Question 1

Under accrual basis accounting,research and development expenses for new products are recorded as ________.

Accepted Answer

Under accrual basis accounting, research and development expenses for new products are expensed immediately rather than being recorded as assets. This is because it is difficult to estimate the future economic benefit of these expenses and thus they cannot be capitalized.

Question 2

On July 1,Gabriel Company paid 6 months' insurance in advance.The policy covers the period of July 1 through December 31.The total payment was $5,400.At the time of the payment,the company set up the Prepaid Insurance account for $5,400.What is the balance in the Prepaid Insurance account on September 30?

Accepted Answer

The Prepaid Insurance account represents insurance that has been paid in advance but not yet used. Since the policy covers the period from July 1 through December 31 (6 months), the portion of the insurance that has been used from July 1 to September 30 is 3 months (or half of the 6-month policy period).

To find the balance in the Prepaid Insurance account on September 30, we need to determine the amount of insurance that has not yet been used. Since half of the policy period has passed, half of the total payment ($5,400/2 = $2,700) has been used up, leaving a balance of $2,700 (Choice C) in the Prepaid Insurance account on September 30.

Question 3

On January 1,2010,New Mexico Company acquired a machine for $33,000.Annual depreciation expense equals $3,000.The residual value of the machine is $3,000.What is the book value of the machine on December 31,2010?

Accepted Answer

The book value of the machine on December 31, 2010, is calculated by subtracting the annual depreciation expense from the acquisition cost: $33,000 - $3,000 = $30,000.

Question 4

Implicit transactions are associated with ________.

Accepted Answer

Implicit transactions, also known as automatic or systemic transactions, are transactions that occur as part of the normal operations of a business and are recorded in the financial statements without any direct action by management or staff. These transactions are typically associated with accrual basis accounting, as they reflect the economic activity of the business and not just the cash inflows and outflows.

Question 5

Nonprofit organizations do not use balance sheets.

Accepted Answer

Nonprofit organizations do use balance sheets to track their financial standing, just like for-profit businesses. The format of the balance sheet may be slightly different due to the nature of nonprofit finances, but the key components - assets, liabilities, and equity - are still present.

Question 6

Under accrual basis accounting,unexpired costs are considered to be ________.

Accepted Answer

Under accrual basis accounting, unexpired costs are considered to be assets. This means that even if the cash has been paid for a service or good that has not yet been received, it is not considered an expense until the service or good is actually received. Instead, it is recorded as a prepaid expense or advance payment asset.

Question 7

An example of an implicit transaction is cash received on account.

Accepted Answer

An implicit transaction involves non-cash or indirect transactions that don't involve direct physical exchange of cash but affect the financial position of a business, such as depreciation or accruals. Cash received on account is a direct, explicit transaction involving the physical exchange of cash.

Question 8

On May 1,San Jose Company paid $36,000 for rent.The rent covers the period May 1 through August 31.San Jose Company recorded Prepaid Rent of $36,000.What is the Rent Expense for the month of May?

Accepted Answer

Since the rent of $36,000 covers the period from May 1 to August 31, the amount that will be allocated to the month of May is calculated as follows:
Rent expense for May = Total rent / Number of months covered by rent * Number of months in May
Rent expense for May = $36,000 / 4 * 1 = $9,000
Therefore, the Rent expense for the month of May is $9,000.

Question 9

Given below are the activities of the Tucson Company:  Using the accrual basis of accounting,the total revenues for Tucson Company are ________.

Accepted Answer

The answer of Given below are the activities of the...

Question 10

Source documents are associated with ________.

Accepted Answer

Source documents are associated with explicit transactions, which are transactions that are specifically recorded in a company's accounting records. Examples of source documents include receipts, invoices, and purchase orders. Source documents provide evidence of the transactions that occurred and support the entries that will be made in the accounting records.

Question 11

The cash basis of accounting does not match expenses with the revenues they help generate.

Accepted Answer

The cash basis of accounting only records transactions when cash is received or paid out, regardless of when the revenue was earned or the expenses were incurred. Therefore, expenses and revenues are not matched in the period they were incurred or earned using the cash basis of accounting. This is a key difference from accrual accounting, which matches revenues and expenses to the period in which they were incurred or earned.

Question 12

The accrual basis of accounting recognizes the impact of transactions when cash is received or paid.

Accepted Answer

The accrual basis of accounting recognizes the impact of transactions when they occur, regardless of when cash is received or paid.

Question 13

Depreciation expense is computed on ________.

Accepted Answer

Depreciation expense is computed on equipment and buildings because these assets have a finite useful life. Land is not depreciated as it does not wear out or become obsolete.

Question 14

On May 1,San Diego Company paid $36,000 for rent.The rent covers the period May 1 through August 31.San Diego Company recorded Prepaid Rent of $36,000.What is the balance in the Prepaid Rent account on July 1?

Accepted Answer

Prepaid Rent is initially recorded as an asset. Since the rent is for four months, the monthly portion of rent is $36,000/4 = $9,000. As of July 1, two months have passed, so the amount of rent that has been used up is 2 x $9,000 = $18,000. Therefore, the balance in the Prepaid Rent account on July 1 is $36,000 - $18,000 = $18,000. The correct answer is C.

Question 15

Journal entries for the expiration of unexpired assets are usually made before the related cash flows.

Accepted Answer

The answer of Journal entries for the expiration of unexpired...

Question 16

Adjusting entries at the end of an accounting period record explicit transactions.

Accepted Answer

Adjusting entries at the end of an accounting period do not record explicit transactions. They are made to update accounts and ensure that the financial statements reflect the correct account balances and revenues and expenses for the period.

Question 17

On January 1,Laguna Company paid $16,000 for rent.The rent covers the period January 1 through April 30.Laguna Company recorded Prepaid Rent of $16,000.What is the balance in the Prepaid Rent account on March 1?

Accepted Answer

The rent covers the period from January 1 to April 30, which is a total of 4 months. Therefore, the monthly rent is $16,000/4 = $4,000. Since we want to find out the balance in the Prepaid Rent account on March 1, we need to figure out how many months have passed since January 1 to March 1, which is 2 months. Thus, the balance in the Prepaid Rent account on March 1 is 2 x $4,000 = $8,000. Therefore, the best choice is B.

Question 18

Oakland Company owns a fixed asset with an original cost of $100,000.The company estimates it will use the fixed asset for 5 years,at which time the fixed asset will be sold for $10,000.The annual depreciation expense is ________.

Accepted Answer

The annual depreciation expense can be calculated using the straight-line method: 
Depreciation expense = (Original cost - Salvage value) / Useful life
= ($100,000 - $10,000) / 5 years
= $18,000 per year. Therefore, the correct choice is C. Option A is incorrect because there is depreciation over the useful life. Option B is incorrect as the asset is depreciated over the useful life, not its salvage value. Option D is incorrect as dividing the total cost by the useful life period would give the wrong answer.

Question 19

An example of an explicit transaction is ________.

Accepted Answer

Paying cash for three months' rent in advance is an explicit transaction because it involves an immediate exchange of cash for a future benefit (rent for the next three months). The other options involve accruals of expenses, which may not involve an immediate exchange of cash and are therefore not explicit transactions.

Question 20

San Francisco Company paid $2,700 for 6 months' insurance,covering the period of April 1 to September 30.At the time of the payment,the entire amount was used to increase the balance in the Prepaid Insurance account.The balance in the Prepaid Insurance account on April 30 is ________.

Accepted Answer

The answer of San Francisco Company paid $2,700 for 6...

Quiz 15: Basic Accounting: Concepts, techniques, and Conventions