Chapter 3 FA

The revenue recognition principle states that:

• a. revenue should be recognized in the accounting period in which a performance obligation is satisfied.

• b. expenses should be matched with revenues.

• c. the economic life of a business can be divided into artificial time periods.

• d. the fiscal year should correspond with the calendar year.

The time period assumption states that:

• a. companies must wait until the calendar year is completed to prepare financial statements.

• b. companies use the fiscal year to report financial information.

• c. the economic life of a business can be divided into artificial time periods.

• d. companies record information in the time period in which the events occur.

Which of the following statements about the accrual basis of accounting is false?

• a. Events that change a company’s financial statements are recorded in the periods in which the events occur.

• b. Revenue is recognized in the period in which services are performed.

• c. This basis is in accordance with International Financial Reporting Standards.

• d. Revenue is recorded only when cash is received, and expense is recorded only when cash is paid.

The principle or assumption dictating that eff orts (expenses) should be recognized in the period in which a company consumes assets or incurs liabilities to generate revenue is the:

• a. expense recognition principle.

• b. cost assumption.

• c. time period assumption.

• d. revenue recognition principle.

Adjusting entries are made to ensure that:

• a. expenses are recognized in the period in which they are incurred.

• b. revenues are recorded in the period in which services are performed.

• c. statement of financial position and income statement accounts have correct balances at the end of an accounting period.

• d. All the responses above are correct.

Each of the following is a major type (or category) of adjusting entries except:

• a. prepaid expenses.

• b. accrued revenues.

• c. accrued expenses.

• d. recognized revenues.

The trial balance shows Supplies €1,350 and Supplies Expense €0. If €600 of supplies are on hand at the end of the period, the adjusting entry is:

• a. Supplies 600

  Supplies Expense 600

• b. Supplies 750

  Supplies Expense 750

• c. Supplies Expense 750

  Supplies 750

• d. Supplies Expense 600

  Supplies 600

Adjustments for prepaid expenses:

• a. decrease assets and increase revenues.

• b. decrease expenses and increase assets.

• c. decrease assets and increase expenses.

• d. decrease revenues and increase assets.

Accumulated Depreciation is:

• a. a contra asset account.

• b. an expense account.

• c. an equity account.

• d. a liability account.

Rivera Shipping computes depreciation on delivery equipment at ¥1,000 (amounts in thousands) for the month of June. The adjusting entry to record this depreciation is as follows.

• a. Depreciation Expense 1,000

  Accumulated Depreciation— Rivera Shipping 1,000

• b. Depreciation Expense 1,000

  Equipment 1,000

• c. Depreciation Expense 1,000

  Accumulated Depreciation— Equipment 1,000

• d. Equipment Expense 1,000

  Accumulated Depreciation— Equipment 1,000