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business
principles financial accounting

Questions and Answers of Principles Financial Accounting

The business entity concept assumes that each business has an existence separate from all parties except its owners. True-False
What is gross margin? Why might management be interested in the percentage of gross margin to net sales?
When the substance of a transaction differs from its legal form, the accountant should record the economic substance True-False
The matching principle is fundamental to the accrual basis of accounting. True-False
(Appendix) After closing entries are posted to the ledger, which types of accounts have balances? Why?
Exceptions to the realization principle include the installment basis of revenue recognition for sales revenue and the completed-contract method for long-term construction projects. True-False
Real World Question Based on the financial statements of Maytag Corporation contained in the annual report booklet, what were the 1996 selling, general, and administrative expenses? For each of the
Immaterial items do not have to be recorded at all. True-False
The conceptual framework project resulted in identifying two primary qualitative characteristics that accounting information should possess-relevance and reliability. True-False
Real World Question Based on the financial statements of The Limited, Inc., contained in the annual report booklet, what were the 1996 cost of goods sold, occupancy, and buying costs? For each of the
The underlying assumptions of accounting include all the following except:a. Business entity.b. Going concern.c. Matching.d. Money measurement and periodicity.
The concept that requires all companies to use the same accounting practices and reporting practices through time is:a. Substance over form.b. Consistency.c. Articulation.d. None of the above.
Real World Question Based on the financial statements of John H. Harland Company contained in the annual report booklet, what was the 1996 income from operations? For each of the three years shown,
Which of the following statements is false regarding the revenue recognition principle?a. Revenue must be substantially earned before it is recognizedb. The accountant usually recognizes revenue
Exceptions to the realization principle include the installment basis of revenue recognition for sales revenue and the completed-contract method for long-term construction projects.
Immaterial items do not have to be recorded at all.
The conceptual framework project resulted in identifying two primary qualitative characteristics that accounting information should possess-relevance and reliability.4. Assume the following facts
Name the assumptions underlying generally accepted accounting principles. Comment on the validity of the stable unit of measurement assumption during periods of high inflation.
Why does the accountant use the business entity concept?
When is the going-concern assumption not to be used?
What is meant by the term accrual basis of accounting? What is its alternative?
What does it mean to say that accountants record substance rather than form?
If a company changes an accounting principle because the change better meets the information needs of users, what disclosures must be made?
What is the exchange-price (or cost) principle? What is the significance of adhering to this principle?
What two requirements generally must be met before recognizing revenue in a period?
Under what circumstances, if any, is the receipt of cash an acceptable time to recognize revenue?
What two methods may be used in recognizing revenues on long-term construction contracts?
Define expense. What principles guide the recognition of expense?
How does an expense differ from a loss?
What role does cost-benefit play in financial reporting?
What is meant by the accounting term conservatism? How does it affect the amounts reported in the financial statements?
Does materiality relate only to the relative size of dollar amounts?
Identify the three major parts of the conceptual frame-
What are the two primary qualitative characteristics? work project.
Real World Question A recent annual report of the American Ship Building Company stated:Revenues, costs, and profits applicable to construction and conversion contracts are included in the
Real World Question A recent annual report of Chevron Corporation stated:Environmental expenditures that relate to current or future revenues are expensed or capitalized as appropriate. Expenditures
The AICPA Special Committee on Financial Reporting issued a report on the information needs of investors and creditors. What was the overriding consideration in making the recommendations? Identify
Identify some of the "lower priority issues" to which the AICPA Special Committee on Financial Reporting recommended standard setters not devote attention at that time.
What is the purpose of including a "Summary of Significant Accounting Policies" in the company's annual report?
Match the items in Column A with the proper descriptions in Column B. Column A Column B 1. Going concern (continuity). a. An assumption relied on in the preparation of the primary 2. Consistency. 3.
Parker Clothing Company sells its products on an installment sales basis. Data for 1999 and 2000 follow:a. Compute the net income for 2000 , assuming use of the accrual (sales) basis of revenue
A company has a contract to build a ship at a price of \(\$ 500\) million and an estimated cost of \(\$ 400\) million. In 1999 , costs of \(\$ 100\) million were incurred. Under the
A company follows a practice of expensing the premium on its fire insurance policy when the policy is paid. In 1999 , the company charged to expense the \(\$ 6,000\) premium paid on a threeyear
A company follows a practice of expensing the premium on its fire insurance policy when the policy is paid. In 1999 , the company charged to expense the \(\$ 6,000\) premium paid on a threeyear
Match the descriptions in Column B with the accounting qualities in Column A. Use some descriptions more than once. Column A: Accounting Qualities 1. Relevance. 2. Feedback value. 3. Decision makers.
Select the best answer to each of the following questions:1. A set of basic concepts and assumptions and related principles that explain and guide the accountant's actions in identifying, measuring,
Nevada Real Estate Sales Company sells lots in its development in Dry Creek Canyon under terms calling for small cash down payments with monthly installment payments spread over a few years.
The following contract prices and costs relate to all of Orlando Construction Company's longterm construction projects (in millions of dollars):General and administrative expenses for 1999 amounted
In each of these circumstances, the accounting practices may be questioned. Indicate whether you agree or disagree with the accounting practice employed and state the assumptions, concepts, or
Select the best answer to each of the following questions: 1. In the conceptual framework project, how many financial reporting objectives were identified by the FASB?a. One.b. Two.c. Three.d. Four.
Select the best answer to each of the following questions:}1. The assumption that each business has an existence separate from its owners, creditors, employees, customers, other interested parties,
Ramirez Video, Inc., sells video recorders under terms calling for a small down payment and monthly payments spread over three years. Following are data for the first three years of the company's
The following data relate to Merit Construction Company's long-term construction projects for the year 1999:General and administrative expenses incurred in 1999 amounted to \(\$ 2\) million, none of
For each of the following numbered items, state the letter or letters of the principle(s), assumption(s), or concept(s) used to justify the accounting procedure followed. The accounting procedures
Match the descriptions in Column B with the proper terms in Column A. Column A 1. Financial reporting Column B a. Information is free of measurement method bias. b. The benefits exceed the costs.
All of the steps in the accounting cycle are performed only at the end of the accounting period. True-False
A transaction must be journalized in the journal before it can be posted to the ledger accounts.True-False
The left side of any account is the credit side.True-False
Revenues, liabilities, and Capital Stock accounts are increased by debits.True-False
The Dividends account is increased by debits.True-False
If the trial balance has equal debit and credit totals, it cannot contain any errors.True-False
When the stockholders invest cash in the business:a. Capital Stock is debited and Cash is credited.b. Cash is debited and Dividends is credited.c. Cash is debited and Capital Stock is credited.d.
Assume that cash is paid for insurance to cover a threeyear period. The recommended debit and credit are:a. Debit Insurance Expense, credit Cash.b. Debit Prepaid Insurance, credit Cash.c. Debit Cash,
A company received cash from a customer in payment for future delivery services. The correct debit and credit are:a. Debit Cash, credit Unearned Delivery Fees.b. Debit Cash, credit Delivery Fee
A company performed delivery services for a customer for cash. The correct debit and credit are:a. Debit Cash, credit Unearned Delivery Fees.b. Debit Cash, credit Delivery Fee Revenue.c. Debit
A cash dividend of \(\$ 500\) was declared and paid to stockholders. The correct journal entry is: a. Capital Stock. Cash... 500 500 b. Cash.. . 500 Dividends. 500 c. Dividends. 500 Cash. 500 d.
Describe the steps in recording and posting the effects of a business transaction.
Give some examples of source documents.
Define an account. What are the two basic forms (styles) of accounts illustrated in the chapter?
What is meant by the term double-entry procedure, or duality?
Describe how you would determine the balance of a T-account.
Define debit and credit. Name the types of accounts that are:a. Increased by a debit.b. Decreased by a debit.c. Increased by a credit.d. Decreased by a credit.Do you think this system makes sense?
Which of the steps in the accounting cycle are performed throughout the accounting period?
Which of the steps in the accounting cycle are performed only at the end of the accounting period?
Why are expense and revenue accounts used when all revenues and expenses could be shown directly in the Retained Earnings account?
What is the purpose of the Dividends account and how is it increased?
Are the following possibilities conceivable in an entry involving only one debit and one credit? Why?a. Increase a liability and increase an expenseb. Increase an asset and decrease a liability.c.
Describe the nature and purposes of the general journal. What does journalizing mean? Give an example of a compound entry in the general journal.
Describe a ledger and a chart of accounts. How do these two compare with a book and its table of contents?
Describe the act of posting. What difficulties could arise if no cross-indexing existed between the general journal and the ledger accounts?
Which of the following cash payments would involve the immediate recording of an expense? Why?a. Paid vendors for office supplies previously purchased on account.b. Paid an automobile dealer for a
What types of accounts appear in the unadjusted tria balance? What are the purposes of this trial balance?
You have found that the total of the Debits column of the trial balance of Burns Company is \(\$ 200,000\), while the total of the Credits column is \(\$ 180,000\). What are some possible causes of
Store equipment was purchased for \(\$ 2,000\). Instead of debiting the Store Equipment account, the debit was made to Delivery Equipment. Of what help will the trial balance be in locating this
A student remembered that the side toward the window in the classroom was the debit side of an account. The student took an examination in a room where the windows were on the other side of the room
A diagram of the various types of accounts follows. Show where pluses \((+)\) or minuses \((-)\) should be inserted to indicate the effect debits and credits have on each account. Asset Accounts
Prepare the journal entry required for each of the following transactions:a. Cash was received for services performed for customers, \(\$ 1,200\).b. Services were performed for customers on account,
Prepare the journal entry required for each of the following transactions:a. Capital stock was issued for \(\$ 100,000\).b. Purchased machinery for cash, \(\$ 30,000\).
Prepare the journal entry required for each of the following transactions:a. Capital stock was issued for \(\$ 200,000\) cash.b. A \(\$ 30,000\) loan was arranged with a bank. The bank increased the
For each of the following unrelated transactions, give the journal entry to record the transaction. Then show how the journal entry would be posted to T-accounts. You need not include explanations or
Explain each of the sets of debits and credits in these accounts for Tuxedos, Inc., a company that rents wedding clothing and accessories. There are 10 transactions to be explained. Each set is
Assume the ledger accounts given in Exercise 2-6 are those of Tuxedos, Inc., as they appear at December 31, 1999. Prepare the trial balance as of that date.
Prepare journal entries to record each of the following transactions for Sanchez Company. Use the letter of the transaction in place of the date. Include an explanation for each entry.a. Capital
Using the data in Exercise 2-8, post the entries to T-accounts. Write the letter of the transaction in the account before the dollar amount. Determine a balance for each account.
Using your answer for Exercise 2-9, prepare a trial balance. Assume the date of the trial balance is March 31, 1999.
John Adams owns and manages a bowling center called Strike Lanes. He also maintains his own accounting records and was about to prepare financial statements for the year 1999. When he prepared the
U.S. Robotics is one of the world's leading suppliers of products and systems that provide access to information. The company designs, manufactures, markets and supports a wide variety of products
Accounting has often been called the language of business. In what respects would you agree with this description? How might you argue that this description is deficient?
Define asset, liability, and stockholders' equity.
How do liabilities and stockholders' equity differ? How are they similar?

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