Test Review

A case of food poisoning occurred in a restaurant. The restaurant is

being sued by a number of its customers who were hospitalized. The

estimated cost that the restaurant is likely to suffer from this lawsuit

is disclosed in a footnote because of the __________ principle.

• Going Concern Principle

• Objectivity Principle

• Full Disclosure Principle

• Consistency Principle

A hotel has traditionally depreciated its furniture and equipment using the straight-line method. This year a different depreciation method was used without advising its financial statement readers of this

change. As a result, it is violating both the __________ principle and the __________ principle.

• Full Disclosure and Matching Principle

• Full Disclosure and Going Concern Principle

• Full Disclosure and Consistency Principle

• Full Disclosure and Objectivity Principle

A motel’s normal payday for employees is every Friday. The year-

end occurs on a Monday. The pay earned by employees for those

three days is recorded in the motel’s accounts because of the

__________ principle.

• Business Entity Principle

• Matching Principle

• Objectivity Principle

• Conservatism Principle

If a hotel estimated expenses to be higher than they actually might

be, this reduces the hotel’s profit and conforms to the _________ principle.

• Going Concern Principle

• Objectivity Principle

• Materiality Principle

• Conservatism Principle

The objectivity principle states that all business transactions should be documented in writing.

• True

• False

The event management business generated $50,000 in revenue but only received $30,000. Cash accounting would record:

• $30,000

• $50,000

• $20,000

• $80,000

The event management business generated $50,000 in revenue but only received $30,000. Accrual accounting would record:

• $30,000

• $50,000

• $20,000

• $80,000

Marketing expense was $500 and all of it was paid. Cash accounting would record:

• $0

• $500

Salaries and wages were $20,000, but only 50% was paid to employees. Accrual accounting would record:

• $0

• $10,000

• $20,000

• $30,000