1) When is revenue generally recognized?
a. When cash is received
b. When the warranty expires
c. When production is completed
d. When the company satisfies the performance obligation
2) Expensing the cost of a wastebasket with an estimated useful life of 10 years when purchased is an example of the application of the
a. consistency characteristic.
b. expense recognition principle.
c. materiality ingredient.
d. historical cost principle.
3) A company has a factory building that originally cost the company $250,000. The current fair value of the factory building is $3 million. The president would like to report the difference as a gain. The write-up would represent a violation of which accounting assumption or principle?
a. Revenue recognition
b. Going concern
c. Historical cost
d. Monetary unit
4) Which of the following statements is true about the accrual basis of accounting?
a. The timing of cash receipts and disbursements is emphasized.
b. A minimal amount of record keeping is required in accrual basis accounting compared to cash basis.
c. This method is used less frequently by businesses than the cash method of accounting.
d. Revenues are recognized in the period the performance obligation is satisfied, regardless of the time period the cash is received.
5) The failure to properly record an adjusting entry to accrue a revenue item will result in an
a. understatement of revenues and an understatement of liabilities.
b. overstatement of revenues and an overstatement of liabilities.
c. overstatement of revenues and an overstatement of assets.
d. understatement of revenues and an understatement of assets.