements.

If a company issues common stock for $39200 and uses $29400 of the cash to purchase a truck, a) assets will be unchanged. b) assets will be increased by $9800. c) equity will be reduced by $39200. d) assets will be increased by $39200.

d) assets will be increased by $39200

Which of the following items has no effect on retained earnings? a) Expense b) Dividend c) Revenue d) Land purchase

d) land purchases

What type of account is unearned revenue? a) Asset b) Revenue c) Expense d) Liability

d) liability Unearned revenues are payments for future services to be performed or goods to be delivered. Until a company performs the services or delivers the goods, the amount is owed to the party that made the payment.

A company's financial statements may contain errors even if debits and credit balance because a) wrong but equal amounts may have been posted to correct accounts. b) correct but equal amounts may have been posted to wrong accounts. c) wrong but equal amounts may have been posted to wrong accounts. d) of all these reasons.

d) of all these reasons

If services are rendered on account, then a) liabilities will increase. b) assets will decrease. c) liabilities will decrease. d) stockholders' equity will increase.

d) stockholders' equity will increase