Robert Half Assessment Core Accounting Principles Questions and Answers — Questions and Answers
Question 1: A company purchases a new delivery truck for $50,000. The company's policy is to expense any asset purchase under $1,000 in the year of purchase. This new truck, however, is expected to be used for the next 5 years. Which accounting principle requires the cost of the truck to be spread over its useful life?
- Materiality Principle
- Full Disclosure Principle
- Conservatism Principle
- Matching Principle (Correct answer)
Correct answer: Matching Principle
The Matching Principle dictates that expenses should be recognized in the same period as the revenues they help to generate. Since the truck will be used to generate revenue over five years, its cost should be allocated (depreciated) over those five years, matching the expense of using the asset with the revenues it helps earn.
Question 2: The owner of a small business uses the company credit card to purchase a personal home theater system. Which core accounting principle is violated in this scenario?
- Going Concern Assumption
- Economic Entity Assumption (Correct answer)
- Monetary Unit Assumption
- Time Period Assumption
Correct answer: Economic Entity Assumption
The Economic Entity Assumption states that a business's financial activities must be kept separate from the personal financial activities of its owner(s). Using a company credit card for a personal purchase commingles business and personal finances, violating this principle.
Question 3: Which of the following scenarios best illustrates the application of the Revenue Recognition Principle?
- A construction company records the full contract price as revenue on the day the contract is signed.
- A magazine publisher records subscription fees as revenue on the date the cash is received.
- A software company provides services in December but doesn't get paid until February. It records the revenue in December. (Correct answer)
- A retail store records revenue when a customer places an item on hold.
Correct answer: A software company provides services in December but doesn't get paid until February. It records the revenue in December.
The Revenue Recognition Principle dictates that revenue should be recognized when it is earned and realized, regardless of when cash is received. The software company earned the revenue in December by providing the services, so it is appropriate to recognize it in that period.
Question 4: A company is facing a lawsuit that it is likely to lose. The legal team provides a reasonable estimate of the potential damages. According to the conservatism principle, how should the company handle this situation in its financial statements?
- Disclose the lawsuit in the notes but not record any liability until the case is lost.
- Wait until the final judgment is made before making any entry.
- Recognize a liability and an expense for the estimated amount of damages. (Correct answer)
- Do not mention the lawsuit to avoid alarming investors.
Correct answer: Recognize a liability and an expense for the estimated amount of damages.
The Conservatism Principle advises that when there is uncertainty, expenses and liabilities should be recognized as soon as they are probable, while revenues and gains should only be recognized when they are assured. Since the loss is likely and the amount can be reasonably estimated, the company should recognize the liability.
Question 5: The assumption that a business will continue to operate for the foreseeable future and will not be forced to liquidate its assets is known as the:
- Periodicity Assumption
- Going Concern Assumption (Correct answer)
- Historical Cost Principle
- Materiality Principle
Correct answer: Going Concern Assumption
The Going Concern Assumption is the fundamental concept that a business will remain in operation for the foreseeable future. This assumption allows for the recording of assets at their historical cost and depreciating them over their useful lives, as it's assumed the business will last long enough to realize their full value.
Question 6: A large corporation's policy is to expense the cost of all wastebaskets in the year they are purchased, even though they have a useful life of several years. A single wastebasket costs $15. This practice is acceptable due to which accounting principle?
- Revenue Recognition Principle
- Full Disclosure Principle
- Cost Principle
- Materiality Principle (Correct answer)
Correct answer: Materiality Principle
The Materiality Principle allows accountants to disregard another accounting principle if the amount in question is insignificant. The cost of a $15 wastebasket is immaterial to a large corporation, so expensing it immediately rather than depreciating it over several years will not mislead a user of the financial statements.
Robert Half Assessment Core Accounting Principles Questions and Answers
A company purchases a new delivery truck for $50,000.
The company's policy is to expense any asset purchase under $1,000 in the year of purchase.
This new truck, however, is expected to be used for the next 5 years.
Which accounting principle requires the cost of the truck to be spread over its useful life?