Question 1

On May 31,Team Shirts pays a $600 dividend to its shareholders.The dividend ________.

Accepted Answer

A) increases assets by $600 
B) reduces retained earnings by $600 
C) is classified as dividend expense of $600 
D) increases net income by $600

Question 2

GAAP,or generally accepted accounting principles,are the rules for preparing financial statements followed by the accounting profession in the United States.

Accepted Answer

A) True 
 B)False

Question 3

The first financial statement to be prepared at the end of each accounting period is the ________.

Accepted Answer

A) balance sheet 
B) income statement 
C) statement of changes in shareholders' equity 
D) statement of cash flows

Question 4

Clean Sweep agreed to clean an office building on a weekly basis for $1,000 per week.The contract began on August 15,and Clean Sweep cleaned the building twice during August.Clean Sweep received $2,000 cash in September for the cleaning performed in August.How much revenue should Clean Sweep recognize in August using accrual accounting?

Accepted Answer

The answer of Clean Sweep agreed to clean an office...

Question 5

Two characteristics of useful information are comparability and consistency.

Accepted Answer

A) True 
 B)False

Question 6

What are IFRS? How do they compare and contrast with U.S.GAAP?

Accepted Answer

The answer of What are IFRS? How do they compare...

Question 7

State the most applicable accounting rule for each of the following situations.Each rule can be used more than once.An accounting rule can be a principle,assumption,constraint,or information characteristic.
1.Maids-R-Us recorded using supplies in the same period the supplies were used instead of expensing them in the period when they were purchased.
2.Clean Sweep cleaned an office building in October and was paid in November.Revenue was reported in October.
3.Team Shirts sends a set of financial statements prepared in accordance with GAAP to First Bank every month.
4.Mary Ellis,owner of Clean Sweep,has a bank account for her business separate from her personal bank account.
5.Jem's Jewelers purchased a three-month insurance policy on its diamond inventory.The cost of the policy was recorded as an asset.Later one-third of the asset was expensed each month over the three-month policy.

Accepted Answer

The answer of State the most applicable accounting rule for...

Question 8

Accounts payable represents ________.

Accepted Answer

A) amounts owed by the company to suppliers 
B) amounts owed to the company by customers 
C) expenses 
D) shareholders' equity

Question 9

Nikki Okuma is going over the transactions for May.She is having fun running South Seas and is eager to learn more about the accounting aspects of her business.Review the following transactions and explain to Nikki the accounting rules that apply to each situation.
1.South Seas imports items from several Pacific island countries.All of them have different currencies.
2.South Seas imported $10,000 worth of inventory in May and sold $3,000 of it in May.
3.Three customers paid $400 in advance deposits for some carvings to be ordered from Tahiti.
4.Nikki has a personal collection of Balinese puppets which is displayed in her store.

Accepted Answer

The answer of Nikki Okuma is going over the transactions...

Question 10

Expenses are reported on the income statement when the related revenue is recognized.This is the ________ principle.

Accepted Answer

A) historical-cost 
B) full-disclosure 
C) matching 
D) revenue recognition

Question 11

Supplies expense on the Team Shirts' income statement represents only supplies that were used to earn revenue during the accounting period.The accounting rule that applies is the ________.

Accepted Answer

A) going-concern assumption 
B) historical-cost principle 
C) revenue-recognition principle 
D) matching principle

Question 12

The separate-entity concept means that a company and its owners should keep separate records.

Accepted Answer

A) True 
 B)False

Question 13

What is the purpose of generally accepted accounting principles (GAAP)?

Accepted Answer

The answer of What is the purpose of generally accepted...

Question 14

For June,Team Shirts had a beginning balance in its Retained earnings account of $500.Net income for the month was $875.Team Shirts paid dividends of $200.The ending balance in Retained earnings was ________.

Accepted Answer

A) $675 
B) $1,575 
C) $1,175 
D) $1,375

Question 15

Match between columns
                        Premises: Team Shirts reports amounts earned even though cash has not yet been collected.
Team Shirts reports the amounts on its financial statements in dollars.
The expenses incurred by Team Shirts in March were subtracted from March revenues to calculate the profit for March.
Tom has plans to run Team Shirts indefinitely.
Team Shirts reports assets valued at the original transaction price.

Accepted Answer

The Answer of going-concern assumption and revenue-recognition principle and matching is...

Question 16

On January 1,Team Shirts paid $600 for three months' worth of advertising beginning on February 1.What should the balance be in the Prepaid advertising account on April 1?

Accepted Answer

A) $0 
B) $100 
C) $200 
D) $300

Question 17

Max is having a problem understanding the financial statements.He believes that his administrative assistant has made some errors in preparing the income statement.Evaluate the following transactions and the income statement prepared by the administrative assistant.Prepare a corrected income statement using U.S.GAAP.
a.Max's Catering earned $10,000 in catering business during June.
b.Customers paid $2,500 in deposits for parties to be catered in July.
c.The business paid $500 for June rent.
d.The business paid the chef $5,000 in wages for June.
e.The business spent $3,300 on food,spices,and other ingredients,and used $1,500 of them during June.

Accepted Answer

The answer of Max is having a problem understanding the...

Question 18

Cash-basis accounting is the preferred method of accounting according to the FASB.

Accepted Answer

A) True 
 B)False

Question 19

On April 25,Team Shirts paid $1,000 for advertising for May and June.This transaction is a deferral.

Accepted Answer

A) True 
 B)False

Question 20

The IRS developed GAAP,or generally accepted accounting principles,for the accounting profession.

Accepted Answer

A) True 
 B)False

Exam 2: Qualities of Accounting Information

On May 31,Team Shirts pays a $600 dividend to its shareholders.The dividend ________.

GAAP,or generally accepted accounting principles,are the rules for preparing financial statements followed by the accounting profession in the United States.

The first financial statement to be prepared at the end of each accounting period is the ________.

Two characteristics of useful information are comparability and consistency.

What are IFRS? How do they compare and contrast with U.S.GAAP?

Accounts payable represents ________.

Expenses are reported on the income statement when the related revenue is recognized.This is the ________ principle.

Supplies expense on the Team Shirts' income statement represents only supplies that were used to earn revenue during the accounting period.The accounting rule that applies is the ________.

The separate-entity concept means that a company and its owners should keep separate records.

What is the purpose of generally accepted accounting principles (GAAP)?

For June,Team Shirts had a beginning balance in its Retained earnings account of $500.Net income for the month was $875.Team Shirts paid dividends of $200.The ending balance in Retained earnings was ________.

Match the accounting principle or assumption that is most applicable to each of the following.Each term should be used only once.

On January 1,Team Shirts paid $600 for three months' worth of advertising beginning on February 1.What should the balance be in the Prepaid advertising account on April 1?

Cash-basis accounting is the preferred method of accounting according to the FASB.

On April 25,Team Shirts paid $1,000 for advertising for May and June.This transaction is a deferral.

The IRS developed GAAP,or generally accepted accounting principles,for the accounting profession.