Under accrual accounting, revenues are recognized when:
Answer(s): D
Both are required for earnings to be recognized. IV is not true under accrual accounting and I is incorrect since even after a sale is made, realization of payment may be doubtful or there may be a high probability of merchandise return.
Swiss Inc. had the following activities during 1996:Acquired 2,000 shares of stock in Molly Inc. for $26,000.Sold an investment in General Motors for $35,000 when the carrying value was $33,000.Acquired a $50,000, 4-year certificate of deposit from a bank. (During the year, interest of $3,750 was paid to Swiss.)Collected dividends of $1,200 on stock investments.In Swiss's 1996 statement of cash flows, net cash used in investing activities should be ________.
Answer(s): C
Investing activities include the acquisition and disposal of all long-term assets. Thus, the purchase of shares, sale of shares held as an investment, acquisition of long-term certificate of deposit (not a cash equivalent since long-term) are classified as investing activities and total $41,000 used (-$26,000 +35,000 - 50,000). The receipts of dividends and interest are cash flows from operating activities.
The equity turnover of a firm equals:
Answer(s): B
Equity Turnover = sales/equity = (sales/total assets)*(total assets/equity)= (asset turnover)*(financial leverage)
Warranty liabilities:
All responses meet the definition of a warranty liability.
Which of the following is not a theoretical basis for the allocation of expenses?
Answer(s): A
Profit maximization means that the goal is not to report costs as expenses by hiding them on the balance sheet.It is not an acceptable basis as it goes against the purpose of generally accepted accounting methods which is to fairly present the results of operations and financial position.
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