Accounting Online Program Accounting Principles 4

Question 1

A company is unsure whether to record a contingent liability. Under conservatism, it should record the liability when the loss is:

Accepted Answer

Probable and reasonably estimable

Answer

ASC 450 requires a contingent liability to be accrued only when the loss is probable and the amount can be reasonably estimated.

Question 2

Which principle is most directly related to recording prepaid insurance as an asset rather than an immediate expense?

Accepted Answer

Matching principle

Answer

Prepaid insurance is an asset because the matching principle requires the expense to be recognized over the periods the coverage benefits.

Question 3

The FASB's conceptual framework identifies two fundamental qualitative characteristics of useful financial information. They are:

Accepted Answer

Relevance and faithful representation

Answer

The FASB framework identifies relevance and faithful representation as the two fundamental qualitative characteristics.

Question 4

Which of the following scenarios best illustrates the revenue recognition principle under ASC 606?

Accepted Answer

Record revenue when control of goods or services is transferred to the customer

Answer

ASC 606 requires revenue to be recognized when (or as) a performance obligation is satisfied, which occurs when control transfers to the customer.

Question 5

Which accounting principle supports recording a building at $500,000 even though it has appreciated to $750,000 in market value?

Accepted Answer

Historical cost principle

Answer

The historical cost principle requires assets to remain on the books at their original acquisition cost unless a specific exception applies.

Accounting Online Program Practice Test