1.
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The following statement is true regarding the difference between reality and the measurement of reality:
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| Errors in measurement distort reality. |
| No matter how accurately the measurement tries to reflect reality, it still is not reality. |
| When earning activities are measured for a specific accounting period reality is distorted. |
| All of the above are true regarding the difference between reality and the measurement of reality. |
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2.
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When a transaction is recorded in the accounting records it is considered --
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| periodicity. |
| matched. |
| recognized. |
| realized. |
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3.
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Cash basis accounting --
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| is the best measure of performance. |
| recognizes revenue only after cash is realized. |
| lacks objectivity. |
| distorts the reality of cash. |
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4.
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Accrual basis accounting --
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| may recognize revenue before cash is received. |
| allows for easy manipulation of revenue and expense. |
| recognizes expense only if paid in cash. |
| all of the above are true. |
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5.
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Bicycle Company purchased 10 bicycles for $100 each which totaled $1,000. During the accounting period 6 bicycles were sold. According to the matching principle --
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| no expense should be recognized. |
| $600 of expense should be recognized. |
| $1,000 of expense should be recognized. |
| can't tell from this information. |
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6.
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On January 1, 2000, a $21,000 machine was purchased. It is estimated the useful life is 5 years and the residual value $1,000. Straight-line depreciation is used. The following statement is true regarding the depreciation of this machine:
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| Depreciation expense of $4,200 is reported on the income statement for the year 2000. |
| Depreciation expense of $4,000 is reported on the balance sheet for the year 2000. |
| The depreciable base of the machine is $20,000. |
| Over the estimated life of the machine $22,000 in cost will be depreciated. |
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7.
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During January $40,000 of wage costs were incurred; $35,000 of the wage costs were paid in January and $5,000 will be paid in February. On the January income statement --
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| $40,000 of wage expense would be reported if using cash basis accounting. |
| $5,000 of wage expense would be reported if using cash basis accounting. |
| $40,000 of wage expense would be reported if using accrual basis accounting. |
| $35,000 of wage expense would be reported if using accrual basis accounting. |
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8.
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On January 31st $90,000 was paid for three months of insurance coverage. Coverage begins February 1st. On the February income statement --
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| no insurance expense would be reported if using cash basis accounting. |
| $90,000 of insurance expense would be reported if using cash basis accounting. |
| no insurance expense would be reported if using accrual basis accounting. |
| $90,000 of insurance expense would be reported if using accrual basis accounting. |
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9.
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The adjustment process --
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| always affects a revenue or expense, but never cash. |
| is used with accrual basis accounting but never with cash basis accounting. |
| attempts to recognize revenues in the accounting period earned, and expenses in the accounting period they benefit. |
| all of the above. |
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10.
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Use the following information to calculate net income for March using cash basis accounting: In March, $200,000 of services was provided to customers, but only $150,000 was received in cash. In February, $40,000 was paid for two months' rent. Received the March utility bill for $5,000 that will be paid in April. Cash basis net income for March is --
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| $110,000. |
| $150,000. |
| $160,000. |
| none of the above. |
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11.
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Use the following information to calculate net income for March using accrual basis accounting: In March, $200,000 of services was provided to customers, but only $150,000 was received in cash. In February, $40,000 was paid for two months' rent. Received the March utility bill for $5,000 that will be paid in April. Accrual basis net income for March is --
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| $155,000. |
| $175,000. |
| $180,000. |
| none of the above. |
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12.
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All of the following statements are correct regarding cash and accrual accounting except --
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| cash basis accounting reports the reality of performance on the income statement. |
| cash basis accounting reports the increase in cash on the income statement. |
| accrual basis accounting reports the reality of performance on the statement of cash flows. |
| accrual basis accounting reports the reality of performance on the income statement. |
