ACC 211, Final Exam Review Applying the Concepts
For each item below, indicate which one of the following concepts supports the event:
List of concepts
Historical Cost (H)
Matching (M)
Recognition (R)
Conservatism (C)
Materiality (Y)
____1. The TV sets that Wally Co sells come with a two-year warranty. The estimated cost of
the warranty repairs for this two-year period is recorded in the year of sale, instead of when the
repairs are actually done.
___2. The Allowance approach to bad debts creates a contra asset account that reduces accounts
receivable to its net realizable value. (Don’t using Matching for this one.)
___3. A piece of land was purchased for $100,000. This year someone interested in purchasing
the land offers the president $200,000. On the balance sheet, the land continues to be listed at
$100,000.
___4. When a physical count of inventory reveals a small discrepancy between the balance for
inventory in the ledger and the actual goods on hand, it is acceptable to increase cost of goods
sold for a small inventory shortage, instead of showing a separate loss account.
___5. A company producing and selling magazines would not record revenue when the cash is
collected in advance on a one -year subscription. Instead, it would adjust the books for revenue
earned as magazines are produced and mailed to customers.
___6. Bad debts are estimated so that bad debt expense is recorded in the same accounting
period as the revenue it relates to.
___7. Merchandise inventory is valued at the lower of cost or market.
___8. Interest on a certificate of deposit investment owned by the company is recorded as it is
earned, even though cash may be collected in a different accounting period than earned.
___9. Depreciation spreads the cost of using the asset over its useful life, as the asset helps to
generate revenues.
___10. An advertising campaign runs in January for a February sale. The advertising is
expensed in February.
___11. An inventory item purchased for cash in January, sold in February to a customer on
account and was collected in March. The revenue would be recorded in February.
___12. The company expenses inexpensive assets like small hand-held calculators instead of
recording tehm as assets.
1. M
2. C
3. H
4. Y
5. R
6. M
7. C
8. R
9. M
10. M
11. R
12. Y