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At the end of the fiscal year, Petes

Auto Sales improperly accrued Sales


Revenue of$100,000 and Cost of Goods
Sold of $75,000 related to the sale of a
custom sports carthat it had not yet
delivered to its customer. In particular,
the company made thefollowing journal
entry:

Purchased a forklift for $60,000 which will be


used in the warehouse.The estimated useful
life of the forklift is 5 years and Self Smart will
depreciate theforklift using the straight line
method with salvage value of $0. Debit
depreciation expense 12,000, credit
accumulated depreciation 12,000.
Sold 2,000 units of inventory for $40,000. The
customer paid for half ofthe inventory with
and purchased the remainder on credit in the
form of a note that is due in one year with an

AccountsReceivable $100,000;
Theaccounting equationcan be rephrased as:
CostofGoodsSold $75,000
Net Assets = Assets Liabilities
;SalesRevenue $100,000; Inventory
The balance sheet and the statement of cash flows are
$75,000
linked by:
a.Overstate assets by $25,000, no
a.Cash balance
effect on liabilities, overstate
Which of the following assets on the balance sheet of a
shareholdersequity by $25,000 and
company are possibly undervalued?
overstate net income by $25,000.
a.Land b.Inventories c.Equipment d.All of the Above
Which of the following accounts is usually not satisfied
by payment of cash? Unearned revenue
Ifyou wanted to know what accounting rulesa
company follows related to its revenue recognition,
where would you look: notes
The amount of revenue recognized in the income
statement by a company that sells goods to customers
would be: total sales, both cash and credit sales, for the
period.
Under both U.S. GAAP and IFRS, the Berlin Philharmonic wouldrecord Advancesfrom Customers (current
Cannot reliably measure internally created resources
liability),3,040,000. b.Under both U.S. GAAP and IFRS, the Berlin Philharmonic does notrecognize a liability
Under the Matching Principle, the cost of inventory
because it has not yet received benefits obligatingit to pay.c.Under both U.S. GAAP and IFRS, the Berlin
should be reported as an expense in the period in which
Philharmonic wouldrecord Accounts Payable (current liability),185,000.d.Under both U.S. GAAP and IFRS, the
it is used to generate revenue, typically at the point of
Berlin Philharmonic would notnormally recognize a liability for an unsettled lawsuit unless paymentis probable
sale. Purchased inventories that have not yet been
and the entity can reliably estimate the loss. Because thesuit has not yet come to trial, it is unclear whether any
sold are reported as assets, notwithstanding whether
liability exists.e.Under both U.S. GAAP and IFRS, the Berlin Philharmonic would notrecognize a liability for this
or not they have been paid for. Unpaid liabilities to
mutually unexecuted contract.f.Under both U.S. GAAP and IFRS, accounting normally does notrecognize a
suppliers are reported as liabilities and are reduced
liability for mutually unexecuted contracts. Thus, at thetime of contract signing, the Berlin Philharmonic would
when paid.
record noliability. In 2012, however, the firm would record a liability for theportion of the yearly compensation