Exam 3: The Measurement Fundamentals of Financial Accounting

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. On December 31, 2009, 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 he report each of these respective assets on the balance sheet?

Short-term investments have an original cost of $2,500 and a market price of $3,000 at December 31, 2010. At what amount would the investments be measured on the December 31, 2010 balance sheet?

Objective accounting information:

What is the fiscal period assumption and why is it used?

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 most likely violated if 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?

Sheena Company has accounts receivable of $13,000, with an estimated net realizable value of $12,000 on December 31, 2010. At what amount would the accounts receivable be measured on the December 31, 2010 balance sheet?

Most companies prepare annual financial statements:

During January of 2010, Barry Corporation purchased five acres of land for cash of $110,000 from Foley Company. On December 31, 2010, after Barry built its plant, it was estimated that the land's fair market value was $140,000. At what amount would land be measured on Barry's December 31, 2010 balance sheet?

Which one of the following is violated when a department store records revenue for gift certificates sold to customers that are not expected to be redeemed until next year?

On December 31, 2010, total assets and liabilities are measured at $16,000 and $12,000, respectively. The total market value of the company's common stock is $7,000. At what amount would shareholders' equity be measured on the December 31, 2010 balance sheet?

By recognizing the economic effects of inflation on the accounting financial statements, which accounting assumption is ignored?

Why is materiality a major problem in accounting?

On October 1, 2010, $36,000 of annual magazine subscriptions were sold by Motocross Monthly Magazines. The subscribed magazines are delivered on the first day of each month beginning on October 1, 2010. The total cost of the subscribed magazines is $15,000 or $1,250 per month. Determine the amount of revenue and the cost of the magazines to be recognized during 2010 and 2011, respectively. How much profit will the company recognize during 2010 and 2011?

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

Which one of the following reflects the proper inventory valuation on a company's balance sheet?

Ten years after a company purchases a plot of land, it is measured 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:

Jeter Company ordered 400 toy wagons from Lamar, Inc. on May 1, 2010. Jeter Company paid for them on May 20 at a cost of $2 each. Jeter sold 50 of them on June 2, 2010, for $4 each to Gilloz Company. Gilloz Company paid Jeter on June 10. Which amount represents Jeter Company's input markets related to this sale?

The valuation basis used to measure long-term liabilities is:

When in doubt, financial statements should: