ACC 371 Week 1 Quiz 1

ACC 371 Week 1 Quiz 1| Mercer University

Question 1

Which of these enhancing qualitative characteristics is most closely related to faithful representation?  

Comparability  

Timeliness  

Verifiability  

Both A and B.  

Both B and C.

Question 2

Which of the following statements are true?  

Loss on impairment of intangible asset is an asset and is shown on the balance sheet.  

Loss on impairment of intangible asset is a loss and is shown on the balance sheet.  

Loss on impairment of intangible asset is an equity element and is shown on the stockholders' equity statement.  

Loss on impairment of intangible asset is a loss and is shown on the income statement.  

Loss on impairment of intangible asset is a point in time element shown on the income statement.

Question 3

Carpenter Inc. signs a contract with Delicious Pig Catering Corp. on June 1 in which Delicious Pig agrees to cater a summer office party on July 1 for Carpenter for a total of $25,000. Carpenter is to make an advance payment of $5,000 and will be billed for the balance on July 1, with 30 days to pay.

Assuming both parties follow the terms of the contract and Carpenter pays $20,000 on July 15, when and how much revenue can Delicious Pig recognize from this project?

      June 1        July 1           July 15

    $5,000                                 $20,000

      June 1        July 1           July 15

                           $5,000        $20,000

      June 1        July 1           July 15

                         $25,000

      June 1        July 1           July 15

    $25,000

Question 4

Generally accepted accounting principles  

Were exclusively established by a designated rule-making body, such as the Financial Accounting Standards Board.  

Have mostly been developed in the private sector through the efforts of the American Institute of Certified Public Accounts and the Financial Accounting Standards Board.  

Is not a concern of the Securities and Exchange Commission.  

Both A and B are true.  

Both B and C are true.

Question 5

Which of the following are examples of the correct application/interpretation of the monetary unit assumption?  

Domain Corp. shows land for its offices acquired in 1995 at its original cost in the balance sheet.  

Domain Corp. shows land for its office acquired in 1995 at an inflation-adjusted cost in the balance sheet.  

Domain Corp. routinely adjusts the cost of productive assets to reflect changes in the purchasing power of the dollar.  

Domain Corp. records and reports its sales in Europe in euros and its sales in America in dollars.  

Both A and D are correct examples. 

Question 6

Kinderhook Awnings Corp. discovered that there was a reporting error in the shop supplies account totaling between $5,000 and $13,500. They see they have two options: spend about $35,000 to perform the detailed analysis to come up with the exact amount of the error or record an adjustment of $13,500 to correct the error.

What should Kinderhook do?  

Find the correct amount so that the balance is free from error.  

Find the correct amount because the amount is material.  

Record the adjustment because the amount will be presented in a timely manner. 

Record the adjustment because the cost to determine the correct amount outweighs the benefit.  

Find the correct amount to increase the understandability of the financial statements. 

Rationale: Kinderhook should record the adjustment because the benefit of knowing the exact amount (which will, at most, differ from the maximum error of $13,500 by only $8,800) is far less than the $35,000 cost necessary to produce that benefit.

Question 7

Which of the following are examples of the correct application/interpretation of the going concern assumption?  

The sole shareholder of Montgomery Bay Awnings, Inc. plans to liquidate the business in 15 to 20 years, but still continues to record acquired assets at historical cost.  

4M, a stable company, reports the historical cost of its fixed assets in its balance sheet.  

Trexler, a company filing for liquidation, has restated its balance sheet to show the estimated net realizable value of its assets.

Both B and C are correct examples.  

All the above are correct examples. 

Question 8

Which statement(s) below is (are) true?  

A) Point in time elements are those elements shown on the income statement that affect accounts on the balance sheet.  

B) Period of time elements present the results of events and circumstances.  

C) The balance sheet is comprised of the cumulative ending balances of period of time elements.  

D) Both A and B are true.  

E) Both A and C are true.

Question 9

One GAAP approved measurement model is to require the entity to measure the value of an asset or liability (belonging to certain asset or liability classes) at its fair value. However, fair value of an asset or liability can be estimated using various means.

Which of the following statement(s) is true?  

One requirement of the use of fair value measurement is that preparers must disclose the level of the reliability of the estimate.  

Disclosure of the estimated reliability of fair value measurement estimates consists only of indicating which level of the fair value hierarchy the measurement falls.  

Disclosure related to a Level 1 asset is more extensive than disclosure of a Level 3 asset. 

A, B, and C are true.  

Both A and C are true. 

Question 10

How do gains differ from revenues?  

Gains stem from transactions or certain events and circumstances while revenues stem from ongoing business operations.  

Gains stem from an increase in equity of a firm while revenues stem only from an increase in assets.  

Gains stem from peripheral or incidental transactions while revenues stem from major or central business operations.  

Both A and B are true.  

Both A and C are true.