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ACC 304 TestBank _ Questions with Verified Answers
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Exercises for Lesson 1-------------------------
Section 1. Multiple Choice Questions
1. The information provided by financial reporting pertains to
a. individual business enterprises, rather than to industries or an
economy as a whole or to members of society as consumers.
b. business industries, rather than to individual enterprises or an
economy as a whole or to members of society as consumers.
c. individual business enterprises, industries, and an economy as a
whole, rather than to members of society as consumers.
d. an economy as a whole and to members of society as consumers,
rather than to individual enterprises or industries.
2. An effective capital allocation process
a. promotes productivity.
b. encourages innovation.
c. provides an efficient market for buying and selling securities.
d. all of these.
3. Companies that are listed on a stock exchange are required to submit
their financial statements to the
a. AICPA.
b. APB.
c. FASB.
d. SEC.
4. Compared to the accrual basis of accounting, the cash basis of
accounting overstates income by the net increase during the
accounting period of the
Accounts Accrued
Receivable Expenses Payable
——————— —————————
a. No No
b. No Yes
c. Yes No
d. Yes Yes
5. The following information is available concerning the accounts of
Franz Company:
Accounts payable, January 1, 2004 $18,000
Cash payments on account during 2004 75,000
Purchase discounts taken during 2004
on 2004 purchases 1,200
Accounts payable, December 31, 2004 10,000
Assuming the company records purchases at the gross amounts, the
1
, total purchases for 2004 would be
a. $82,200.
b. $65,800.
c. $68,200.
d. $67,000.
-------------------------
Sectin 2. Excercises
6- The Financial Accounting Standards Board was established because
many groups interested in financial reporting believed that the
Accounting Principles Board was not effective. Discuss the apparent
advantages that the FASB should have over its earlier counterpart,
the APB.
7. State the accounting assumption, principle, information character-
istic, or constraint that is most applicable in the following cases.
(1). All payments less than $25 are expensed as incurred. (Do not use
conservatism.) ________________________________
(2). The company employs the same inventory valuation method from
period to period. ________________________________
(3). A patent is capitalized and amortized over the periods benefited.
________________________________
(4). Assuming that dollars today will buy as much as ten years ago.
________________________________
(5). Rent paid in advance is recorded as prepaid rent.
________________________________
(6). Financial statements are prepared each year.
________________________________
(7). All significant post-balance sheet events are reported.
________________________________
(8). Personal transactions of the proprietor are distinguished from
business transactions. ________________________________
Section 3. Problems
8. Yates Company's records provide the following information concerning
certain account balances and changes in these account balances dur-
ing the current year. Transaction information is missing from each
2
,item below.
INSTRUCTIONS
Prepare the ENTRY to record the missing information for each
account. (Consider each independently.)
1. Accounts Receivable: Jan. 1, balance $41,000, Dec. 31,
balance $50,000, uncollectible accounts written off during the
year, $6,000; accounts receivable collected during the year,
$134,000. Prepare the entry to record sales.
2. Allowance for Doubtful Accounts: Jan. 1, balance $4,000,
Dec. 31, balance $7,500, uncollectible accounts written off
during the year, $30,000. Prepare the entry to record bad debt
expense.
3. Accounts Payable: Jan. 1, balance $25,000, Dec. 31, balance
$34,000, purchases on account for the year, $110,000. Prepare
the entry to record payments on account.
4. Interest Receivable: Jan. 1 accrued, $3,000, Dec. 31 accrued,
$2,100, earned for the year, $20,000. Prepare the entry to
record cash interest received.
3
, ANSWER KEY
SECTION 1.
1.A 2.D 3.D 4.B 5.C
SECTI0N 2.
6. (1). Smaller membership. The FASB is composed of seven members,
replacing the relatively large 18-member APB.
(2). Full-time, remunerated membership. FASB members are well-paid,
full-time members, appointed for renewable five-year terms. The
APB members were unpaid and part-time.
(3). Greater autonomy. The APB was a senior committee of the AICPA,
whereas the FASB is not an organ of any single professional
organization. It is appointed by and answerable only to the
Financial Accounting Foundation.
(4). Increased independence. APB members retained their private
positions with firms, companies, or institutions. FASB members
must sever all such ties.
(5). Broader representation. All APB members were required to be CPAs
and members of the AICPA. Currently, it is not necessary to be a
CPA to be a member of the FASB.
7. (1). Materiality constraint.
(2). Consistency characteristic.
(3). Matching principle or going concern assumption.
(4). Monetary unit assumption.
(5). Matching principle or going concern assumption.
(6). Periodicity assumption.
(7). Full disclosure principle.
(8). Economic entity assumption.
8. 1. Ending balance $ 50,000 Ending balance $ 50,000
Beginning balance 41,000 Plus:Rec. collected 134,000
———————— Write-offs 6,000
Difference 9,000 ————————
Uncollectible accts. 6,000 OR 190,000
Receivables coll. 134,000 —— Less: Beg. balance 41,000
———————— ————————
Sales for period $149,000 Sales for period $149,000
Accounts Receivable .................... 149,000
Sales .............................. 149,000
2. Ending balance $ 7,500 Ending balance $ 7,500
Beginning balance 4,000 Write-off 30,000
4
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