Chapter 3, Problem 5ISTQ

The revenue recognition principle and the expense recognition principle require that the company recognize related revenue and expense transactions in the same accounting period. Discuss why this matching concept is important and explain how the financial information would be misleading if the accountant did not follow these rules. Provide examples in your discussion to demonstrate your point(s).

If the statement of financial position error is discovered in the year of error, what action is to be done by the entity? Ignore the Reclassify the item to its proper real account. Adjust the effect to the retained earnings account. Reclassify the item to nominal account.

Which of the following is the principle that a company must recognize revenue in the period in which it is earned; it is not considered earned until a product or service has been provided? A. revenue recognition principle B. expense recognition (matching) principle C. cost principle D. full disclosure principle

Choose the correct.Which of the following statements concerning U.S. GAAP is true?a. Does not require segment information to be reported in accordance with generally accepted accounting principles.b. Does not require a reconciliation of segment assets to consolidated assets.c. Requires geographic area information to be disclosed in interim financial statements.d. Requires disclosure of a major customer’s identity.

14. Which of the following statement is not correct as to why an entity must make adjusting entries? A. To prepare reliable income statement and statement of financial position B. To ensure that the revenue recognition and expense recognition principles are followed C. To prepare for closing and reversing entries D. To account for accruals and deferrals

Which of the following is not a criterion to recognize revenue under GAAP?A. The earnings process must be completed.B. A product or service must be provided.C. Cash must be collected.D. GAAP requires that the accrual basis accounting principle be used in the revenue recognition process

Listed below are the current Accounting Assumptions and Principles                                   Economic Entity Assumption   Monetary Unit Assumption   Historical Cost Principle             Going Concern Assumption   Revenue Recognition Principle   Full Disclosure Principle             Time Period Assumption   Matching Principle                                       Required:                     For the following situations, identify whether the situation represents a violation or a correct application of GAAP, and which assumption/principle is applicable.                     h. Nixon Corp records and maintains their books at cost and/or current value, not at a liquidated value.             Violation: (Yes/No)       Applicable Assumption/Principle:                 i. Wages of $4,000 related to the last two days of July, were recorded as expense in July even though they were paid in August.             Violation: (Yes/No)       Applicable…

Changes in accounting policy are Permitted if the change will result in a more reliable and more relevant presentation of the financial statements. Permitted if the entity encounters new transactions, events or conditions that are substantively different from existing or previous transactions. Required for all material transactions. Required if an alternate accounting policy gives rise to a material change in assets, liabilities or the current year net income.

Statement of financial position as at the beginning of the earliest comparative period is not required when an entity A. Reclassifies items in its financial statements. B. Changes an accounting estimate. C.Applies an accounting policy retrospectively. D.Makes a retrospective restatement of items in its financial statements.