Practice Midterm 1
Multiple Choice Questions (30 points)
Which of the following is a true
statement concerning the matching principle?
A company must pay for goods received in the same accounting period in which it receives
Expenses must be assigned to the accounting period in which are incurred to produce
The matching concept is especially important to the cash basis of accounting.
Revenue must be matched to the accounting period in which goods are produced for sale.
Boone’s Cleaning Service performed cleaning services during December, 2006, but had not
collected any cash from its customers by the end of 2006.
What affect did performing these
services have on the accounting equation?
Increased assets and increased liabilities.
Increased assets and increased stockholders’ equity.
Increased assets and decreased stockholders’ equity.
Decreased liabilities and increased stockholders’ equity
On May 1
2002, Company C paid $4,800 for an insurance premium on a two-year insurance
How much will the insurance expense be in years 2002 and 2003?
$2,400 for each year.
$1,600 for 2002 and 2,400 for 2003.
$1,800 for 2002 and 2,400 for 2003.
$1,600 for each year.
On Nov. 1
, Company D received $5,000 from its customer for next 5 month magazine
What effect does this transaction have on the accounts under the accrual basis of
Increase assets and equity by $5,000 on Nov. 1
Increase assets and liabilities by $1,000 on Nov. 1
Increase equity and liabilities by $1,000 on Nov. 1
Increase equity and decrease liabilities by $1,000 on Nov. 30.
At the end of 2002, Tule Company had retained earnings of $40,900.
It had sales of $52,400,
expenses of $30,000, and dividend of $6,000 in 2003.
What is the retained earnings at the end
of year 2003?