PROBLEM 2: MULTIPLE CHOICE 1. The concept of recognition is applied in which of the following instances? a. An entity includes the effects of an event in the financial statements through a journal entry. b. An entity removes the effects of an event from the financial statements through a journal entry. 29 Orice of Accounting C An entity discloses only an event in the notes, rather than including the effects of the event in the monetary totals in the financial statements. d. An entity records an event through a memorandum entry. 2. Which of the following events is not considered an exchange or reciprocal transfer? a. purchase of inventory on account b. lending money to another entity c payment of a loan payable d. payment of taxes 3. Which of the following events is considered a nonreciprocal transfer? a. sale of an asset. c. loss from a calamity b. donation d. production of finished goods 4. To be useful, accounting information should be presented using a. monetary amounts. c. historical costs. b. a common denominator. d. fair values. 5. Which of the following violates the historical cost concept? a. Recording purchases of merchandise inventory at the purchase price. b. Recording a building at the total construction costs. c. Measuring inventories at net realizable value. d. Recording an equipment acquired in an installment purchase at the cash price equivalent. 6. Entity A values its fixed assets at their historical costs and does not restate them for changes in the purchasing power of the Philippine pesos due to inflation. Entity A is applying which of the following accounting concepts? a. prudence c. stable monetary unit b. accrual basis d. time period end of the period, Entity A has assets and liabilities 7. Entity A engages in importing and exporting activities. At the denominated in foreign currencies. When preparing in financial statements, Entity A translates these assets and liabilities to pesos. Entity A is most likely to be applying which of the following accounting concepts? a. double entry c. stable monetary unit b. accrual basis d. time period 8. Preparing financial statements at least annually is an application of which of the following accounting concepts? a. historical cost c. stable monetary unit b. accrual basis d. time period 9. Entity A acquires merchandise inventory. Entity A initially records the acquisition cost of the inventory as asset rather than an outright expense. When the inventory is subsequently sold, Entity A recognizes the cost of the inventory sold as expense, in the same period the sale revenue is recognized. This is an application of which of the following accounting concepts? a. stable monetary unit c. matching b. materiality d. proprietary 10. On Day 1, a customer buys goods from Entity A and promises to pay the sale price on Day 30. Entity A recognizes sales revenue on Day 1 rather than on Day 30. This is an application of which of the following accounting concepts? a. prudence C. consistency b. accrual basis d. materiality
