[jaggyemt]

1) Which one of the following changes describes the receipt of 3.000 from the issuance of a long term note payable?

a. assets and owners' equity increase by 3,000
b. assets and owners' equity decrease by 3,000
c. assets and liabilities increase by 3,000
d. assets and liabilities decrease by 3,000
e. no changes in total assets, liabilities or owners equity


2) The primary measure of the overall success of a company is
a: total stockholders' equity
b. total assets
c. net income
d. the number of shares of stock it has sold to investors


3) Expensing the cost of a pencil holder that cost 1.25 instead of capitalizing it as a plant asset and depreciating it over its estimated useful life of 10 years

a. violates the economic entity assumption
b. violates GAAP since pencil holders are important assets
c. is justified because of materiality
d. is appropriate because of the stabel dollar assumption

4) Who prepares financial reports for a particular company?
a. SEC
b. Board of Directors
c. The company's management
d. the company's auditors

5) Ten years after a company purchases a plot of land, it is measured on the balance sheet at its cost from the year it was purchased instead of its current selling price. This accounting practice is justified by the
a. financial period assumption
b. going concern assumption
c. fiscal period assumption
d. orignal cost assumption

[moussahawas]

Answer for question #1:(e)
Because when you issue a notes payable and thus collect accounts recievable from the principle and interest expense installments, that increase your cash and decreases your accounts recievables with the same amount. Thus no change occurs to assets.

Answer for question #2: (c)
The bottom line figure of the income statements which represents the net income, is the measure whether the company has generated any income for its core business oeprations during the reported period or not. But not always correct as it is debatable, because the company can achieve net loss in certain periods but this might be due to the recession period of the economy or due to supply and demand forces.


Answer for question #3:(d)
The stable dollar assumption assumes that you have to book your assets according to their book value.

Answer for question #4: (d)

Answer for question #5: (b)

[KongTheKonqueror]

I agree except for 3 and 5
3 is materiality. At $1.25 for 10 years, the annual depreciation would be $.125 which is immaterial and allows us to expense small amounts instead of matching the revenues generated by them with the costs incurred to use them over their lifetime.

5 is the original cost assumption. All purchases are reported at purchase price instead of fair market value. Selling price is only used when the asset is sold.

[CaptainForest]

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.

[moussahawas]

Good answers, I got it from another point of view.

Thank you for correcting my answers.