The Financial Reporting Process Multiple Choice Questions with Approved Answers (Latest Study Guide Graded A+)

1. The revenue recognition principle states that: A. Revenue should be recognized in the period the cash is received. B. Revenue should be recognized in the period earned. C. Revenue should be recognized in the balanc ...

1. The revenue recognition principle states that: A. Revenue should be recognized in the period the cash is received. B. Revenue should be recognized in the period earned. C. Revenue should be recognized in the balance sheet. D. Revenue is a component of common stock. 2. The matching principle is the principle that states: A. All costs that are used to generate revenue are recorded in the period the revenue is recognized. B. All transactions are recorded at the exchange price. C. The business is separate from its owners. D. The business will continue to operate indefinitely unless there is evidence to the contrary. 3. Which of the following accounting principles states that expenses are recognized in the same period as the revenues they help to generate? A. Accounting equation. B. Revenue recognition. C. Matching principle. D. Conservatism. 4. Air France collected cash on February 4 from the sale of a ticket to a customer on January 26.The flight took place on April 5. According to the revenue recognition principle, in which month should Air France have recognized this revenue? A. January. B. February. C. April. D. Evenly in each of the three months. 3-1 Chapter 03 - The Financial Reporting Process 5. A customer purchased a drill press on November 14 on account from Sears. The drill press was delivered two weeks later. The customer paid for the drill press on December 5. When should Sears record the revenue for this transaction according to the revenue recognition principle? A. November. B. December. C. Evenly in each of the two months. D. One-third in November and two-thirds in December. 6. Which accounting principle states that a company should "record revenues when they are earned"? A. Matching B. Revenue recognition C. Conservatism D. Materiality 7. The primary difference between accrual-basis and cash-basis accounting is: A. The timing of when revenues and expenses are recorded. B. Cash-basis accounting is allowed for financial reporting purposes but not accrual-basis accounting. C. Accrual-basis accounting violates both the revenue recognition and matching principles. D. Adjusting entries are only a necessary part of cash-basis accounting. 8. When the amount of interest receivable decreases during an accounting period: A. Accrual-basis revenues exceed cash collections from borrowers. B. Accrual-basis net income exceeds cash-basis net income. C. Accrual-basis revenues are less than cash collections from borrowers. D. Accrual-basis expenses are less than cash payments to borrowers. 3-2 Chapter 03 - The Financial Reporting Process 9. When the balance of the Unearned Revenue account decreases during an accounting period: A. Accrual-basis revenues exceed cash collections from customers. B. Accrual-basis expenses exceed cash collections from customers. C. Accrual-basis revenues are less than cash collections from customers. D. Accrual-basis net income is less than cash-basis net income. 10. Which transaction would not be recorded under cash-basis accounting? A. Providing services to customers for cash. B. Purchasing one year of rent in advance. C. Paying salaries to employees. D. Purchasing supplies on account. 11. Which of the following statements are correct? A. (1) and (4) B. (2) and (3) C. (1) and (3) D. (2) and (4) 12. On July 1, 2012, Rents-A-Lot Inc. paid $72,000 for 36 months of advance rent on its warehouse. What would be the amount of rent expense in the 2013 financial statements for Rents-A-Lot under both cash-basis and accrual-basis accounting? A. Cash-basis = $24,000; Accrual-basis = $24,000. B. Cash-basis = $72,000; Accrual-basis = $12,000. C. Cash-basis = $0; Accrual-basis = $24,000. D. Cash-basis = $0; Accrual-basis = $12,000. 3-3 Chapter 03 - The Financial Reporting Process 13. The following information pertains to Sooner Company: Assuming that Sooner Company uses cash-basis accounting, when would the company record the expense related to the supplies? A. May 2. B. May 8. C. May 15. D. May 20. 14. The following information pertains to Sooner Company: Assuming that Sooner Company uses accrual-basis accounting, when would the company record the expense related to the supplies? A. May 2. B. May 8. C. May 15. D. May 20. 3-4 Chapter 03 - The Financial Reporting Process 15. Consider the following events for Betterment Incorporated: Under accrual-basis accounting, what is the appropriate day to record the revenues related to lawn services? A. January 1. B. January 7. C. January 9. D. January 12. 16. Consider the following events for Betterment Incorporated: Under accrual-basis accounting, what is the appropriate day to record the expenses related to the gasoline? A. January 1. B. January 7. C. January 12. D. January 13. 3-5 Chapter 03 - The Financial Reporting Process 17. Consider the following events for Betterment Incorporated: Under cash-basis accounting, what is the appropriate day to record the expenses related to the gasoline? A. January 1. B. January 9. C. January 12. D. January 13. 18. Consider the following events for Sophia Incorporated: Under accrual-basis accounting, what is the appropriate day to record the revenues from the sand volleyball camp? A. April 5. B. April 6. C. April 12. D. April 21.