Chapter 8 Accounting Principles Flashcards
Which one of the following is the generally accepted accounting principle which determines what amount will be recorded on the company’s balance sheet as the value of a building at the time of purchase?
(1) The objectivity principle
(2) The consistency principle
(3) The revenue recognition principle
(4) The cost principle
4
Which one of the following is the generally accepted accounting principle which holds that all accounting information should be reported on objectively determined and verifiable data?
(1) Consistency principle
(2) Verification principle
(3) Materiality principle
(4) Objectivity principle
4
depreciation expense is:
(1) another name for capital cost allowance.
(2) an accounting concept which attempts to allocate the cost of an asset over its useful life.
(3) usually calculated on land by the straight-line method.
(4) never permitted on a single-family residence.
2
Which one of the following is inconsistent with generally accepted accounting principles?
(1) Expenses are recognized at the time they are incurred.
(2) Assets are revalued upwards to account for the effect of inflation.
(3) Fiscal year ends cannot be changed at will.
(4) Revenues are recognized at the time they are earned.
2
Which of the following statements regarding generally accepted accounting principles is FALSE?
(1) Revenues are recognized at the time they are earned.
(2) Fiscal year ends cannot be changed at will.
(3) Assets are recorded at fair market value when they are acquired.
(4) Expenses are recognized at the time they are incurred.
3
Depreciation expense is:
(1) another name for capital cost allowance.
(2) an accounting concept which attempts to allocate the cost of an asset over the life of the asset.
(3) usually calculated on land by the straight-line method.
(4) None of the above
2
Freddy May Ltd. purchased a small commercial building for $225,000 of which $100,000 was the value of the land. Freddy, the company president, felt this was an excellent deal because he would have been willing to pay as much as $250,000. One year later Freddy sold the property for $300,000.
According to generally accepted accounting principles, at the time of purchase, the value of the building in the question above should be recorded on Freddy May Ltd.’s Balance Sheet as:
(1) $125,000
(2) $225,000
(3) $250,000
(4) a value determined by an objective appraiser.
1
A company pays $97,835 for an asset on which the Income Tax Act allows capital cost allowance at 5% per year. The asset is expected to have a useful life of 25 years and will have no salvage value at the end of this time. Calculate the depreciation expense for accounting purposes for the asset’s third year if the accountant chooses to use straight-line depreciation.
(1) $3,913.40
(2) $4,414.80
(3) $4,891.75
(4) $4,505.41
1
97,835 divided by 25 years = 3,913.40
important to note: capital cost allowance is a tax deduction on the balance sheet but not related to depreciation of the asset
The “subject clauses” have just been removed from a contract of purchase and sale, but the sale will not complete for another 17 days. Sandy Salesperson has already recorded the commission from the sale as income. Which of the Generally Accepted Accounting Principles was she following?
(1) The matching principle
(2) The cost principle
(3) The consistency principle
(4) The revenue recognition principle
4
which of the following is a generally accepted accounting principle that determines what amount will be recorded on the companies balance sheet as the value of a building at the time of purchase
- the objectivity principle
- the consistency principle
- the revenue recognition principle
- the cost principle
4
