Exam 3: The Measurement Fundamentals of Financial Accounting

Match the descriptions listed in letters a through e below with the proper assumption numbered from 1 through 4 below. Descriptions a. The economic life of an entity can be divided into time periods. b. The financial statements should contain transactions related to only the business and not the individual owners. c. Purchasing power of money is constant over time. d. The dollar value attached to an item on a company's balance sheet is determined by the market in which the company operates. e. Life of the entity is indefinite. ____ 1. Economic entity assumption ____ 2. Stable dollar assumption ____ 3. Going concern assumption ____ 4. Fiscal period assumption

On May 1, 2018, $12,000 of annual magazine subscriptions were sold by Glolar, Inc. The subscribed magazines are delivered on the first day of each month beginning on May 1, 2018. The total cost of the subscribed magazines is $3,600 or $300 per month. A. Determine the amount of revenue during 2018. B. Explain how the matching concept is applied relative to the magazines.

On October 1, 2018, $30,000 of annual magazine subscriptions were sold by Cat World Magazines. The total cost of the subscribed magazines is $18,000, equal to $1,500 per month. The subscribed magazines are delivered on the first day of each month beginning on October 1, 2018. What is the amount of the cost of the magazines to be recognized during 2018?

For each financial statement item listed in 1 through 5 below, identify the financial statement valuation (listed in a through f) at which it should be reported. You may use each letter more than once or not at all. Financial Statement Valuations a. Residual value b. Present value c. Original cost d. Fair market value e. Estimated sales price f. Original cost less accumulated depreciation ____ 1. Cash ____ 2. Short-term investments ____ 3. Accounts receivable ____ 4. Long-term liabilities ____ 5. Office building

Equipment with an original cost of $78,000 has a fair market value of $68,000, current replacement cost of $82,000, and a depreciated value of $74,000 on December 31, 2018. At what amount would net equipment be measured on the December 31, 2018 balance sheet?

Why would a company recognize the cost of an asset on its balance sheet rather than treat it as an expense on the date it is acquired?

Three years ago, Astro Masters, Inc. purchased the three assets listed in the following table. The chief financial officer, Bill Moss, is presently trying to decide what to do with each asset. He has three options for each asset: (1) sell it; (2) keep it; and (3) sell it and replace it with an equivalent asset. The following information is provided to aid his decision. Asset Original Cost Replacement Cost Fair Market Value PresentValue of Future Cash Flows Produced by Old Asset Present Value of Future Cash Flows of Equivalent Asset \ 4,500 \ 1,500 \ 2,000 \ 3,000 \ 5,000 \ 2,000 \ 2,500 \ 1,000 \ 3,000 \ 4,500 \ 2,500 \ 4,000 \ 3,500 \ 3,000 \ 6,000 Based on your calculations, what would be the total cash flows associated with selling and replacing Asset C with an equivalent asset?

Three years ago, Astro Masters, Inc. purchased the three assets listed in the following table. The chief financial officer, Bill Moss, is presently trying to decide what to do with each asset. He has three options for each asset: (1) sell it; (2) keep it; and (3) sell it and replace it with an equivalent asset. The following information is provided to aid his decision. Asset Original Cost Replacement Cost Fair Market Value PresentValue of Future Cash Flows Produced by Old Asset Present Value of Future Cash Flows of Equivalent Asset \ 4,500 \ 1,500 \ 2,000 \ 3,000 \ 5,000 \ 2,000 \ 2,500 \ 1,000 \ 3,000 \ 4,500 \ 2,500 \ 4,000 \ 3,500 \ 3,000 \ 6,000 On December 31, 2018, just before preparing the company's financial statements, Bill decides to replace Asset A and keep both Assets B and C. According to generally accepted accounting principles, at what dollar amount should he report each of these respective assets on the balance sheet?

The most common point of revenue recognition is:

Why must measures of performance and financial position be available on a timely basis?

Which one of the following statements best describes the concept of consistency?

Which one of the following is most likely violated if a firm increases the dollar amount reported for unsold inventory on the balance sheet to a cost it anticipates it will have to pay for future inventory items?

Everett, Inc.'s reporting period ends on June 30th every year. This is an example of:

-Jeter Company ordered 400 toy wagons from Lamar, Inc. on May 1, 2018. Jeter Company paid for them on May 20 at a cost of $3 each. Jeter sold 50 of them on June 2, 2018, for $4 each to Gilloz Company. Gilloz Company paid Jeter on June 10. On which date should Jeter Company recognize revenue?

Which one of the following is violated when a firm reports its long-term debt at the present value of the cash flows associated with that debt?

Which one of the following is violated when a company recognizes revenue upon the receipt of cash from a customer who has paid in advance for services?

The stable dollar assumption assumes that:

Technically, the valuation basis used to measure shareholders' equity is: