FPA Final Set 4

12. Consider the following terms, Land, Accounts Receiveable Notes Payable Accounts Payable retained earnings prepaid rent unearned reveue buildings notes payable equipment How may are long term assets?

3. are long term (land, buildings, and equipment)

8. Prepayments occur when: A. Cash payment (or an obligation to pay cash) occurs before the expense recognition. B. Sales are delayed pending credit approval. C. Customers are unable to pay the full amount due when goods are delivered. D. Cash payment occurs after the expense is incurred and liability is recorded

A. Cash payment (or an obligation to pay cash) occurs before the expense recognition

2. A customer purchased a drill press on November 14 on account from Sears. The drill press was delivered two weeks later. The customer paid for the drill press on December 5. When should Sears record the revenue for this transaction according to the revenue recognition principle? A. November. B. December. C. Evenly in each of the two months. D. One-third in November and two-thirds in December.

A. November

4. The primary difference between accrual-basis and cash-basis accounting is: A. The timing of when revenues and expenses are recorded. B. Cash-basis accounting is allowed for financial reporting purposes but not accrual-basis accounting. C. Accrual-basis accounting violates both the revenue recognition and matching principles. D. Adjusting entries are only a necessary part of cash-basis accounting

A. The timing of when revenues and expenses are recorded

11. The following financial information is from Shovels Construction Company for 2012: What is the amount of current assets, assuming the accounts above reflect normal activity? A. $20,000. B. $60,000. C. $140,000. D. $175,000. Cash ($10,500), Accounts Receivable ($9,500), and Supplies ($40,000) are normally current assets.

B. $60,000

3. Which accounting principle states that a company should "record revenues when they are earned"? A. Matching B. Revenue recognition C. Conservatism D. Materiality

B. Revenue Recognition

1. The revenue recognition principle states that: A. Revenue should be recognized in the period the cash is received. B. Revenue should be recognized in the period earned. C. Revenue should be recognized in the balance sheet. D. Revenue is a component of common stock.

B. Revenue should be recognized in the period earned.

19. A list of all accounts and their balances after posting closing entries is referred to as: A. A trial balance. B. An adjusted trial balance. C. A post-closing trial balance. D. An accounting trial balance.

C. A post-closing trial balance

10. Resources owned by the company that will provide a benefit for more than one year are called: A. Current assets. B. Current liabilities. C. Long-term assets. D. Revenues.

C. Long term assets

6. Making insurance payments in advance is an example of: A. An accrued revenue. B. An accrued expense. C. An unearned revenue. D. A prepaid expense.

D. A prepaid expense

7. When a magazine sells subscriptions to customers, it is an example of: A. An accrued expense. B. An accrued revenue. C. A prepaid expense. D. An unearned revenue.

D. An unearned revenue

9. Which of the following is(are) true regarding the characteristics of adjusting entries? A. Adjusting entries reduce the balance of revenue, expense, and dividend accounts to zero. B. Adjusting entries allow for the proper application of the revenue recognition principle. C. Adjusting entries allow for the proper application of the matching principle. D. Both b and c are true.

D. Both b and c are true

21. The revenue recognition principle states that we record revenue in the period in which we collect cash.

False

23. Jones Corporation provides services to a customer on June 17, but the customer does not pay for the services until August 12. According to the revenue recognition principle, Jones Corporation should record the revenue on August 12.

False

28. Under cash-basis accounting, if a company provides services to a customer in the current year but does not collect cash until the following year, the company should report the revenue in the current year.

False

32. Adjusting entries should be prepared after financial statements are prepared.

False

34. Unearned revenues occur when cash is received after the revenue is earned.

False

38. Current assets are assets that provide a benefit to a company over more than one year.

False

43. The components of retained earnings include assets, expenses, and dividends.

False

20. Accrual-basis accounting involves recording revenues when earned and recording expenses with their related revenues

True

22. According to the revenue recognition principle, if a company provides services to a customer in the current year but does not collect cash until the following year, the company should report the revenue in the current year.

True

24. The matching principle states that we recognize expenses in the same period as the revenues they help to generate

True

25. According to the matching principle, if costs associated with producing revenue in the current year are not paid in cash until the following year, the costs should be expensed in the current year.

True

26. Under cash-basis accounting, we record revenues at the time we receive cash and expenses at the time we pay cash.

True

27. Under cash-basis accounting, the timing of cash inflows and outflows exactly matches the reporting of revenues and expenses in the income statement.

True

29. Under cash-basis accounting, if costs associated with producing revenue in the current year are not paid in cash until the following year, the costs should be expensed in the following year.

True

30. Because cash-basis accounting violates both the revenue recognition principle and the matching principle, it is generally not accepted in preparing financial statements.

True

31. Adjusting entries involve recording events that have occurred but that have not yet been recorded by the end of the period.

True

33. Prepaid expenses involve payment of cash (or an obligation to pay cash) for the purchase of an asset before the expense is incurred.

True

35. At December 31, 2012, a company has received, but not paid, a utility bill for $250. The amount of utility expense for the current period equals $250.

True

36. Once the adjusted trial balance is complete, financial statements are prepared.

True

37. A classified balance sheet separates assets into current and long-term, and separates liabilities into current and long-term.

True

39. Long-term assets are assets that provide a benefit to a company for more than one year.

True

40. Current liabilities are liabilities due within one year.

True

42. Long-term asset categories include investments; property, plant, and equipment; and intangible assets.

True

44. If the beginning balance of Retained Earnings equals $12,000, the ending balance of Retained Earnings equals $15,000, and dividends for the year equal $1,000, then net income for the year equals $4,000.

True

What is the amount of current liabilities?

Unearned revenue, accounts payable, and interest payable (28,000)

5. Which of the following statements are correct? For Accrual based accounting 1. Record Revenues when earned 2. Record expenses when cash is paid For cash-basis accounting 3. Record revenue when cash is received 4. record expenses when benefit is received

c. 1 and 3

41. Long-term liabilities are liabilities due in more than one year.

true