Multiple choice
1. Sarah Jones, a masonry contractor, recently purchased a load of bricks to use in constructing a fireplace in her own home.If she charged the cost to her business, this would clearly violate
a. Conservatism.
b. Economic entity.
c. Going concern.
d. Objectivity.
2. The idea that the economic activities of a company can be identified with relatively brief time periods best describes
a. Going concern.
b. Matching.
c. Periodicity.
d. Economic entity.
3. Revenue is ordinarily recognized when
a. Inventory has been produced.
b. The earning process is substantially complete.
c. An exchange transaction has occurred.
d. Both b and c have taken place.
4. Which accounting principle is being observed when an accountant charges to expense a cost that contributed to revenues during a period?
a. Revenue realization.
b. Matching.
c. Monetary unit.
d. Conservatism.
5. A decision to expense rather than capitalize the cost of a new ash tray could be defended based on
a. Historical cost.
b. Materiality.
c. Monetary unit.
d. Substance over form.
6. Industry practices is a(an)
a. Broad principle.
b. Qualitative characteristic.
c. Modifying convention.
d. Assumption.
7. An index that shows how much the price of farm equipment has
changed over time is called a
a. General price-level index.
b. Consumer price index.
c. Specific price index.
d. Constant dollar index.
8. During a period of inflation, a company that holds cash will have a
a. Purchasing power loss that will be reported in conventional financial statements.
b. Purchasing power loss that will not be reported in conventional financial statements.
c. Purchasing power gain that will be reported in conventional financial statements.
d. Purchasing power gain that will not be reported in conventional financial statements.
9. Which one of the following items is not an essential characteristic of an asset?
a. Assets have historical costs.
b. Assets are the result of transactions or events that have already occurred.
c. Assets embody probable future economic benefits.
d. The economic benefits of assets must accrue to a particular entity.
10. Current exit value in orderly liquidation is based on
a. An expected future transaction.
b. An actual past transaction.
c. A hypothetical present transaction.
d. A hypothetical past transaction.
11. For a liability to exist,
a. There must be a past transaction or event.
b. The exact amount must be known.
c. The identity of the party to whom the liability is owed must be known.
d. There must be an obligation to pay cash in the future.
12. The information shown below pertains to Robin Company, which uses the accrual basis of accounting. The information should be used in the next two questions. Jan. 1, 1989 Purchased an inventory of radios for $4,000.
Dec. 31, 1989 Current cost to replace the inventory of radios is $10,000. Amount of cash that could be received in an orderly liquidation of the radios is $15,000.
Dec. 31, 1990 Sold the inventory of radios for $21,000 on account.
Jan. 30, 1991 Collected the $21,000 from customers.
How much income did Robin Company earn in 1989, 1990, and 1991, respectively, under the historical cost basis of accounting?
a. $0; $0; $17,000.
b. $0; $17,000; $0.
c. $6,000; $6,000; $5,000.
d. $6,000; $11,000; $0.
13. How much income did Robin Company earn in 1989, 1990, and 1991, respectively, under the current exit value basis of accounting? a. $11,000; $6,000; $0.
b. $0; $17,000; $0.
c. $6,000; $11,000; $0.
d. $11,000; $0; $6,000.
14. If a company has $2,000 of prepaid insurance at the beginning of a period, has $3,000 of prepaid insurance at the end of the period, and pays $20,000 of insurance premiums during the period, how much is insurance expense for the period under the accrual basis of accounting?
a. $25,000.
b. $21,000.
c. $20,000.
d. $19,000.
15. If a company has $4,000 of supplies at the beginning of a period, $2,000 of supplies at the end of the period, and $11,000 of supplies expense for the period under the accrual basis of accounting, how much cash was paid for supplies during the period?
a. $9,000.
b. $11,000.
c. $13,000.
d. $15,000.