Accounting Quiz

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Assignment 1 – Weeks 1 and 2
Due at the end of week 2. There are 41 marks. This assignment is worth 5 % of the total grade.

True or False: (10 Marks)

1. A balance sheet lists a company’s revenues and expenses for a period of time. FALSE

2. The hiring of a new company president is an economic event recorded by the financial information system. TRUE

3. Accounting communicates financial information about a company to both internal and external users. TRUE

4. Financial statements are the major means of communicating accounting information to interested parties. TRUE

5. The study of introductory accounting is relevant only to those who intend to pursue a career in professional
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It is now the end of 2006 and Catherine Co. is preparing its annual financial statements. The company has been experiencing severe financial difficulties and management anticipates that the company will cease operations in 2007. The financial statements have been prepared using historical cost to value all assets.

2. Jeff Connors runs a small business. All receipts from the business are deposited into Jeff’s personal bank account and all Jeff’s expenses, both personal and business, are paid out of this same account. Jeff makes no attempt to maintain separate records for the business.

3. Harvester International revalues its financial statements each year to take into consideration the effects of inflation. The company justifies its decision by stating that “inflation adjusted statements more fully reflect the purchasing power of the company’s earnings.”

Question 2: (8 marks)
Each of the following independent situations represents a departure from generally accepted accounting principles. For each situation, (i) identify which principle has been violated, (ii) describe what the correct accounting treatment would be, and (iii) why the correct treatment provides better information.

(a) Value Properties owns a number of apartment buildings. In April 2007 a new building was purchased for $1,000,000. Because of the rapid increase in real estate prices, by the time Value’s accountant recorded the purchase

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