I would agree with you Kong, but I got the spread it around message.
Moussahawas, you and I disagree on 4 of the 5 answers you gave.
1) c. assets and liabilities increase by 3,000
NOT E
Why?
When you issue a notes payable for 3,000, what is your JE?
Dr. Cash 3,000
Cr. Notes Payable 3,000
Therefore, an asset and liability both increasing by 3,000
2) C, I agree.
Frankly I don't like any of those choices though since Net Income alone isn't a good indicator, but it seems to be the best in the list.
3) c. is justified because of materiality
The reason you don't capitalize it is due to materiality
4) c. The company's management
The company prepares the financial statements, NOT the auditors.
The Auditors audit the Financial Statements, they do NOT prepare them!!
5) d. orignal cost assumption
You record assets at their historical cost.
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