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    Financial accounting principles - matching, revenue recognit

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    1. Accountants have developed two principles to use as guidelines in determining the amount of revenues and expenses to be reported in a given period. These principles are:
    a. Cash basis accounting principle.
    b. Revenue recognition principle.
    c. Matching principle.
    d. Both b and c above.

    2. Which of the following is NOT true concerning cash basis accounting?
    a. Does not follow GAAP.
    b. Records revenue when cash is received.
    c. Matches expenses with the revenues they help to produce.
    d. Records expenses when cash is paid.

    3. In order for revenues to be recorded in the period in which they are earned, and for expenses to be recognized in the period in which they are incurred:
    a. Adjusting entries are made.
    b. Cash basis accounting is used.
    c. Closing entries are made.
    d. None of the above.

    4. Unearned revenues are:
    a. Prepayments.
    b. Liabilities.
    c. Temporary accounts.
    d. Both a and b above.

    5. All of the following are examples of prepaid expenses except:
    a. Prepaid rent.
    b. Prepaid insurance.
    c. Supplies
    d. Unearned revenues.

    6. Depreciation is:
    a. The wearing away of an asset.
    b. The process of an asset becoming obsolete.
    c. A valuation process.
    d. The process of allocating the cost of an asset to expense over its useful life.

    7. Accumulated depreciation is a:
    a. Contra asset account.
    b. Contra revenue account.
    c. Unearned revenue account.
    d. Expense account.

    8. Which of the following companies would probably not have unearned revenue:
    a. Delta Airlines.
    b. Hurst Publishing Company.
    c. Pappa John's Pizza.
    d. All State Insurance Company.

    9. Adjusting entries for accruals:
    a. Are required in order to record revenues earned and expenses incurred in the current accounting period that have not been recognized through daily entries and thus are not yet reflected in the accounts.
    b. Will increase both a balance sheet and an income statement account.
    c. Are not required under GAAP.
    d. Both a and b above.

    10. An assumption that the economic life of a business can be divided into artificial time periods is the:
    a. Cash basis assumption.
    b. Accrual assumption.
    c. Calendar year assumption.
    d. Time period assumption.

    Revenues are normally recognized when the delivery of goods or services has occurred, there is persuasive evidence of an arrangement, the price is fixed or determinable, and collection is reasonably assured. The amount recorded is the sales price. The following transactions occurred in September:

    a. General Motors issued $26 million in new common stock.
    b. Cal State University receives $20,000,000 cash for 80,000 five-game season football tickets. None of the games have been played.
    c. Cal State plays the first football game referred to in b.
    d. Hall Construction Company signs a contract with a customer for the construction of a new $500,000 warehouse. At the signing, Hall receives a check for $50,000 as a deposit to be applied against amounts earned during the first phase of construction. Answer from Hall's standpoint.
    e. A popular snowboarding magazine company receives a total of $1,800 today from subscribers. The subscriptions begin in the next fiscal year. Answer from the magazine company's standpoint.
    f. Sears sells a $100 minifridge to a customer who charges the sale on his store credit card. Answer from the standpoint of Sears.

    For each of the transactions, if revenue is to be recognized in September, indicate the amount. If revenue is not to be recognized in September, explain why.

    Expenses are decreases in a company's resources that occur when the company either (1) incurs a cost that does not benefit future periods, or (2) uses up the economic benefits of existing assets. The following transactions occurred in January.

    a. Sam Shell Dodge pays its salespersons $3,500 in commissions related to December automobile sales. Answer from Sam Shell Dodge's standpoint.
    b. On January 31, Sam Shell Dodge determines that it will pay its salespersons $4,200 in commissions related to January sales. The payment will be made in early February. Answer from Sam Shell Dodge's standpoint.
    c. A new grill is purchased and installed at a McDonald's restaurant at the end of the day on January 31. A $12,000 cash payment is made on that day.
    d. The University of Florida orders 60,000 season football tickets from its printer and pays $6,000 in advance for the custom printing. The first game will be played in September. Answer from the university's standpoint.
    e. A Houston Community College employee works 8 hours, at $15 per hour, on January 31; however, payday is not until February 3. Answer from the college's point of view.
    f. Wang Company paid $3,600 for a fire insurance policy on January 1. The policy covers 12 months beginning on January 1. Answer from Wang's point of view.

    For each of the transactions, if an expense is to be recognized in January, indicate the amount. If an expense is not to be recognized in January, indicate why.

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    Solution Preview

    Please see attached. One of the primary principles for accrual basis accounting is the matching principle. This means you will recognize expenses in the ...

    Solution Summary

    Study guide with review of revenue recognition principles related to the GAAP expectation of matching revenue to expense.