Accrual Accounting F5 Quiz

25 Questions | Total Attempts: 2410

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Accrual Accounting F5 Quiz

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Questions and Answers
  • 1. 
    According to the FASB, a company that wishes to comply with GAAP will use:
    • A. 

      The cash basis, since the accrual basis takes the focus off of the company’s cash flows

    • B. 

      Either basis, depending on which results the company wants to give to financial statement users

    • C. 

      The cash basis of accounting for small companies only

    • D. 

      The accrual basis of accounting

  • 2. 
    The systematic and rational allocation of the cost of a long-lived item from asset to expense is called:
    • A. 

      Matching

    • B. 

      Recognition

    • C. 

      Depreciation

    • D. 

      Realization

  • 3. 
    Accrual accounting focuses on the:
    • A. 

      Earnings process

    • B. 

      Legal considerations of the business entity

    • C. 

      Articulation of the financial statements

    • D. 

      Cash flows of the business

  • 4. 
    When the relationship between revenue and expenses has no direct cause and effect, the expense can be immediately recognized:
    • A. 

      When allocation of the cost of a purchased item provides no additional useful information

    • B. 

      If an item has no discernable future benefit

    • C. 

      Answers a and b are both correct

    • D. 

      None of these answers is correct

  • 5. 
    Jason pays $180 for insurance coverage on his motorcycle for a three-month policy starting June 1. If Jason makes this payment on June 1, what is the amount of deferred revenue the insurance company will have remaining at the end of July?
    • A. 

      $90

    • B. 

      $0

    • C. 

      $60

    • D. 

      $120

  • 6. 
    Under accrual accounting we recognize revenue when it is:
    • A. 

      Received, no matter when it is earned

    • B. 

      Earned, as long as payment for it occurs in the same time period

    • C. 

      Earned, no matter when payment for it is received

    • D. 

      Received, as long as payment for it occurs in the same time period

  • 7. 
    Which statement below is incorrect regarding cash basis revenue recognition?
    • A. 

      A company recognizes revenue only when it receives the associated cash with the transaction.

    • B. 

      Cash basis accounting considers only cash received as a result of the earnings process to be revenue.

    • C. 

      When a business borrows money, the cash it receives is a liability, not a revenue.

    • D. 

      Under cash basis accounting, we recognize revenue only when we earn revenues.

  • 8. 
    When the estimated life of an asset is less than the physical life of the asset, it probably will have a:
    • A. 

      Salvage value

    • B. 

      Residual value

    • C. 

      Scrap value

    • D. 

      All of these answers are correct.

  • 9. 
    From the seller’s standpoint, an example of money that is owed to a business from a legally enforceable claim for goods or services provided is:
    • A. 

      A receivable

    • B. 

      Cash

    • C. 

      Answers b and d are both correct.

    • D. 

      Inventory

  • 10. 
    Which item below is considered an expense on the income statement under the cash basis?
    • A. 

      A dividend paid in cash to stockholders

    • B. 

      A liability incurred to pay employee wages

    • C. 

      Depreciation expense

    • D. 

      Buying copy paper for cash from a local office supply store

  • 11. 
    Two criteria are required for a firm to recognize revenue under accrual accounting. One is that the revenue must be earned and the other is that it must:
    • A. 

      Be realizable

    • B. 

      Be paid before earning

    • C. 

      Have received cash

    • D. 

      None of these answers is correct.

  • 12. 
    The first step in the accrual matching process is:
    • A. 

      To determine which expenses helped to generate specific revenue

    • B. 

      To determine in which income statement period a company should recognize a particular revenue

    • C. 

      To match those expenses paid in the same period with the revenues received in cash during the same period

    • D. 

      To recognize only those expenses actually paid in the same period as the revenue they helped to generate

  • 13. 
    Mondragon’s Pet Store has purchased a cash register for $2,500. Charlie Mondragon plans to use the cash register for five years at which time he thinks he will be able to sell it for $400. How much is the depreciation expense each year under straight-line method?
    • A. 

      $420

    • B. 

      $500

    • C. 

      $410

    • D. 

      $400

  • 14. 
    The Cold Storage Company has one delivery truck. It paid $24,000 cash for the truck on January 1, 200X. Cold Storage estimates that the truck will be worth $4,000 in five years, at the end of its useful life. Cold Storage will use straight-line depreciation to recognize the appropriate cost of the truck each income statement period. Using accrual accounting, the amount of depreciation Cold Storage will show on its income statement on December 31, 200X, is:
    • A. 

      $4,000

    • B. 

      $20,000

    • C. 

      $4,800

    • D. 

      $24,000

  • 15. 
    When dealing with an asset, the phase “allocation to the periods benefited” means:
    • A. 

      There is a direct cause-and-effect relationship between revenues and expense

    • B. 

      The item has no discernible benefit to future income statement periods

    • C. 

      The expense will generally be recognized in the period after the revenue it helped to produce is recognized

    • D. 

      That the cost of the asset is transferred from the balance sheet to the income statement as time passes

  • 16. 
    The basic approach(es) to recording economic activity is(are):
    • A. 

      The true net income basis

    • B. 

      The cash basis and the accrual basis

    • C. 

      The cash basis

    • D. 

      The accrual basis

  • 17. 
    Adam’s Chili Bowl and Space Burgers purchases a grill for $5,000. The company expects to use it for four years. If the company thinks that it can sell the grill at the end of the fourth year for $500, how much is the annual depreciation expense of the grill using straight-line method of depreciation?
    • A. 

      $1,250

    • B. 

      $4,500

    • C. 

      $1,125

    • D. 

      $500

  • 18. 
    The amount of the cost of the long-lived asset that is never allocated to the periods in which the asset provides benefit to a company is called the:
    • A. 

      Residual value

    • B. 

      Purchase price

    • C. 

      Depreciation expense

    • D. 

      Depreciable base

  • 19. 
    When no direct cause and effect exists between revenues and expenses, and no future benefit from the expense is discernible, then this expense should be:
    • A. 

      Recognized immediately

    • B. 

      Depreciated

    • C. 

      Ignored

    • D. 

      Allocated to future periods

  • 20. 
    Reality and the measurement of reality are not the same thing. Which activity listed below is not an actual business event but a measurement of an actual business event?
    • A. 

      Paying employees

    • B. 

      Purchasing inventory

    • C. 

      Recording a check in the check register

    • D. 

      Providing services

  • 21. 
    A situation where the cash has either been received or paid, but the income statement effect is delayed until a later period is a(n):
    • A. 

      Deferral

    • B. 

      Error

    • C. 

      Realization

    • D. 

      Accrual

  • 22. 
    Mr. and Mrs. Jacobi pay Johnny Elam of Elam’s Landscaping $75 in June to mow their lawn during July while they are on vacation. For the month of June, Mr. and Mrs. Jacobi should recognize this as a (n):
    • A. 

      Deferred expense

    • B. 

      Accrued revenue

    • C. 

      Accrued expense

    • D. 

      Deferred revenue

  • 23. 
    For the month of January, the Cold Storage Company paid its employees $11,000 in wages. Cold Storage owes its employees $2,500 for work done during January which has not yet been paid. Under accrual accounting, Cold Storage’s wage expense for January is:
    • A. 

      $2,500

    • B. 

      $4,000

    • C. 

      $13,500

    • D. 

      $11,000

  • 24. 
    The accounting principle that relates the expenses to the revenues for a particular income statement period is known as the:
    • A. 

      Realization principle

    • B. 

      Recognition principle

    • C. 

      Depreciation principle

    • D. 

      Matching principle

  • 25. 
    A weakness of the accrual basis accounting system is that it takes the focus off of:
    • A. 

      Stock

    • B. 

      Inventory

    • C. 

      Notes payable

    • D. 

      Cash

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