Deck 3: The Measurement Framework and Mechanics of Financial Accounting

Question 1

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

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 seller's price to the buyer is fixed or determinable.

Answer 1

The collection of cash must be reasonably assured and the seller's price to the buyer is fixed or determinable.

Question 2

Ramos Company ordered 500 toy wagons from Lamar, Inc.on May 1, 2010.Ramos Company paid for them on May 20 at a cost of $2 each.Ramos sold 50 of them on June 2, 2010, for $5 each to Gilloz Company.Gilloz Company paid Ramos on June 10.

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On which date should Ramos Company recognize revenue?

A) May 1
B) May 20
C) June 10
D) June 2

Answer 2

June 2

Question 3

Ramos Company ordered 500 toy wagons from Lamar, Inc.on May 1, 2010.Ramos Company paid for them on May 20 at a cost of $2 each.Ramos sold 50 of them on June 2, 2010, for $5 each to Gilloz Company.Gilloz Company paid Ramos on June 10.

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

A) $240
B) $700
C) $560
D) $250

Answer 3

$250

Question 4

Ramos Company ordered 500 toy wagons from Lamar, Inc.on May 1, 2010.Ramos Company paid for them on May 20 at a cost of $2 each.Ramos sold 50 of them on June 2, 2010, for $5 each to Gilloz Company.Gilloz Company paid Ramos on June 10.

-
Which amount represents Ramos Company's input markets related to this sale?

A) $300
B) $1,000
C) $1,700
D) $250

Question 5

On October 1, 2010, $18,000 of annual magazine subscriptions were sold by Dog World 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 $9,600, equal to $800 per month.What is the amount of revenue to be recognized during 2010?

A) $18,000
B) $3,000
C) $4,500
D) $8,400

Question 6

On October 1, 2010, $18,000 of annual magazine subscriptions were sold by Dog World Magazines.The total cost of the subscribed magazines is $9,600, equal to $800 per month.The subscribed magazines are delivered on the first day of each month beginning on October 1, 2010.What is the amount of the cost of the magazines to be recognized during 2010?

A) $9,600
B) $8,400
C) $1,600
D) $2,400

Question 7

Jackson Construction built a levee for the state of Mississippi over a three-year period.The contracted price for the levee was $1,200,000.The costs incurred by Jackson and the payments from the state over the three year period are as follows:

- If revenue is recognized when payments are received, which of the following present the net income amounts reported in 2009, 2010, and 2011, respectively?

A) $500,000; $300,000; $400,000
B) $200,000; $100,000; $300,000
C) $400,000; $400,000; $400,000
D) $300,000; $200,000; $100,000

Question 8

Jackson Construction built a levee for the state of Mississippi over a three-year period.The contracted price for the levee was $1,200,000.The costs incurred by Jackson and the payments from the state over the three year period are as follows:

-If revenue is recognized in proportion to the costs incurred by Jackson, how much net income is reported in 2011?

A) $600,000
B) $400,000
C) $300,000
D) $100,000

Question 9

Liabilities are $2,000, retained earnings are $1,000, and contributed capital is $3,000.Assets must be

A) $3,000.
B) $6,000.
C) $5,000.
D) $4,000.

Question 10

During April, Giselle Corp.paid $3,000 on account for supplies that were purchased, recorded, and used during March.In recording this transaction, Giselle will

A) debit Accounts Payable and credit Cash.
B) debit Shareholders' equity and credit Accounts Payable.
C) debit Supplies Expense and credit Accounts Payable.
D) accrue an expense of $3,000.

Question 11

Guadalupe Company sold stock for cash and received cash for services performed during the current month.Which of the following summarizes the income statement impact of these transactions for the current month?

A) Both the sale of stock and the performance of services increased revenues for the company.
B) Only the performance of services caused an increase in revenues.
C) Only the performance of services caused a decrease in revenues.
D) Only the sale of stock caused revenues to increase.

Question 12

The statement of cash flows (direct method) is prepared directly from

A) the balance sheet.
B) the activity in the cash account.
C) the activity in the retained earnings account.
D) the amounts that appear on the income statement.

Question 13

Match the descriptions listed in letters a through e below with the proper assumption numbered from below.

-Economic entity assumption

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.

Question 14

Match the descriptions listed in letters a through e below with the proper assumption numbered from below.

-Stable dollar assumption

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.

Question 15

Match the descriptions listed in letters a through e below with the proper assumption numbered from below.

-Going concern assumption

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.

Question 16

Match the descriptions listed in letters a through e below with the proper assumption numbered from below.

-Fiscal period assumption

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.

Question 17

For each financial concept listed in below, identify in which category (listed in a through f) it should be matched.You may use each letter more than once or not at all.

-Comparability

A) Similar events are measured using identical accounting methods from one period to the next.
B) Expense is recognized in the same period that its generated revenue is recognized.
C) Different firms use identical accounting methods to measure similar events.
D) Present value of future cash flows.
E) Significant portion of effort made; major portion of cost incurred, objectively measured, and reasonably assured of ultimate cash receipt.
F) Reliable measure that is verified by documented evidence.

Question 18

For each financial concept listed in below, identify in which category (listed in a through f) it should be matched.You may use each letter more than once or not at all.

-Objectivity

A) Similar events are measured using identical accounting methods from one period to the next.
B) Expense is recognized in the same period that its generated revenue is recognized.
C) Different firms use identical accounting methods to measure similar events.
D) Present value of future cash flows.
E) Significant portion of effort made; major portion of cost incurred, objectively measured, and reasonably assured of ultimate cash receipt.
F) Reliable measure that is verified by documented evidence.

Question 19

For each financial concept listed in below, identify in which category (listed in a through f) it should be matched.You may use each letter more than once or not at all.

-Revenue recognition criteria

A) Similar events are measured using identical accounting methods from one period to the next.
B) Expense is recognized in the same period that its generated revenue is recognized.
C) Different firms use identical accounting methods to measure similar events.
D) Present value of future cash flows.
E) Significant portion of effort made; major portion of cost incurred, objectively measured, and reasonably assured of ultimate cash receipt.
F) Reliable measure that is verified by documented evidence.

Question 20

For each financial concept listed in below, identify in which category (listed in a through f) it should be matched.You may use each letter more than once or not at all.

-Matching concept

A) Similar events are measured using identical accounting methods from one period to the next.
B) Expense is recognized in the same period that its generated revenue is recognized.
C) Different firms use identical accounting methods to measure similar events.
D) Present value of future cash flows.
E) Significant portion of effort made; major portion of cost incurred, objectively measured, and reasonably assured of ultimate cash receipt.
F) Reliable measure that is verified by documented evidence.

Question 21

For each financial concept listed in below, identify in which category (listed in a through f) it should be matched.You may use each letter more than once or not at all.

-Consistency

A) Similar events are measured using identical accounting methods from one period to the next.
B) Expense is recognized in the same period that its generated revenue is recognized.
C) Different firms use identical accounting methods to measure similar events.
D) Present value of future cash flows.
E) Significant portion of effort made; major portion of cost incurred, objectively measured, and reasonably assured of ultimate cash receipt.
F) Reliable measure that is verified by documented evidence.

Question 22

For each transaction numbered below, identify its effect on the accounting equation by selecting from a through h below.You may use each letter more than once or not at all.

-Purchased computer equipment for cash

A) + A and + L
B) + A and + SE (Contributed Capital)
C) + A and + SE (Retained Earnings)
D) -A and - L
E) -A and - SE (Contributed Capital)
F) - A and - SE (Retained Earnings)
G) + A and - A
H) Not communicated by the formal accounting system

Question 23

For each transaction numbered below, identify its effect on the accounting equation by selecting from a through h below.You may use each letter more than once or not at all.

-Received cash in exchange for the issue of a note payable

A) + A and + L
B) + A and + SE (Contributed Capital)
C) + A and + SE (Retained Earnings)
D) -A and - L
E) -A and - SE (Contributed Capital)
F) - A and - SE (Retained Earnings)
G) + A and - A
H) Not communicated by the formal accounting system

Question 24

For each transaction numbered below, identify its effect on the accounting equation by selecting from a through h below.You may use each letter more than once or not at all.

-Purchased building and land in exchange for a mortgage note payable

A) + A and + L
B) + A and + SE (Contributed Capital)
C) + A and + SE (Retained Earnings)
D) -A and - L
E) -A and - SE (Contributed Capital)
F) - A and - SE (Retained Earnings)
G) + A and - A
H) Not communicated by the formal accounting system

Question 25

For each transaction numbered below, identify its effect on the accounting equation by selecting from a through h below.You may use each letter more than once or not at all.

-Received cash in exchange for the issuance of common stock

A) + A and + L
B) + A and + SE (Contributed Capital)
C) + A and + SE (Retained Earnings)
D) -A and - L
E) -A and - SE (Contributed Capital)
F) - A and - SE (Retained Earnings)
G) + A and - A
H) Not communicated by the formal accounting system

Question 26

For each transaction numbered below, identify its effect on the accounting equation by selecting from a through h below.You may use each letter more than once or not at all.

-Purchased computer supplies on account

A) + A and + L
B) + A and + SE (Contributed Capital)
C) + A and + SE (Retained Earnings)
D) -A and - L
E) -A and - SE (Contributed Capital)
F) - A and - SE (Retained Earnings)
G) + A and - A
H) Not communicated by the formal accounting system

Question 27

For each transaction numbered below, identify its effect on the accounting equation by selecting from a through h below.You may use each letter more than once or not at all.

-Provided computer services to customers for cash

A) + A and + L
B) + A and + SE (Contributed Capital)
C) + A and + SE (Retained Earnings)
D) -A and - L
E) -A and - SE (Contributed Capital)
F) - A and - SE (Retained Earnings)
G) + A and - A
H) Not communicated by the formal accounting system

Question 28

For each transaction numbered below, identify its effect on the accounting equation by selecting from a through h below.You may use each letter more than once or not at all.

-Paid an account payable

A) + A and + L
B) + A and + SE (Contributed Capital)
C) + A and + SE (Retained Earnings)
D) -A and - L
E) -A and - SE (Contributed Capital)
F) - A and - SE (Retained Earnings)
G) + A and - A
H) Not communicated by the formal accounting system

Question 29

For each transaction numbered below, identify its effect on the accounting equation by selecting from a through h below.You may use each letter more than once or not at all.

-Provided computer services to customers on account

A) + A and + L
B) + A and + SE (Contributed Capital)
C) + A and + SE (Retained Earnings)
D) -A and - L
E) -A and - SE (Contributed Capital)
F) - A and - SE (Retained Earnings)
G) + A and - A
H) Not communicated by the formal accounting system

Question 30

For each transaction numbered below, identify its effect on the accounting equation by selecting from a through h below.You may use each letter more than once or not at all.

-Used computer supplies in the regular operations of the business (acquired during a previous accounting period)

A) + A and + L
B) + A and + SE (Contributed Capital)
C) + A and + SE (Retained Earnings)
D) -A and - L
E) -A and - SE (Contributed Capital)
F) - A and - SE (Retained Earnings)
G) + A and - A
H) Not communicated by the formal accounting system

Question 31

For each transaction numbered below, identify its effect on the accounting equation by selecting from a through h below.You may use each letter more than once or not at all.

-Recognize part of the cost of the service potential of the company's computer

A) + A and + L
B) + A and + SE (Contributed Capital)
C) + A and + SE (Retained Earnings)
D) -A and - L
E) -A and - SE (Contributed Capital)
F) - A and - SE (Retained Earnings)
G) + A and - A
H) Not communicated by the formal accounting system

Question 32

For each transaction numbered below, identify its effect on the accounting equation by selecting from a through h below.You may use each letter more than once or not at all.

-Secured a large contract with Allegheny Company to provide computer services during the forthcoming year

A) + A and + L
B) + A and + SE (Contributed Capital)
C) + A and + SE (Retained Earnings)
D) -A and - L
E) -A and - SE (Contributed Capital)
F) - A and - SE (Retained Earnings)
G) + A and - A
H) Not communicated by the formal accounting system

Question 33

For each transaction numbered below, identify its effect on the accounting equation by selecting from a through h below.You may use each letter more than once or not at all.

-Declared and paid dividends to the owners of common stock

A) + A and + L
B) + A and + SE (Contributed Capital)
C) + A and + SE (Retained Earnings)
D) -A and - L
E) -A and - SE (Contributed Capital)
F) - A and - SE (Retained Earnings)
G) + A and - A
H) Not communicated by the formal accounting system

Question 34

On May 1, 2009, $6,000 of annual magazine subscriptions were sold by Sophia, Inc.The subscribed magazines are delivered on the first day of each month beginning on May 1, 2009.The total cost of the subscribed magazines is $3,600 or $300 per month.
A. Determine the amount of revenue during 2009.
B. Explain how the matching concept is applied relative to the magazines.

Question 35

During 2010, Markham Company sold $20,000 of computer chips to a distributor on account.The distributor planned to sell those chips to a German company.The sold chips were shipped to a warehouse owned by Markham and were still there on December 31, 2010.Markham's CFO left two messages for the distributor but received no return calls.The distributor has had no prior dealings with Markham or any other manufacturer of computer chips.None of the past due balance of $20,000 has been paid.How much sales revenue associated with this transaction would be reported on the income statement for the year ending December 31, 2010? Explain your selection.

Question 36

On October 1, 2010, $36,000 of annual magazine subscriptions were sold by Bikers 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?

Question 37

Jarrad Company has been in business several years.During January of 2010, the following transactions occurred:
·Paid employees $5,000 for wages during January.
·Paid $2,000 cash for other operating expenses of which $1,000 related to December and the balance related to January.
·Paid utilities and rent for January in the amount of $1,800.
·Paid a cash dividend to shareholders in the amount of $900 during January.
How much is total Expenses that Jarrad Company will report for January 2010? Why is this amount different than the amount paid during the month?

Question 38

Dakota Company, a corporation, began operations on December 1, 2010.During January of 2011, the following transactions occurred:
·Billed customers $12,000 for services performed during January.
·Received payment from customers in the amount of $6,000 for services performed and billed in December.
·Received cash of $7,000 for services performed during January for customers who paid cash immediately.(No bills were mailed.)
A. How much total Revenue should Dakota Company report for January, 2011?
B. Determine the increase in cash during January of 2011 as a result of these transactions.

Question 39

Dena, Inc.began operations during 2010.During January of 2010, the following transactions occurred:
·Received $80,000 from shareholders as initial investments
·Received cash of $50,000 for services performed during January
·Billed customers an additional $12,000 for services performed during January
·Borrowed $12,000 from NationsBank Company, and signed a one-year note payable
·Paid rent in the amount of $5,000 for January
·Paid dividends in January amounting to $8,000
·Paid wages of $35,000 for January
How much Net Income should Dena, Inc.report for January?

Question 40

Large public accounting firms employ graduates from state-supported universities, many of who are graduates with accounting degrees.These firms' reliance on and use of the product of subsidized educational institutions seem to imply that these colleges and universities are important assets.However, they are not recognized as assets on the balance sheets of these public accounting firms.Which one of the four basic assumptions might be used to justify the exclusion of educational assets from the balance sheets of the public accounting firms?

Question 41

On October 1, 2010, $20,000 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, 2010.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 2010.