1. d. Correct. The donation of land should be shown as an asset and offset in stockholders’ equity as "donated capital". Answers a., b., and c. are incorrect. Although all 3 may have future benefit, only d is quantifiable.

2. a. Correct. Owning 51% or more of the voting stock will give control to the buyer. In the other alternatives there is no ownership that would allow the entity to transfer its economic benefits if any to another entity.

3. c. Correct. Even though it is difficult to interpret a fire as a "transaction", it is an event that has occurred and the loss is recoverable because insurance was carried on the assets lost. All other alternative have an element of future performance for a transaction to have occurred.

4. b. Correct.

5. c. Correct. Most liabilities are eventually paid out of the assets of the business. Exceptions to this rule would be situations in which the liability was paid off by providing a service or when a liability is paid off by giving equity in the business.

6. a. Correct. The other three would violate the accrual basis.

7. d. Correct. With prepaids, answer a would be correct; with accruals such as wages payable, expenses are recorded later under the cash basis so answer c would be correct. If the expense is paid when incurred, then b would be correct. The accurate definition would be that the accrual basis recognizes expenses when incurred, whereas the cash basis records expenses when they are paid.

8. c. Correct. This is always an uncertain matter but when a reasonable probability exists of losing the case, it must be mentioned in a footnote.

9. a. Correct. More information would be available but given the strong defense, it appears that the case would not result in a loss.

10. c. Correct. The matching principle states that the expenses should be matched against the revenues in the same period as revenues are properly recorded. Even thought the predicted pattern of cash expenses would be that shown in b, c is the correct treatment of this expense and related liability.

11. d. Correct. The loan origination fee should be amortized over the 24 month period, which means $1,250 of it is charged against 2001 revenue. Interest = 6/12 times 10 percent times $100,000 = $5,000.