Multiple choice

1. Which of the following is the fundamental accounting equation?

• Current assets + Current liabilities = Owners' equity

• Assets + Owners' equity = Liabilities

• Cash = Debts + Common stock

• Assets = Liabilities + Owners' equity

2. On December 31, 2004, Track Record Inc.'s sales people have firm outstanding orders totaling $1.66 million, which, it has guaranteed its customers, will be fulfilled during the month of January 2005.

If Track Record includes the $1.66 million in its sales figures for 2004, it will be violating the:

• Materiality concept

• Historical cost concept

• Dual-aspect concept

• Realization concept

3. Which one of the following best describes a balance sheet?

• A description of the entity's operations over a period of time

• A snapshot at a point in time of an entity's assets, liabilities and owners' equity

• A reconciliation of an entity's bank account balance

• A description of the company's cash flows over a period of time

4. To be recorded as an asset, an item must meet four specific conditions. Three of them are: it must have been acquired at measurable cost, it must be obtained or controlled by the entity, and it must have been obtained or controlled in a past transaction.

Which one of the following is the fourth condition?

• The item must have a measurable resale value

• It must be expected to have future economic benefits

• It must have been fully paid for

• The entity must have a legal document confirming ownership of the item