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best answer explenation
Problem A-I - Multiple Choice. Choose the best answer for each of the following questions and enter the identifying letter in
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Answer #1

1.

Let us see what happens when Revenue is recorded

Accounts Receivable Debit
Revenue Credit

Accounts receivable is a current asset. If Revenue is not recorded then current assets would be understated
Since revenue is not recorded, therefore revenue would be understated
Also, Revenue is a credit. So it results in increase in Net Income. Not recording would result in understatement of Net Income

Answer is Option A

2.

The correct answer is Option D
A contingent liability is a liability in which there is an uncertainty. So estimated claims is an estimate and also would only be incurred when there are actual claims. So there is an uncertainty.

3.

In this case the correct answer is Option C
First all, to be short term the period must be Less than 12 months.

There is an adequate appropriation of retained earnings for this bond. So the bonds due in eleven months (option C) is the answer

4.

The correct entry would be

Purchases Debit
Stine Corporation Credit

Stine Corporation is an Accounts Payable which is a liability. Purchases in turn increase the inventory and the same is a current asset.

Since the entry was not recorded, both Asset (inventory) and Liability (Payable) would be understated.

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