Intermediate Accounting ,With Retionale Q & A /Solution
A+.
Materiality - CORRECT ANSWERS-Record expenses in the period the related revenue
is recognized.
Realization principle - CORRECT ANSWERS-The original transaction value upon
acquisition.
Going concern assumption - CORRECT ANSWERS-All information that could affect
decisions should be reported.
Monetary unit assumption - CORRECT ANSWERS-The life of an enterprise can be
divided into artificial time periods.
Economic entity assumption - CORRECT ANSWERS-Criteria usually satisfied at point
of sale.
Full-disclosure principle - CORRECT ANSWERS-Concerns the relative size of an item
and its effect on decisions.
Pastel Paint Company purchased land two years ago at a price of $250,000. Because
the value of the land has appreciated to $400,000, the company has valued the land at
$400,000 in its most recent balance sheet. - CORRECT ANSWERS-The historical cost
(original transaction value) principle
Loss - CORRECT ANSWERS-Sale of an asset used in the operations of a business for
less than the asset's book value.
Equity - CORRECT ANSWERS-The owners' residual interest in the assets of a
company.
Asset - CORRECT ANSWERS-An item owned by the company representing probable
future benefits.
Net income - CORRECT ANSWERS-Revenues plus gains less expenses and losses.
Investment by owner - CORRECT ANSWERS-An owner's contribution of cash to a
corporation in exchange for ownership shares of stock.
Expense - CORRECT ANSWERS-Outflow of an asset related to the production of
revenue.
Economic entity assumption - CORRECT ANSWERS-The enterprise is separate from
its owners and other entities.
, Periodicity - CORRECT ANSWERS-A common denominator is the dollar.
Historical cost principle - CORRECT ANSWERS-The entity will continue indefinitely.
Atwell Corporation has not prepared financial statements for external users for over
three years. - CORRECT ANSWERS-The periodicity assumption
The Klingon Company sells farm machinery. Revenue from a large order of machinery
from a new buyer was recorded the day the order was received. - CORRECT
ANSWERS-The realization (revenue recognition) principle
Don Smith is the sole owner of a company called Hardware City. The company recently
paid a $150 utility bill for Smith's personal residence and recorded a $150 expense. -
CORRECT ANSWERS-The economic entity assumption
Golden Book Company purchased a large printing machine for $1,000,000 (a material
amount) and recorded the purchase as an expense. - CORRECT ANSWERS-The
matching principle; materiality
Ace Appliance Company is involved in a major lawsuit involving injuries sustained by
some of its employees in the manufacturing plant. The company is being sued for
$2,000,000, a material amount, and is not insured. The suit was not disclosed in the
most recent financial statements because no settlement had been reached. -
CORRECT ANSWERS-The full disclosure principle
One of the elements that many believe distinguishes a profession from other
occupations is the acceptance of responsibility by its members for the interest of those it
serves, which is often articulated in: - CORRECT ANSWERS-its code of ethics
The enhancing qualitative characteristic of understand ability means that information
should be understood by - CORRECT ANSWERS-those who have a reasonable
understanding of business and economic activities
Revenue is recognized only after certain criteria are satisfied. - CORRECT ANSWERS-
Realization principle
Information that could affect decision making should be reported. - CORRECT
ANSWERS-Full-disclosure principle
Cause-and-effect relationship between revenues and expenses. - CORRECT
ANSWERS-Matching principle
The basis for measurement of many assets and liabilities. - CORRECT ANSWERS-
Historical cost principle
A+.
Materiality - CORRECT ANSWERS-Record expenses in the period the related revenue
is recognized.
Realization principle - CORRECT ANSWERS-The original transaction value upon
acquisition.
Going concern assumption - CORRECT ANSWERS-All information that could affect
decisions should be reported.
Monetary unit assumption - CORRECT ANSWERS-The life of an enterprise can be
divided into artificial time periods.
Economic entity assumption - CORRECT ANSWERS-Criteria usually satisfied at point
of sale.
Full-disclosure principle - CORRECT ANSWERS-Concerns the relative size of an item
and its effect on decisions.
Pastel Paint Company purchased land two years ago at a price of $250,000. Because
the value of the land has appreciated to $400,000, the company has valued the land at
$400,000 in its most recent balance sheet. - CORRECT ANSWERS-The historical cost
(original transaction value) principle
Loss - CORRECT ANSWERS-Sale of an asset used in the operations of a business for
less than the asset's book value.
Equity - CORRECT ANSWERS-The owners' residual interest in the assets of a
company.
Asset - CORRECT ANSWERS-An item owned by the company representing probable
future benefits.
Net income - CORRECT ANSWERS-Revenues plus gains less expenses and losses.
Investment by owner - CORRECT ANSWERS-An owner's contribution of cash to a
corporation in exchange for ownership shares of stock.
Expense - CORRECT ANSWERS-Outflow of an asset related to the production of
revenue.
Economic entity assumption - CORRECT ANSWERS-The enterprise is separate from
its owners and other entities.
, Periodicity - CORRECT ANSWERS-A common denominator is the dollar.
Historical cost principle - CORRECT ANSWERS-The entity will continue indefinitely.
Atwell Corporation has not prepared financial statements for external users for over
three years. - CORRECT ANSWERS-The periodicity assumption
The Klingon Company sells farm machinery. Revenue from a large order of machinery
from a new buyer was recorded the day the order was received. - CORRECT
ANSWERS-The realization (revenue recognition) principle
Don Smith is the sole owner of a company called Hardware City. The company recently
paid a $150 utility bill for Smith's personal residence and recorded a $150 expense. -
CORRECT ANSWERS-The economic entity assumption
Golden Book Company purchased a large printing machine for $1,000,000 (a material
amount) and recorded the purchase as an expense. - CORRECT ANSWERS-The
matching principle; materiality
Ace Appliance Company is involved in a major lawsuit involving injuries sustained by
some of its employees in the manufacturing plant. The company is being sued for
$2,000,000, a material amount, and is not insured. The suit was not disclosed in the
most recent financial statements because no settlement had been reached. -
CORRECT ANSWERS-The full disclosure principle
One of the elements that many believe distinguishes a profession from other
occupations is the acceptance of responsibility by its members for the interest of those it
serves, which is often articulated in: - CORRECT ANSWERS-its code of ethics
The enhancing qualitative characteristic of understand ability means that information
should be understood by - CORRECT ANSWERS-those who have a reasonable
understanding of business and economic activities
Revenue is recognized only after certain criteria are satisfied. - CORRECT ANSWERS-
Realization principle
Information that could affect decision making should be reported. - CORRECT
ANSWERS-Full-disclosure principle
Cause-and-effect relationship between revenues and expenses. - CORRECT
ANSWERS-Matching principle
The basis for measurement of many assets and liabilities. - CORRECT ANSWERS-
Historical cost principle
