Question

20) If a company is considering the purchase of a parcel of land that was acquired by the seller for $85,000, is offered for sale at $150,000, is assessed for tax purposes at $95,000, is considered by the purchaser as easily being worth $140,000, and is purchased for $137,000, the land should be recorded in the purchaser's books at: A) $95,000 B) $137,000. C) $138,500. D) $140,000 E) $150,000 21) The rule that (1) requires revenue to be recognized when goods or services are provided to customers and (2) at the amount expected to be received from the customer is called the: A) Going-concern assumption. B) Measurement (Cost) principle. C) Revenue recognition principle. D) Objectivity principle. E) Business entity assumption. 22) Which of the following accounting principles prescribes that a company record its expenses incurred to generate the revenue reported? A) Going-concern assumption. B) Expense recognition (Matching) principle. C) Measurement (Cost) principle. D) Business entity assumption. E) Consideration assumption. 23) If a company uses $1,300 of its cash to purchase inventory, the effect on the accounting equation would be: A) Assets increase $1,300 and liabilities decrease $1,300. B) One asset increases $1,300 and another asset decreases $1,300, causing no effect. C) Assets decrease $1,300 and equity decreases $1,300. D) Assets decrease $1,300 and equity increases $1,300. E) Assets increase $1,300 and liabilities increase $1,300. 24) If equity is $300,000 and liabilities are $192,000, then assets equal: A) $108,000. B) $192,000. C) $300,000 D) $492,000. E) $792,000.

Answer 1

20

According to Historical cost principle, Assets should be recorded in books at their cost of purchase.

The cost of purchase of Land is $137,000

The land should be recorded in purchaser's books at $137,000

Option B is correct

21

According to Revenue Recognition Principle, revenues should be recorded when goods or services are provided to customers at the amount expected to be received.

Option C is correct

22

According to Expense Recognition (Matching) principle, expenses should be recorded in the period revenues are generated.

Option B is correct

23

One asset increases $1,300 and another asset decreases $1,300, causing no effect.

Option B is correct

24

Assets = Equity + Liabilities = 300000+192000 = $492,000

Option D is correct