What does an operational audit attempt to measure? Does an operational audit involve more or fewer subjective judgments than a compliance audit or an audit of financial statements? Explain. To whom is the report usually directed after completion of an operational audit?

Distinguish between a compliance audit and an operational audit.

A construction company engages in a contract to build a production facility for a customer. The construction company should recognize revenue as the construction progresses only:

a. if it receives advance cash payments from the customer.

b. if it retains title to the project until completion.

c. if there are no contingent payments (e.g., bonuses, penalties) in the contract with the customer.

d. if title to the project transfers to the customer as the project progresses.

Compare and contrast continuous flow and discrete automated systems. Give the advantages and disadvantages of each type of automated system.

What is the primary difference between prepaid and accrued expenses?

a. Prepaid expenses have been incurred, and accrued expenses have not.

b. Prepaid expenses have not been paid, and accrued expenses have.

c. Prepaid expenses have been recorded, and accrued expenses have not.

d. Prepaid expenses have not been recorded, and accrued expenses have.

Describe when revenues and expenses are recognized using cash-basis accounting. How does this differ from accrual-basis accounting?

Which of the following is a correct statement of the accounting equation in economic terms?

a. Economic resources = creditor financing – owner financing
b. Economic resources = operating assets + financial assets
c. Creditor financing = investing + operating
d. Economic resources = creditor financing + owner financing

A firm's _____ resources are also known as labor.
a. economic
b. human
c. intangible
d. financial
e. natural

Which of the following is not an example of an accrued liability?

a. Accounts payable

b. Interest payable

c. Wages payable

d. Property taxes payable

Brooks Company sells merchandise to customers. Under the accrual basis of accounting, Brooks should normally recognize:

a. revenue and the related expenses in the same accounting period as earned, whether payment is received or not.

b. revenue when cash is collected and expenses when Brooks pays its creditor for the merchandise.

c. revenue and expenses after all payments are made.

d. expenses in the period the merchandise is sold and defer revenue recognition until the customer pays for the merchandise

An analysis of the transactions of Rutherford Company for the year ended December 31, yields the following information: sales revenue, $65,000; insurance expense,$4,300; interest income, $3,900; cost of goods sold,$28,800; and loss on disposal of property, plant, and equipment, $1,200.

Required:

Prepare a single-step income statement.

What is the primary objective of financial reporting?

What is the primary objective of financial reporting?

Adjusting journal entries are made:

1. at the beginning of the accounting period

2. when revenue is realized (or realizable)

3. at the end of the accounting period

4. anytime we need to adjust an account