Chapter 8

Question 1

A Generally Accepted Accounting Principle known as the __ __, states that the historical cost of an asset must be reflected in the company’s financial statements

Answer 1

cost principle

Question 2

What is the book value in terms of a mortgage, and when is it equal to the face value of a mortgage?

Answer 2

The book value is the original face value of the mortgage less the amount of principal repayment, or the mortgage amount outstanding at a particular point in time. At origination, the book value and face value are the same.

Question 3

Define book value in accounting terms

Answer 3

book value is the original cost of a noncurrent asset less all depreciation claimed to date

Question 4

What is a balance sheet?

Answer 4

a financial statement listing assets, liabilities, and owners’ equity at a specific point in time. It is also known as a statement of financial position or statement of assets and liabilities.

Question 5

Is the following statement regarding corporations T or F? The directors are primarily liable to the shareholders rather than to the company

Answer 5

False, directors are primarily liable to the company

Question 6

When is revenue recognized, when the cash basis of accounting?

Answer 6

The cash basis of accounting recognizes revenue at the time it is actually received in cash form. This is in contrast to the accrual basis.

Question 7

Define accrual basis

Answer 7

Accrual basis is an accounting procedure that recognizes revenue at the time it is earned, as opposed to when it is actually received. . This method ties in with the revenue principle.

Question 8

How does one apply the consistency principle in accounting?

Answer 8

The consistency principle states that once a firm has selected a method of recording financial transactions from a number of alternative options, all of which are acceptable under GAAP, it will apply those principles over subsequent accounting periods.

Question 9

Current assets will be converted into cash, sold, or consumed within ___ year or the ___ operating cycle of a business, whichever is longer. Current assets may include cash, marketable securities, accounts receivable, inventories and prepaid __.

Answer 9

one year
normal operating cycle
expenses

Question 10

What is Capital Cost Allowance (CCA) and how much CCA may be claimed in the first and last year of a holding period?

Answer 10

Capital Cost Allowance (CCA) is the amount that an owner of an income producing asset is allowed to deduct as an expense for Income Tax purposes as a result of ownership of that depreciable asset.
Only one half of the ordinary CCA may be claimed in the first year of the holding period; no CCA may be claimed in the year of sale.