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Amortization is applied on Intangible Assets (IA) using straight-line method. It is applied on Intangible Assets by following Matching Concept that revenue earned due to the usage of intangible assets should be matched with amortization expense incurred in the relevant accounting period. IA are recorded under the headings of Intangible Assets on Balance Sheet while amortization expense is charged to expense in Income Statement. Examples of IA include Goodwill (which is never amortized but it is tested for Impairment ), Trademark, Franchise, Copyrights, Patents, etc. The correct options of this multiple choice question (mcq) are A and C, as explained below: Copyright A copyright is the exclusive rights given to the original writer, author or creator, for creating its own work, content, etc., under copyrights law to copy, reproduce, publish, sell and redistribute the original work. Copyrights protect the original work of writer / author from copying, reproducing, publishing o...

The correct option of this multiple choice question is A as proved below: Given: Selling Price (SP) = $1,000,  Book Value (BV) = 0 as Plant Asset (PA) is fully depreciated i.e., its useful life has been expired. Gain On Sale Of Plant Asset (PA) = Selling Price - Book Value of Plant Asset Here Book Value of Plant Asset = Cost - Accumulated Depreciation By putting the values, we have: Gain On Sale On Plant Asset = $1,000 - 0 = $1,000 The option B is an incorrect choice as it shows Loss on sale of PA as shown below:

The correct options of this multiple choice question (mcq) are C, D, E and F as for the calculation of Depreciation , we need the following: (i). Cost of the Asset Assets are recorded on balance sheet at Historical Cost i.e., the cost at which the Fixed Asset was, firstly purchased. This cost includes any additions or any cost incurred to bring the assets into its useable conditions so that these can be used for business operations. For example, If a machinery purchased at the initial cost of $4,000. Wages paid $1,000 for the installation of machinery, then the cost of machinery is equal to $5,000 ($4,000 + $1,000). (ii). Useful Life The life of non-current asset during which it is in its usable condition to operate the business operations efficiently and effectively. For example, if the plant & machinery has useful life of 10 years, then, we say that it is usable for business activities and operations for 10 years. (iii) Residual or Salvage Value The value of fixed asset wh...

The option A is not related with Plant Assets (PA) as the useful life of office equipment is less than one year while plant assets are used in the business operations for more than one year. The option B shows office equipment used in the business which is classified under PA. The option C is also correct as Land held for expansion purpose is considered under PA, as it will be utilized for business operations i.e., in the extended area of land, it is used for business operations for long-term benefits or for more than one year, so land is a PA. The option D is also correct choice here as Building used during the business operations to generate revenue is classified as PA. The option E is also correct one as anything, such as warehouse, situated on land is treated as PA as it becomes the part of it. The option F is incorrect choice as land held for investment purposes is not used in the business operations but to get a return of investments on it i.e., land is used for rental inco...

The correct answer of this multiple choice question (mcq) is E, as proved below: On 31 st December, the company is liable to pay salary of $1,200 to its employees as these are earned by the employees by rendering / performing the services to the company / corporation for the current accounting period according to Accrual Basis of Accounting . So, the following adjusting entry is recorded as shown below:                                   Salaries Expense (SE) a/c $1,200                                                                            Salaries Payable a/c $1,200                                          ...

Initially, On July 1 of the current calendar year, when the Olive Company paid cash for management services, it is recorded as a Prepaid Expense (Management Fee Paid In Advance) and as an asset as it is the company’s policy to do so. The journal entry to management fee paid in advance is shown below:           Prepaid Expense a/c / Management Fee Paid In Advance a/c $7,500                                                                                                               Cash a/c $7,500                                (Expense Paid In Advance For Two Year Management Services) Calculation Of E...

Here, we are required to calculate Net Income (NI) of the business of Grace company for the current accounting period Under Cash Basis Of Accounting And Accrual Basis Of Accounting . (i). Net Income Under Cash Basis Of Accounting (CBA) Given: Total Revenues = $52,000 Total Expenses = $31,000 As we know that formula used for the calculation of Net Income is:   Net Income - Total Revenues - Total Expenses By Putting the Values, we have: Net Income = $52,000 - $31,000 = $21,000 So, the correct answer under cash basis of accounting is $21,000, i.e., the correct option of this multiple choice question is B.

The correct answer of this multiple choice question (mcq) is C, as Rent Expense (RE) for two months is $7200 i.e., $3,600 + $3,600 = $7,200. Explanation: Rent (R) for 1 Month = Total Amount of R / 3 = $10,800 / 3 = $3,600 Here, we need to find out RE for 2 months from 1 st September to 31 st October, so RE for 2 months = $3,600 X 2 = $7,20

The correct options of this multiple choice question are D and H, as Accrued Expenses or Expenses Owing are current liabilities which shows those Expenses (Exp.) which are incurred by the business but the payment is still not paid. So, the business is liable to pay for the benefits or services received. Accrued expenses are shown on liabilities & equity side on balance sheet under current liabilities heading. When the company paid the full payment, accrued expenses are closed and it will no longer to be shown on balance sheet. Dividend is not an expense for the business as it is not used for conducting or operating the daily business activities. It is paid out of the profits which the business earned during the period. It is a share of return of the investments of shareholders who invested in the business, so it is a Contra Equity Account. Once announced in Annual General Meeting (AGM), the company is liable to pay to its shareholders. It is shown in the statement of retaine...

The correct options of this multiple choice question (mcq) are C, F, G and J as Utility Expense and Service Revenue are Income Statement Accounts which are Temporary Accounts (TA) as these are zero out at the end of the accounting period, so these having no balances and transferred to Income Summary Account . Dividend is a TA and a Contra Equity Account but not an Expense. It is deducted from retained earnings in the statement of retained earnings, so it is neither appeared on Balance Sheet ( BS ) nor on Income Statement. However, if the dividend is not paid to shareholder after the declaration, then dividend payable is shown on balance sheet on liabilities & equity side under current liabilities section. The profit sharing also does not appear on BS. It shows the portion of profits distributed among employees which is an expense for the company to pay to employees in the form of bonuses, incentives, etc., as a reward for their valuable achievements & contributions...

The correct answer of this multiple choice question is B, as the amount of Dividend paid is more than the net income for the period, so the opening retained earnings is greater than ending retained earnings. Actually, Retained Earnings (RE) , which is retained in the business, includes beginning retained earnings plus / minus net income / net loss minus dividend paid. Example: From the ABC Company’s statement of retained earnings, we have the following information as shown below:                                                       ABC Company                                           Statement Of Retained Earnings                                     ...

The correct options of this multiple choice question (mcq) are A, C and D, as if the company’s debt payment is $5000, for example, but its sources of revenues, either by selling goods or services, assets, etc., generate only $3000, let’s say, then the company is not able to pay its debts on specified time period and it is very for creditors or banks or financial institutions to give loan to such company. In case a company has lot of debt, e.g., from creditors $1,000,000,000, from banks $250,000,000,000,000 and from financial institutions $15,000,000,000, then the company is probably not able to repay its debts, so giving loan to such company is very risky for creditors, banks and financial institutions. If a company, which uses asset financing i.e., the company secures its Assets, such as Accounts Receivable, Inventory, property, etc., against loan to get financing i.e., get money to use for payments for running business’ operations or other uses, needs more money to pay off i...

In Accounting , identifying of Business Transactions are important because these are the exchanges, which take place among parties for monetary records and Bookkeeping which is a part of accounting starts from here, which are used to find out the financial performance, financial position and financial health of the business. The whole accounting process starts by identifying transactions through Source Documents. This is the first step in processing a business transaction in accounting cycle. For Example I, if Mr. A, a sole proprietor, started business with cash $1000 through receipt as a source document. The second step is to Analyze these business transactions with the help of Accounting Equation . Analyze of transaction means finding out the accounts involved in the transaction and increase and decrease in accounts involved, i.e., as in Example I, cash is increased by $1000 on the left side or assets side of the accounting equation and equity is increased due to increase in ca...

The correct options of this multiple choice question (mcq) are D and E, as when the L. Lyons company received cash of $100 from a customer in advance for providing catering services in future, then according to Accrual Basis of Accounting , we record the entry by debited cash account of $100 as a current asset and credit Unearned Revenue Account of $100 as a current liability account as the catering services yet to be performed for the customer. Here cash is increasing as the business received the payment from the customer, so we debit it. As the business is not provided the customer, so it becomes the current liability (unearned revenue) of the business to perform catering services against the advance payment received. As the unearned revenue is a liability and it is increasing, so we credit it according to the Rules of Debit and Credit . Cash is shown on balance sheet on assets side under current assets section while unearned revenue is shown on liabilities & equity side under...