11) Which of the following is a CORRECT statement about the different accounting methods?
A) Cash-basis accounting records revenues when they are earned.
B) Cash-basis accounting records expenses only at the end of the month.
C) GAAP requires accrual-basis accounting.
D) The largest companies in the United States use cash-basis accounting.
12) The method of accounting that records revenues ONLY when cash is received is the:
A) deferral method.
B) cash-basis method.
C) accrual-basis method.
D) hybrid method.
13) When cash-basis accounting is used, and services are provided on account:
A) only the income statement will be incorrect.
B) only the balance sheet will be incorrect.
C) both the income statement and the balance sheet will be incorrect.
D) either the income statement or the balance sheet will be incorrect.
14) An expense occurred in 2013, but it is not paid until 2014. Using the accrual basis of accounting, the expense should appear on:
A) the 2013 income statement.
B) the 2014 income statement.
C) neither the 2013 nor the 2014 income statement.
D) both the 2013 and 2014 income statements.
15) An expense occurred in 2013, and it is not paid until 2014. Using cash-basis accounting, the expense should appear on:
A) the 2013 income statement.
B) the 2014 income statement.
C) neither the 2013 nor the 2014 income statement.
D) both the 2013 and 2014 income statements.
16) If a company fails to record a sale on account:
A) revenue on the income statement will be understated.
B) assets on the balance sheet will be understated.
C) net income on the income statement will still be correct.
D) A and B
17) An interim period used for reporting purposes is generally:
A) more than one year, but less than the life of the company.
B) more than one year.
C) less than one year.
D) half of the life of the company.
18) The requirement to report accounting information at regular intervals is known as the:
A) interim reporting concept.
B) revenue principle.
C) time-period concept.
D) expense recognition principle.
19) Which of the following statements regarding the time-period concept is NOT correct?
A) Interim financial reports are rarely prepared.
B) Accountants prepare financial statements for specific periods of time.
C) The basic accounting period is one year.
D) Most large companies use a calendar year for financial reporting.
20) Wilde Company earned revenues of $160,000 in cash and $210,000 on account during 2014. Of the $210,000 on account, $80,000 was collected in cash in 2014 and the rest in 2015. The company incurred expenses of $125,000 in 2014 and made payments of $90,000 towards the expenses in 2014. What is net income in 2014 under cash-basis accounting?
A) ($10,000)
B) $70,000
C) $150,000
D) $240,000
21) Winter Company earned revenues of $160,000 in cash and $210,000 on account during 2014. Of the $210,000 on account, $80,000 was collected in cash in 2014 and the rest in 2015. The company incurred expenses of $125,000 in 2014 and made payments of $90,000 towards the expenses in 2014. What is net income in 2014 under accrual-basis accounting?
A) $85,000
B) $245,000
C) $280,000
D) $370,000
22) Accrual-basis accounting records all of the following transactions EXCEPT:
A) earning of unearned revenue received in advance.
B) expiration of prepaid insurance.
C) accrual of expenses incurred but not paid.
D) receipt of Award for Service to the Community of Naperville, Illinois.
23) Cash-basis accounting does NOT record:
A) receipt of cash from interest earned on note receivable.
B) payment of salaries to employees.
C) expiration of prepaid rent.
D) borrowing money from the local bank.
24) Cash-basis accounting does NOT record:
A) purchase of supplies with cash.
B) sale of common stock.
C) payment of note payable.
D) depreciation expense.
25) Under cash-basis accounting, cash receipts are treated as ________ and cash payments are treated as ________.
A) retained earnings; dividends
B) retained earnings; income
C) revenues; expenses
D) gains; losses