5: Chapter Answer Sheet
1. ABC Chewing Gum Inc. makes a sale on credit to a customer, and the customer will pay for
the purchase two months from now. According to the _____________, ABC records sales
revenue at the time credit is granted, rather than when it collects the cash.
(1) Monetary Unit Concept
(2) Entity Concept
(3) Matching Principle
(4) Historical Cost Concept
(5) Dual Effect of Transactions
Answer: (3), p. 141 in textbook
2. Tiger Co. receives its utility bill for the current month, to be paid the following month. This
transaction would:
(1) decrease cash and increase utility expenses
(2) increase accounts payable and increase utility expenses
(3) decrease cash and increase accounts payable
(4) decrease accounts payable and increase SG&A all expense
(5) of the above are possible
Answer: (2)
3. Which of the following best describes the historical cost concept?
(1) Recording revenues when cash is received.
(2) Transactions are recorded based on the cost at the time of the transaction
(3) Recording revenues in the period in which they are earned.
(4) Because of inflation, costs have historically risen each year.
(5) All of the above.
Answer: (2) p. 129
4. What accounts of the buyer are affected by the purchase of land on credit?
decrease cash and land purchases expense
increase notes payable and increase land and buildings
increase notes payable and increase equipment
decrease notes payable and decrease land and buildings
(5) all of the above are possible
(1)
(2)
(3)
(4)
Answer: (2)