Q: Which of the following is the correct formula for calculating the current ratio?

$$\frac{\text{Current assets}}{\text{Current liabilities}}$$

Question 1

Which of the following best describes the main difference between accrual accounting and cash-basis accounting?

Accepted Answer

Accrual accounting records transactions when they occur, regardless of when cash is exchanged, while cash-basis accounting records transactions only when cash is received or paid.

Question 2

A company receives $10,000 in advance for services to be performed over the next 5 months. According to accrual accounting, how should this transaction be recorded at the time cash is received?

Accepted Answer

Debit Cash $$10,000; Credit Unearned Revenue 10$$,000

Question 3

Which of the following is NOT a step in the IFRS revenue recognition criteria?

Accepted Answer

Recognize revenue when cash is received.

Question 4

A company pays $2,400 for a one-year insurance policy on October 1. What is the adjusting entry required at December 31?

Accepted Answer

Debit Insurance Expense $$600; Credit Prepaid Insurance 600$$

Question 5

Which of the following best describes the purpose of adjusting journal entries at the end of an accounting period?

Accepted Answer

To update the balance sheet and measure income by bringing certain accounts up to date.

Question 6

A company purchased equipment for $24,000 with a useful life of 5 years and no residual value. What is the monthly depreciation expense?

Accepted Answer

$400

Question 7

Which of the following accounts is a contra-asset account?

Accepted Answer

Accumulated Depreciation

Question 8

If a company has an unadjusted Supplies account balance of $$3,100 and a physical count shows 800 of $$supplies on hand at year-end, what is the amount of Supplies Expense to be recorded?

Accepted Answer

$2,300

Question 9

Which of the following is the correct formula for calculating the current ratio?

Accepted Answer

$$\frac{	ext{Current assets}}{	ext{Current liabilities}}$$

Question 10

A company earned $3,000 of interest revenue that has not yet been received or recorded at year-end. What is the correct adjusting entry?

Accepted Answer

Debit Interest Receivable $$3,000; Credit Interest Revenue 3$$,000

Question 11

Which of the following statements about closing entries is TRUE?

Accepted Answer

Closing entries reset the balances of revenues, expenses, and dividends to zero for the next period.

Question 12

A company has the following balances at year-end: Revenues $$24,200, Expenses 23$$,000, Dividends $$400. What is the ending balance in Retained Earnings if the beginning balance was 1$$,900?

Accepted Answer

$2,700

Question 13

Which of the following is an example of an accrued expense?

Accepted Answer

Salaries incurred but not yet paid

Question 14

If a company’s current assets are $$50,000 and current liabilities are 25$$,000, what is its current ratio?

Accepted Answer

$2.00

Question 15

Which of the following best describes the carrying amount of a long-term asset?

Accepted Answer

The cost of the asset less accumulated depreciation

Question 16

A company pays employees $1,000 per day, Monday through Friday. If the year ends on a Tuesday, what is the adjusting entry for salaries at year-end?

Accepted Answer

Debit Salary Expense $$2,000; Credit Salary Payable 2$$,000

Question 17

Which of the following is NOT a characteristic of a classified balance sheet?

Accepted Answer

It only lists assets and liabilities in alphabetical order.

Question 18

Which of the following is the correct formula for the debt ratio?

Accepted Answer

$$\frac{	ext{Total liabilities}}{	ext{Total assets}}$$

Question 19

Which of the following best explains why data visualization is useful in financial analysis?

Accepted Answer

It makes it easier to recognize patterns and trends compared to reviewing rows of numbers.

Question 20

A company collected $12,000 in advance for two services, one delivered in December and one to be delivered in February. At year-end, what amount should be recognized as revenue?

Accepted Answer

$6,000

Accrual Accounting and Financial Statements – Study Notes

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