Accounting Principles exam with verified correct answers.

The personal assets of the owner of a company will not appear on the company's balance sheet because of which principle/guideline? economic entity Which principle/guideline requires a company's balance sheet to report its land at the amount the company paid to acquire the land, even if the land could be sold today at a significantly higher amount? cost The cost principle requires the accountant to show assets at cost and expenses at cost rather than at higher amounts. Accountants are not allowed to recognize gains from merely holding the land. To be able to recognize a gain on the land, the company would have to sell the land. Which principle/guideline allows a company to ignore the change in the purchasing power of the dollar over time? monetary unit Which principle/guideline requires the company's financial statements to have footnotes containing information that is important to users of the financial statements? full disclosure Which principle/guideline justifies a company violating an accounting principle because the amounts are immaterial? materiality Which principle/guideline is associated with the assumption that the company will continue on long enough to carry out its objectives and commitments? going-concern A very large corporation's financial statements have the dollar amounts rounded to the nearest $1,000. Which accounting principle/guideline justifies not reporting the amounts to the penny? materiality Accountants might recognize losses but not gains in certain situations. For example, the company might write-down the cost of inventory, but will not write-up the cost of inventory. Which principle/guideline is associated with this action? conservatism Conservatism involves choosing between acceptable alternatives. In other words conservatism is used to break a tie between two acceptable choices of how to account for something. It is also associated with recognizing losses but not gains for certain situations. Which principle/guideline directs a company to show all the expenses related to its revenues of a specified period even if the expenses were not paid in that period? matching When the accountant has to choose between two acceptable alternatives, the accountant should select the alternative that will report less profit, less asset amount, or a greater liability amount. This is based upon which principle/guideline? conservatism Conservatism is used in order to 'break a tie'. Accountants should strive to be objective and to use conservatism when doubt exists between two options. Public utilities' balance sheets list the plant assets before the current assets. This is acceptable under which accounting principle/guideline? industry practices A large company purchases a $250 digital camera and expenses it immediately instead of recording it as an asset and depreciating it over its useful life. This practice may be acceptable because of which principle/guideline? materiality A corporation pays its annual property tax bill of approximately $12,000 in one payment each December 28. During the year, the corporation's monthly income statements report Property Tax Expense of $1,000. This is an example of which accounting principle/guideline? matching A company sold merchandise of $8,000 to a customer in December. The company's sales terms require the customer to pay the company in 30 days. The company's income statement reported the sale in December. This is proper under which accounting principle/guideline? revenue recognition Accrual accounting is based on this principle/guideline. matching The creative chief executive of a corporation who is personally responsible for numerous inventions and innovations is not reported as an asset on the corporation's balance sheet. The accounting principle/guideline that prevents the corporation for reporting this person as an asset is cost The cost principle requires that assets and other transactions be recorded at cost. The chief executive was not purchased at a cost and therefore is not reported as an asset on the corporation's balance sheet. The monetary unit assumption is also another reason why the executive is not recorded—we do not know how to measure the executive in U.S. dollars.