Question 1

Why is materiality a major problem in accounting?

Accepted Answer

Materiality requires judgments that can

Question 2

Ten years after a company purchases a plot of land, it is reported on the balance sheet at its cost from the year it was purchased instead of its current selling price. This accounting practice is justified by the:

Accepted Answer

A) financial period assumption. 
B) going concern assumption. 
C) fiscal period assumption. 
D) original cost base. 
A) financial period assumption. 
B) going concern assumption. 
C) fiscal period assumption. 
D) original cost base.

Question 3

The valuation basis used to measure accounts payable is:

Accepted Answer

A) fair value. 
B) replacement cost. 
C) face value. 
D) market value. 
A) fair value. 
B) replacement cost. 
C) face value. 
D) market value.

Question 4

Which of the following are exceptions to financial accounting measurement?

Accepted Answer

A) Consistency and conservatism 
B) Objectivity and materiality 
C) Going concern and materiality 
D) Conservatism and materiality 
A) Consistency and conservatism 
B) Objectivity and materiality 
C) Going concern and materiality 
D) Conservatism and materiality

Question 5

Which one of the following is violated when a firm has a policy of accelerating the recognition of depreciation expense during good years and decreasing depreciation expense during lean years?

Accepted Answer

A) Relevance 
B) Matching 
C) Consistency 
D) Conservatism 
A) Relevance 
B) Matching 
C) Consistency 
D) Conservatism

Question 6

On January 27, 2018, Lock Company entered into a three-year agreement with Strong Enterprises to supply 2,000 ounces of platinum for $200 an ounce. During 2018, Lock mined and purified the 2,000 ounces of platinum at a cost of $200,000. The platinum was shipped on January 14, 2019 and arrived on January 15, 2019, at Strong's warehouse. What is Lock's revenue and gross profit recognized during 2018, consistent with the criteria for revenue recognition and the matching concept? Explain.

Accepted Answer

Revenue and gross profit are $

Question 7

On March 1, 2018, $72,000 of annual magazine subscriptions were sold by Traveler's Monthly Magazines. The subscribed magazines are delivered on the first day of each month beginning on March 1, 2018. The total cost of the subscribed magazines is $30,000 or $2,500 per month. How much profit will the company recognize during 2019?

Accepted Answer

A) $5,000 
B) $8,250 
C) $25,000 
D) $2,750 
A) $5,000 
B) $8,250 
C) $25,000 
D) $2,750

Question 8

If a company changes its accounting method, does this mean that consistency is violated?

Accepted Answer

Management must be able to convince the

Question 9

On October 1, 2018, $16,000 of annual magazine subscriptions were sold by Boating Monthly. The subscribed magazines are delivered on the first day of each month beginning on October 1, 2018. The total cost of the subscribed magazines is $6,000 or $500 per monthly delivery. Using the four criteria necessary for revenue recognition, present an argument for not recognizing $10,000 of revenue during 2018.

Accepted Answer

Although during 2018, revenue is objecti

Question 10

Information is considered material if:

Accepted Answer

A) it would have a bearing on decisions of those who use the financial statements. 
B) there is a substantial likelihood that a reasonable investor would not be concerned about the information. 
C) an item is so insignificant that users would likely ignore it. 
D) the FASB explicitly rules the transaction or item to be material. 
A) it would have a bearing on decisions of those who use the financial statements. 
B) there is a substantial likelihood that a reasonable investor would not be concerned about the information. 
C) an item is so insignificant that users would likely ignore it. 
D) the FASB explicitly rules the transaction or item to be material.

Question 11

Sheena Company has accounts receivable of $13,000, with a present value of $10,000 on December 31, 2018. At what amount would the accounts receivable be measured on the December 31, 2018 balance sheet?

Accepted Answer

A) $2,000 
B) $13,000 
C) $10,000 
D) ($2,000) 
A) $2,000 
B) $13,000 
C) $10,000 
D) ($2,000)

Question 12

The valuation basis used to measure short-term investments is:

Accepted Answer

A) fair market value. 
B) replacement cost. 
C) original cost. 
D) present value. 
A) fair market value. 
B) replacement cost. 
C) original cost. 
D) present value.

Question 13

Short-term investments have an original cost of $30,000 and a fair market vallue of $31,000 at December 31, 2018. At what amount would the investments be measured on the December 31, 2018 balance sheet?

Accepted Answer

A) $30,000 
B) $31,000 
C) ($2,000) 
D) $2,000 
A) $30,000 
B) $31,000 
C) ($2,000) 
D) $2,000

Question 14

A company prepares financial statements once every year. What practice does this assumption illustrate?

Accepted Answer

A) Going concern assumption 
B) Fiscal period assumption 
C) The five-year moving theory 
D) Stable dollar assumption 
A) Going concern assumption 
B) Fiscal period assumption 
C) The five-year moving theory 
D) Stable dollar assumption

Question 15

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.
How much revenue should Jeter Company recognize at the preferred point of revenue recognition?

Accepted Answer

A) $240 
B) $100 
C) $1,000 
D) $200 
A) $240 
B) $100 
C) $1,000 
D) $200

Question 16

Which of the following represents two of the four criteria that must be met before revenue can be included in the income statement?

Accepted Answer

A) The amount of revenue must be objectively measurable and the cash must be collected. 
B) The company elects to record the revenue and the cash for payment is relatively certain. 
C) The company must intend to transfer the goods or services to the buyer and the collection of cash must be reasonably assured. 
D) The collection of cash must be reasonably assured and the amount of revenue can be objectively measured. 
A) The amount of revenue must be objectively measurable and the cash must be collected. 
B) The company elects to record the revenue and the cash for payment is relatively certain. 
C) The company must intend to transfer the goods or services to the buyer and the collection of cash must be reasonably assured. 
D) The collection of cash must be reasonably assured and the amount of revenue can be objectively measured.

Question 17

The principle of consistency states that:

Accepted Answer

A) companies should choose a set of accounting methods and use them from one period to the next. 
B) once a company selects an accounting method, it must use that method throughout the company's entire existence. 
C) a company may change any accounting method, provided the SEC approves the change. 
D) companies should elect to use methods that consistently inflate profits. 
A) companies should choose a set of accounting methods and use them from one period to the next. 
B) once a company selects an accounting method, it must use that method throughout the company's entire existence. 
C) a company may change any accounting method, provided the SEC approves the change. 
D) companies should elect to use methods that consistently inflate profits.

Question 18

On December 1, 2018, Karr Company purchased inventory for $54,000. On December 31, 2018, the replacement cost of that inventory is $57,000. At what amount would inventory be measured on the December 31, 2018 balance sheet?

Accepted Answer

The answer of On December 1, 2018, Karr Company purchased...

Question 19

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.
$\begin{array}{|c|c|c|c|c|c|}
\hline \text { Asset } & \begin{array}{c}
\text { Original } \
\text { Cost }
\end{array} & \begin{array}{c}
\text { Replacement } \
\text { Cost }
\end{array} & \begin{array}{c}\text { Fair }\
\text { Market } \
\text { Value }
\end{array} & \begin{array}{c}
\text { PresentValue of Future } \
\text { Cash Flows Produced } \
\text { by Old Asset }
\end{array} & \begin{array}{c}
\text { Present Value of } \
\text { Future Cash Flows } \
\text { of Equivalent Asset }
\end{array} \\hline \mathrm{A} & \$ 4,500 & \$ 1,500 & \$ 2,000 & \$ 3,000 & \$ 5,000 \
\hline \mathrm{B} & \$ 2,000 & \$ 2,500 & \$ 1,000 & \$ 3,000 & \$ 4,500 \
\hline \mathrm{C} & \$ 2,500 & \$ 4,000 & \$ 3,500 & \$ 3,000 & \$ 6,000 \
\hline
\end{array}$
Based on your calculations of total cash flows, which of the following options is the best for Bill to pursue with respect to Asset A?

Accepted Answer

A) Option 1 
B) Option 2 
C) Option 3 
D) Both Options 2 & 3 provide the same total cash flows. 
A) Option 1 
B) Option 2 
C) Option 3 
D) Both Options 2 & 3 provide the same total cash flows.

Question 20

Which one of the following is violated when a firm measures accounts receivable at its face amount even though knowing some customers may not pay the amounts due?

Accepted Answer

A) Consistency 
B) Conservatism 
C) Materiality 
D) Revenue recognition criteria 
A) Consistency 
B) Conservatism 
C) Materiality 
D) Revenue recognition criteria

Why is materiality a major problem in accounting?

Ten years after a company purchases a plot of land, it is reported on the balance sheet at its cost from the year it was purchased instead of its current selling price. This accounting practice is justified by the:

The valuation basis used to measure accounts payable is:

Which of the following are exceptions to financial accounting measurement?

Which one of the following is violated when a firm has a policy of accelerating the recognition of depreciation expense during good years and decreasing depreciation expense during lean years?

If a company changes its accounting method, does this mean that consistency is violated?

Information is considered material if:

Sheena Company has accounts receivable of $13,000, with a present value of $10,000 on December 31, 2018. At what amount would the accounts receivable be measured on the December 31, 2018 balance sheet?

The valuation basis used to measure short-term investments is:

Short-term investments have an original cost of $30,000 and a fair market vallue of $31,000 at December 31, 2018. At what amount would the investments be measured on the December 31, 2018 balance sheet?

A company prepares financial statements once every year. What practice does this assumption illustrate?

Which of the following represents two of the four criteria that must be met before revenue can be included in the income statement?

The principle of consistency states that:

On December 1, 2018, Karr Company purchased inventory for $54,000. On December 31, 2018, the replacement cost of that inventory is $57,000. At what amount would inventory be measured on the December 31, 2018 balance sheet?

Which one of the following is violated when a firm measures accounts receivable at its face amount even though knowing some customers may not pay the amounts due?

Financial Accounting and Its Economic Context

A Closer Look at the Financial Statements

The Mechanics of Financial Accounting

Using Financial Statement Information

The Current Asset Classification, Cash, and Accounts Receivable

Merchandise Inventory

Investments in Equity Securities

Long-Lived Assets

Introduction to Liabilities: Economic Consequences, Current Liabilities, and Contingencies

Long-Term Liabilities: Notes, Bonds, and Leases

Stockholders Equity

The Complete Income Statement

The Statement of Cash Flows

The Time Value of Money

Filters

Exam 3: The Measurement Fundamentals of Financial Accounting

Why is materiality a major problem in accounting?

Ten years after a company purchases a plot of land, it is reported on the balance sheet at its cost from the year it was purchased instead of its current selling price. This accounting practice is justified by the:

The valuation basis used to measure accounts payable is:

Which of the following are exceptions to financial accounting measurement?

Which one of the following is violated when a firm has a policy of accelerating the recognition of depreciation expense during good years and decreasing depreciation expense during lean years?

If a company changes its accounting method, does this mean that consistency is violated?

Information is considered material if:

Sheena Company has accounts receivable of $13,000, with a present value of $10,000 on December 31, 2018. At what amount would the accounts receivable be measured on the December 31, 2018 balance sheet?

The valuation basis used to measure short-term investments is:

Short-term investments have an original cost of $30,000 and a fair market vallue of $31,000 at December 31, 2018. At what amount would the investments be measured on the December 31, 2018 balance sheet?

A company prepares financial statements once every year. What practice does this assumption illustrate?

Which of the following represents two of the four criteria that must be met before revenue can be included in the income statement?

The principle of consistency states that:

On December 1, 2018, Karr Company purchased inventory for $54,000. On December 31, 2018, the replacement cost of that inventory is $57,000. At what amount would inventory be measured on the December 31, 2018 balance sheet?

Which one of the following is violated when a firm measures accounts receivable at its face amount even though knowing some customers may not pay the amounts due?

Financial Accounting and Its Economic Context

A Closer Look at the Financial Statements

The Mechanics of Financial Accounting

Using Financial Statement Information

The Current Asset Classification, Cash, and Accounts Receivable

Merchandise Inventory

Investments in Equity Securities

Long-Lived Assets

Introduction to Liabilities: Economic Consequences, Current Liabilities, and Contingencies

Long-Term Liabilities: Notes, Bonds, and Leases

Stockholders Equity

The Complete Income Statement

The Statement of Cash Flows

The Time Value of Money

Filters