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A Discussion On Accounting Principles

1) Receiving a cash dividend from an available-for-sale investment requires the following journal entry:
A) a debit to Cash and a credit to Dividend Revenue.
B) a debit to Cash and a credit to Unrealized Gain on Investments.
C) a debit to Unrealized Gain on Investment and a credit to Dividend Revenue.
D) no journal entry. Investor makes a memorandum entry in the accounting records.

2) Estimated warranty payable are reported on the balance sheet as:
A) administrative expenses.
B) a long-term liability.
C) a current liability.
D) part of cost of goods sold.

3) The accounting principle requiring that a company record the warranty expense in the same period that it records sales revenue is the:
A) going concern principle.
B) matching principle.
C) conservatism principle.
D) consistency principle.

4) Omaha Bank lends Nebraska Paper Company $100,000 on January 1. Nebraska Paper Company signs a $100,000, 8%, 6-month note. The entry made by Nebraska Paper Company on January 1 to record the proceeds and issuance of the note:

5) Monthly sales were $200,000. Warranty costs are estimated at 4% of monthly sales. In the month of sale, the company should record :

Solution Preview

Let's take a look at each of your study questions.

1) Receiving a cash dividend from an available-for-sale investment requires the following journal entry:
A) a debit to Cash and a credit to Dividend Revenue.
B) a debit to Cash and a credit to Unrealized Gain on Investments.
C) a debit to Unrealized Gain on Investment and a credit to Dividend Revenue.
D) no journal entry. Investor makes a memorandum entry in the accounting records.

-- We would want to credit cash, as we're increasing cash. This is an available for sale (AFS) security. We would want to credit the source of that cash, ...

Solution Summary

This solution illustrates and explains the correct entries needed to solve the problems given. This solution also answers and explains the accounting multiple choice questions listed.

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