Question

wer. Each question is worth 3 points. 1. Which of the following is an ingredient of relevance? a. Completeness b. Materiality c. Neutrality d. Free from error e. Periodicity 2. Allowing firms to estimate rather than physically count inventory at interim (quarterly) periods is an example of a trade-off between a. neutrality and consistency. b. faithful representation and comparability. c. verifiability and faithful representation. d. timeliness and verifiability. 3. One of the elements of financial statements is comprehensive income. As described in Statement of Financial Accounting Concepts No. 6, "Elements of Financial Statements," comprehensive income is equal to a. revenues minus expenses plus gains minus losses. b. revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners. c. revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners plus assets minus liabilities d. change in equity during the period, after adding distributions to owners and subtracting investments by owners. e. change in equity during the period, including those resulting from investments by owners and distributions to owners. 4. On December 31, 2018, Krug Company reported total liabilities of $95,000 prior to the following adjusting entries: • Depreciation expense was $25,000; • Accrued service revenues totaled $18,000; • Accrued expenses totaled $16,000; • Used up insurance worth $10,000, the insurance was prepaid; • Rent revenue earned was $7,000; the rent was prepaid by the tenant. How much are Krug's total liabilities after adjusting entries? a. $88,000 b. $102,000 c. $104,000 d. $111,000 e. $118,000 1. $129,000

Answer 1

The answers with brief explanations are as follows,

1. B. Materiality, materiality is the ingredient of relevance, as you know the 2 fundamental qualities are relevance and faithful presentation. The ingredients of faithful presentation are free from errors, neutrality and completeness, and the ingredients of that of relevance include materiality, feedback value. So the answer is materiality.
2. D. Timeliness and verifiability, yes most of the countries allow companies to estimate their inventory on a quarterly basis, rather than going for a physical count thereby interrupting the functioning of the company and also to save time and costs, with is against the verifiability. So the answer is timeliness and verifiability.
3. D. Revenues minus expenses plus gains minus losses will give the correct answer to the comprehensive income, adding and subtracting owners investments and withdrawals, adding and subtracting assets and liabilities will not give a value to the calculation as it is completely against the basis Accounting principles. Adding and subtracting total assets and liabilities will not have any impact on the total value at last.
4. C. 104,000, the only adjustments that affect the total liabilities are accrued expenses which would increase the liabilities and the unearned rent which would decrease the rent which is as a result of deferred tax adjustments (a completely different concept), so the answer would be 95,000 + 16,000 - 7,000 = 104,000.