Chapter 2 TAPQ, TF, MC, P1, P4TAPQ1. Net Assets=850. Total liabilities=600. What are total assets?Net assets=Total assets-total liabilities2. Revenues occur when there areA. Increases in assets and liabilitiesB. Decreases in assets and liabilitiesC. *Increases in assets and decreases in liabilitiesD. Decreases in assets and increases in liabilities3. Expenses occur when there areA. Increases in assets and liabilitiesB. Decreases in assets and liabilitiesC. Increases in assets and decreases in liabilitiesD. *Decreases in assets and increases in liabilities4. Which of the following are real or permanent accounts?A. *Assets and Owners’ EquityB. Assets and RevenuesC. Liabilities and ExpensesD. Revenues and Expenses5. Which of the following are nominal or temporary accounts?A. Assets and Owners’ EquityB. Assets and RevenuesC. Liabilities and ExpensesD. *Revenues and ExpensesTF1. __F__ Most countries require companies that operate within their borders to follow U.S. GAAP in preparing their financial statements.2. __T__ Companies face many uncertainties when preparing their financial statements.3. __F__ If a company reports equipment costing $122,756,255, that is the amount that it actually did cost.4. __F__ A liability is defined as a probable future economic benefit that an organization owns or controls.5. __T__ Creation of U.S. GAAP is primarily done by the U.S. government.6. __F__ IFRS has been in wide use in many countries since 1976.7. __F__ In order for investors to properly evaluate the financial information of a business or other organization, it is vital that the financial information be exact.8. __T__ A corporation reports sales of $33,453,750 when the actual figure was $33,453,843. This information contained a misstatement.9. __T__ Materiality depends on the size of the organization.10. __F__ A material misstatement that is made in a set of financial statements is acceptable as long as there is only one.11. __F__ A misstatement has to be caused by fraud.12. __F__ The reporting of a pending lawsuit is relatively simple.Jessica Hujber9/1/14Business13. __F__ One business has a misstatement of $10,000 that is caused by fraud. It also has another misstatementof $10,000 that is caused by error. If one of these misstatements is material, then they both are.14. __F__ Only accountants need to understand the terminology that is found in accounting.15. __F__ For a business or other organization, an employee is an example of an asset.16. __F__ A sales transaction is normally considered revenue even if cash is not collected until the following year.17. __T__ The purchase of a building for $2.4 million is recorded as an expense.MC1. Which of the following is not an example of an uncertainty that companies often face in their financial reporting?1. Sales that have not yet been collected in cash2. Warranties3. *A loan due to a bank4. A lawsuit that has been filed against the company2. Which of the following is true about U.S. GAAP?1. U.S. GAAP has been developed over the past ten years.2. U.S. GAAP allows financial statement users to compare the financial information of companies around the world.3. U.S. GAAP helps accountants achieve an exact presentation of a company’s financial results.4. *U.S. GAAP helps investors and creditors evaluate the financial health of a business.Questions 3, 4, and 5 are based on the following:Mike Gomez owns a music store called Mike’s Music and More. The store has inventory for sale that includes pianos, guitars, and other musical instruments. Mike rents the building in which his store is located, but owns the equipment and fixtures inside it. Last week, Mike’s Music made sales of $3,000. Some of the sales were made in cash. Some were made to customers who have an account with Mike’s Music and are billed at the end of the month. Last month, Mike’s Music borrowed $10,000 from a local bank to expand the amount of inventory being sold.3. Which of the following is not an asset owned by Mike’s Music?1. The inventory of musical instruments2. The building in which the store is located3. *The amount owed to Mike’s Music by its customers4. The equipment and fixtures in the store4. Which of the following is a liability to Mike’s Music?1. *The loan amount that must be repaid to the bank2. The amount owed to Mike’s Music by its customers3. The sales Mike’s Music made last week4. The cash collected from customers on the sales made last week5. Which of the following statements is true?1. Mike’s Music is too small for any outside party to care about its financial information.2. *The sales Mike’s Music made last week are considered revenue.3. The intent of Mike’s Music to expand is an asset.4. The sales Mike’s Music made on credit last week is viewed as a liability.6. The Acme Company reports financial information to potential investors. The information is said to be “presented fairly according to U.S. GAAP.” What does that mean?1. *The information contains no material misstatements according to the rules and standards of U.S. GAAP.2. The information is correct and follows the rules of U.S. GAAP.3. The information contains neither errors nor fraudulent numbers as specified by U.S. GAAP.4. The information is comparable to that reported by other companies around the world.7. Which of the following statements is true?1. Accounting rules referred to as IFRS are more complex than those existing within U.S. GAAP.2. Accounting rules referred to as IFRS have been developed for as long a period of time as the rules that make up U.S. GAAP.3. *Accounting rules referred to as IFRS have become dominant in the world of accounting outside of the United States.4. Accounting rules referred to as IFRS will become mandatory in the United States in 2014.8. The Remingshire Corporation paid $2,000 at the end of the week to employees who worked for the business during that week. The corporation also paid another $3,000 at the end of the week for rent on the retail space that was occupied that week. Which of the following statements is true?1. The $2,000 is an expense for this period, but the $3,000 is not.2. The $3,000 is an expense for this period, but the $2,000 is not.3. Neither the $2,000 nor the $3,000 is an expense for this period.4. *Both the $2,000 and the $3,000 are expenses for this period.9. Officials for the Boston Company have just borrowed $25,000 on a three-year loan from a bank. Which of the following is true?1. The company has an expense as a