Multiple Choice Questions on Accounting Principles

FASB

The body that has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction.

Conceptual Framework Theme

The underlying theme of the conceptual framework is decision-usefulness.

Relevance Characteristic

A characteristic describing the fundamental quality of relevance is predictive value.

Faithful Representation Ingredient

An ingredient of faithful representation is neutrality.

Enhancing Quality Example

A company issuing its annual financial reports within one month of the end of the year is an example of timeliness.

Revenues vs Gains Distinction

The primary distinction between revenues and gains is the nature of the activities that gave rise to the transactions involved.

Comprehensive Income Component

Distributions to owners is not a component of comprehensive income.

Materiality Usage

Materiality is not used where it would not make a difference in the actions of a decision-maker.

Revenue Recognition Principle

Revenue is recognized in the accounting period in which the performance obligation is satisfied.

Full Disclosure Violation

If a company decides not to include information about major litigation that it may lose, it is violating the full disclosure principle.

Deferral Definition

A deferral occurs when cash is received before revenue is recognized.

Accrued Revenue or Expense

When revenue or expense has been recognized or incurred but not yet collected or paid, it is normally called an accrued revenue or expense.

Purpose of Closing Entries

The purpose of closing entries is to reduce the balances of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period.

Gross Profit Calculation

Gross profit is equal to net sales minus cost of goods sold.

Adjusting Entry for Rent

The December 31, 2025 adjusting entry for rent is debit Rent Expense and credit Prepaid Rent, $70,000.

Bad Debt Expense Adjustment

The adjusting entry to record bad debt expense would include a credit to the allowance account for $36,900.

Accrued Salaries Expense

Dana should make a journal entry of debit Salaries and Wages Expense and credit Salaries and Wages Payable, $4,800.

Retained Earnings Adjustment

When closing Income Summary to Retained Earnings, the debit to Retained Earnings is a debit of $7,000.

Comprehensive Income Inclusion

Unrealized gains on available-for-sale debt securities are included in comprehensive income.

Comprehensive Income Exclusion

Comprehensive income does not include investments by owners.

Retained Earnings Decrease

Retained earnings is decreased by dividends declared.

Revenue Recognition Process Step

The first step in the process for revenue recognition is to identify the contract with customers.

Income Tax Expense Calculation

Greeley's 2025 income statement would report income tax expense of $68,000.

Other Comprehensive Income Calculation

For 2025, Madsen would report other comprehensive income of $120,000.

Comprehensive Income Calculation

For 2025, Korte would report comprehensive income of $570,000.

Earnings Per Share Calculation

The earnings per share for Benfer Corporation is $2.10.