Question 1

Why do generally accepted accounting principles require the application of the revenue recognition principle?

1. Accounting software has made the revenue recognition principle easy to apply.
2. Failure to apply the revenue recognition principle could lead to a misstatement of revenue.(v)
3. Recording revenue when cash is received is an objective application of the revenue recognition principle.
4. It is easy to apply the revenue recognition principle because revenue issues are always easy to identify and resolve.

Question 2

A furniture factory's employees work overtime to finish an order that is sold on January 31. The office sends a statement to the customer in early February and payment is received by mid-February. The overtime wages should be expensed in:

1. the period when the workers receive their checks.
2. February.
3. either January or February depending on when the pay period ends.
4. January.(v)

Question 3

Ottos Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized?

1. August 31
2. September 6
3. August 1
4. September 5

Question 4

Which statement is correct?

1. Accumulated Depreciation is used to reveal the value of the related asset on the date of the balance sheet.
2. []Accumulated Depreciation, Equipment represents the total cost of equipment that has expired up to the date of the balance sheet.
3. Accumulated Depreciation is reported on the income adjustment.
4. Accumulated Depreciation is added to the long-term liabilities on the balance sheet.

Question 5

The revenue recognition principle dictates that revenue should be recognized in the accounting records:

1. at the end of the month.
2. []when the performance obligation is satisfied.
3. in the period that income taxes are paid.
4. when cash is received.

Question 6

Which statement is correct?

1. []Assets and liabilities are reported on the balance sheet.
2. Dividends and net income are reported on the balance sheet.
3. Gross profit is reported on the statement of retained earnings.
4. Revenue and expenses are reported on the statement of cash flows.

Question 7

Using accrual accounting, expenses are recorded and reported only:

1. if they are paid after they are incurred.
2. if they are paid before they are incurred.
3. []when they are incurred whether or not cash is paid.
4. when they are incurred and paid at the same time.

Question 8

Expenses are recognized when:

1. the invoice is received.
2. they are billed by the supplier.
3. they are paid.
4. []they contribute to the production of revenue.

Question 9

Depreciation is:

1. a process of valuation that results in the reporting of the fair value of the asset.
2. is a way to report the change in value of an asset.
3. []the process of allocating the cost of the asset to expense over its useful life
4. is a means to reduce net income in order to pay less taxes.

Question 10

Given the following adjusted tabular summary amounts:

Cash $1,662

Accounts receivable 2,098

Inventory 3,124

Prepaid rent 86

Equipment 300

Accumulated depreciation-equipment 52

Accounts payable 82

Unearned service revenue 122

Common stock 206

Retained earnings 6,610

Service revenue 368

Interest revenue 56

Salaries and wages expense 160

Travel expense 66

Net income for the year is:

1. []$198.
2. $370.
3. $596
4. $424.