Question

1. The goal of reporting realistic figures and never overstating assets or net income applies to the ________.

1. materiality concept
2. conservatism principle
3. disclosure principle
4. consistency principle

2. ABC Company earned revenues of $19,000 and incurred expenses of $4,000. The company declared and paid cash dividends of $1,500. What is the balance in the Income Summary account after closing net income or loss to the Retained Earnings account?

1. debit balance of $19,000
2. credit balance of $4,000
3. credit balance of $15,000
4. balance of $0

3. An invoice of $600 for merchandise purchased is showing 3/15, n/30 as terms of credit. If the invoice is paid on or before the fifteenth day, the amount to be paid is ________.

1. $582
2. $600
3. $618
4. $621

Answer 1

Answer:

Materiality items are those items that affect the decision of the users of the account & accordingly as per the materiality concept same needs to be disclosed in the financial statement so that the users can easily judge the material items.

The disclosure principle states that a company should disclose all the relevant information about the company while preparing its financial statements.

Consistency principle states that all the accounting policies & procedures adopted by the company should be followed consistently from one period to another.

However, as per the conservatism principle, the company should record all expenses & liabilities whether certain or need but do not recognize the revenue until it is probable that it will be received by the company using his past experience & other facts.

Accordingly, Option (B) is the correct answer as "The goal of reporting realistic figures and never overstating assets or net income applies to the conservatism principle".

Answer:

The balances in the Income Summary account after closing net income or loss to the Retained Earnings account:

= (Revenue earned - Expenses incurred)

= $19,000 - $4,000

= $15,000 & same is transferred to retained earnings account.

Note: Amut of cash dividend of $1,500 should be deducted from the retained earnings.

Accordingly, Option (D) i.e $0 is the correct answer as $0 should be the balances in the Income Summary account after closing net income or loss to the Retained Earnings account.

Answer:

Calculation of the amount to be paid  if the invoice is paid before the fifteenth day:

Invoice value = $600

Discount Allowed = $600 x 3%= $18

Amount paid for merchandise purchased = $600 - $18 = $582

Accordingly, Option (A) i.e $582 is the correct answer.