Question

Firm ABC rents a flat for a 24-month period. The leasing agreement is signed in 1/8/2018 and it is effective since that date. The agreement specifies that the rent is € 200 per month and ABC should pay in 1/9/2018 the total amount for the whole lease period. Based on this information answer Questions 6 and 7.

6. In order to record the payment of the rents for the 24-months period ABC should make the following entry: a) Debit rent expenses 200, debit prepaid expenses 2,200, credit cash 2,400. b) Debit rent expenses 2,400, credit cash 2,400. c) Debit prepaid expenses 1,000, credit cash 1,000. d) Debit expenses 200, debit prepaid expenses 4,600, credit cash 4,800. e) Debit expenses payable 200, debit rent expenses 800, credit cash 1,000.

7. Assuming that the ABC‘s accounting period commences at 1st January and ends at 31st December of each year ABC should make the following adjusting entry as at 31/12/2018: a) Debit rent expenses 1,000, credit prepaid expenses 1,000, b) Debit rent expenses 1,000, credit cash 1,000 c) Debit prepaid rent expenses 3,800, credit cash 3,800. d) Debit expenses 3,800, credit rents payable 3,800. e) Debit expenses 800, credit prepaid expenses 800.

8. The inventory costing method used by a firm affects: a) The income statement b) The balance sheet c) The statement of retained earnings d) All of the above e) None of the above

9. Valuing assets at their liquidation value instead of their cost is inconsistent with the: a) matching principle b) time period assumption c) monetary unit assumption d) going concern assumption e) revenue recognition principle.

10. The accounting assumption that means when in doubt the accountant should choose the method that will be less likely to overstate assets and income is called: a) matching principle b) materiality c) time period assumption d) conservatism e) monetary unit assumption

Answer 1