Exam Multiple Choice Questions and Extra Credit Terms

What is unearned revenue?

Liability

MR HC

Principles

TUF VCR

Qualitative Characteristics

The total amount of interest that will be paid on a 5-year, $90,000 note payable at 11% simple annual interest is?

$49,500

Geiss Motorsports sold 50 motorbikes for $1,000 each. The bikes carry a 2-year warranty for repairs. Estimates indicate that repair costs will average 2% of the total selling price. What is the amount that would be recorded in the estimated warranty liabilities account as a result of selling the bikes?

$1,000

On January 1, 2012, the company purchased a ship for $1,000,000. It has a ten-year useful life and a residual value of $100,000. The company uses double-declining-balance method. Compute the amount of depreciation expense for the year ending December 31, 2013.

$160,000

On January 1, 2012, the company purchased a ship for $1,000,000. It has a ten-year useful life and a residual value of $100,000. The company uses double-declining-balance method. Compute the amount of depreciation expense for the year ending December 31, 2012.

$200,000

What is the impact on the accounting of recording a payment to a supplier on account?

Both assets and liabilities decrease

The resources used to earn revenues during a period are called?

Expenses

Relevance

Information has the ability of making a difference in a business decision

Timeliness

Information is timely available to users before it loses its influence

Continuity

The assumption that a company will continue to operate long enough to carry out its existing commitments

Economic Entity

The assumption that each company is accounted for separately from its owners.

Which one of the approaches for allowance procedure emphasizes the net realizable value of accounts receivable on the balance sheet?

The direct write-off method

Which allowance method approach is considered to be an income statement approach to estimating bad debts?

The percentage of accounts receivable approach

Revenue Recognition

The principle that revenue is to be recognized or recorded in the period in which is it earned

Time Period

This assumption allows the life of a company to be divided into artificial time periods so net income can be measured for a specific period of time (e.g., monthly, quarterly, annually).

Monetary Unit

This assumption requires that a company account for and report its financial results in monetary terms (such as U.S. dollar, euro, Japanese yen).

Matching

This principle requires that an expense be recorded and reported in the same period as the revenue that it helped generate

Historical Cost

This principle requires that the activities of a company are initially measured at their cost- the exchange price at the time the activity occurs

Conservatism

This principle states that accountants should take care to avoid overstating assets or income when they prepare financial statements

On January 1, 2012, a company sold a piece of equipment for $30,000 which it had used for several years. The equipment had cost $45,000, and its accumulated depreciation amounted to $20,000 at the time of the sale. What are the net effects on the accounting equation of selling the equipment?

Assets and Shareholders Equity increases $5,000

T/F: Cumulative and participating dividend features are typically associated with preferred stock.

True

T/F: For a merchandising company, the cost of goods sold is subtracted from net sales to arrive at gross profit

True

T/F: The buyer must include goods purchased FOB shipping point in its inventory account if the goods are still in transit.

True

T/F: When merchandise is sold FOB destination, the seller is responsible for the shipping costs.

True

Comparability

Comparable information allows external users to identify similarities and differences between two or more items

Which of the following would appear on an income statement?

Cost of Sales

C MET

Assumptions

Verifiability

Information is verifiable when parties can reach a consensus on the measurement of the activity

Alco Roofing Company's beginning accounts receivable were $200,000 and ending accounts receivable were $270,000. During the period, credit sales totaled $570,000. How much cash was collected from customers?

$570,000

A manufacturing company purchased equipment on January 1, 2004 for $450,000. As of January 1, 2013, depreciation of 202,500 has been recorded on this asset. Depreciation expense for 2013 is $22,500. After the adjustments are recorded and posted at December 31, 2013, what are the balances for the "Equipment" and "Accumulated Depreciation?"

Equipment: $450,000 Accumulated Depreciation: $225,000

Faithful Representation

Information should be complete, including all necessary information needed

Understandability

Making the information easy to comprehend the meaning of