Generally Accepted Accounting Principles (GAAP) Quiz

[savio13]

1. Julia Childs goes to the grocery store to buy some lamb chops, lettuce, tomatoes, and various herbs and spices to use on her cooking show. How should she record this purchase?

As an expenditure on the income statement
As an extraordinary expense on her income statement
As an investment to appear on her balance sheet
Not record at all since the items are immaterial


2. Julia Childs buys a new stove for $12,000 to use on her cooking show by writing a check for the full amount. How should she record the purchase?

As a fixed asset on her balance sheet
As an extraordinary expense on her income statement
As a normal operating expense on her income statement
As an investment on her balance sheet


3. Julia Childs sells a one year $120,000 advertising sponsorship of her cooking show in December for the following year. What is the most appropriate way to record this transaction in December when the cash is received?

Debit Cash for $120,000 and Credit Deferred Revenue for $120,000
Do not record the transaction until the following year
Debit Cash for $120,000 and Credit Revenue for $120,000
Debit Cash for $10,000 and Credit Deferred Revenue for $10,000


4. If Julia Childs forms a new company called Julia's Women's Wear, what it the most appropriate way to record the $50,000 on the financial statement, she pays to her lawyers for drawing up the incorporation documents for the new company.

Record as an extraordinary expense
Record as legal expense on her income statement
Record as organization costs on her balance sheet
She is not required to list the payment on her financial statement


5. If Julia Childs is using accrual accounting and she pays $1000.00 to the contracted maid service for the show in February, for work done in January, what entry should she make on her books in January?

Debit Maid Expense for $1,000, Credit Accrued Maid Expense for $1,000
Debit Accrued Maid Expense for $1,000, Credit Maid Expense for $1,000
No entry is required in January
Debit Maid Expense for $1,000, Credit Deferred Maid Expense for $1,000


6. What entry should Julia make in February when she issues a check for maid expense that was accrued for in January?

No entry is required in February
Debit Accrued Maid Expense for $1,000, Credit Cash for $1,000
Debit Maid Expense for $1,000, Credit Cash for $1,000
Debit Deferred Maid Expense for $1,000, Credit Maid Expense for $1,000


7. Assume Julia Childs was using the cash method of accounting and the maid performed work in January for which she received $1,000 in February. What journal entry should be made in January?

Debit Cash for $1,000, Credit Accrued Maid Expense for $1,000
Debit Maid Expense for $1,000, Credit Accrued Maid Expense for $1,000
No entry is required in January
Debit Maid Expense for $1,000, Credit Cash for $1,000


8. If Julia Childs wanted to inflate January earnings, how should she "cook" the books?

Reclassify intangible assets as fixed assets
Accrue February expenses in January
classify normal operating expenses as assets on the balance sheet
Record January revenue in February


9. Julia Childs received $240,000 in January 2001 for a twenty-four month advertising sponsorship. Ignoring GAAP, how would she record the transaction to show maximum revenue for January 2001?

Debit Revenue for $240,000, Credit Cash for $240,000
Debit Cash for $240,000, Credit Deferred Revenue for $240,000
Do not record the transaction
Debit Cash for $240,000, Credit Revenue for $240,000


10. What is the PROPER entry to make in January for the above transaction?

Do not record sponsorship until the 24th month.
Debit Cash for $240,000, Credit Revenue for $10,000, Credit Deferred Revenue for $230,000
Debit Deferred Revenue for $240,000, Credit Cash for $240,000
Debit Cash for $10,000, Credit Revenue for $10,000