Q: What is the formula for calculating straight-line depreciation expense?

$$\text{Depreciation Expense} = \frac{\text{Cost of Asset} - \text{Salvage Value}}{\text{Useful Life}}$$

Question 1

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

Accepted Answer

Accrual accounting records revenues and expenses when they are earned or incurred, regardless of when cash is exchanged.

Question 2

According to the revenue recognition principle, when should revenue be recognized?

Accepted Answer

When the company has delivered goods or performed services and expects to receive payment.

Question 3

A company pays $6,000 for a one-year insurance policy on January 1. What adjusting entry should be made on March 31?

Accepted Answer

Debit Insurance Expense $$1,500; Credit Prepaid Insurance 1$$,500

Question 4

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

Accepted Answer

Salaries earned by employees but not yet paid at the end of the period.

Question 5

What is the formula for calculating straight-line depreciation expense?

Accepted Answer

$$	ext{Depreciation Expense} = \frac{	ext{Cost of Asset} - 	ext{Salvage Value}}{	ext{Useful Life}}$$

Question 6

If a company fails to record the adjusting entry for accrued salaries at year-end, what is the effect on the financial statements?

Accepted Answer

Liabilities are understated and net income is overstated.

Question 7

Which of the following accounts is a contra asset account?

Accepted Answer

Accumulated Depreciation

Question 8

A company collected $2,000 cash in advance for services to be performed next month. What is the correct journal entry at the time of collection?

Accepted Answer

Debit Cash $$2,000; Credit Unearned Revenue 2$$,000

Question 9

Which of the following best describes the purpose of closing entries?

Accepted Answer

To transfer the balances of temporary accounts to Retained Earnings and reset them to zero.

Question 10

Given the following data, calculate the current ratio: Current Assets = $$50,000; Current Liabilities = 25$$,000.

Accepted Answer

$$2.0$$

Question 11

A company has total assets of $$200,000 and total liabilities of 80$$,000. What is the debt ratio?

Accepted Answer

$$0.4$$

Question 12

Which of the following transactions would increase the current ratio?

Accepted Answer

Issuing common stock for cash.

Question 13

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

Accepted Answer

It combines all revenues and expenses into a single total.

Question 14

Which of the following is an example of a deferral adjusting entry?

Accepted Answer

Recording depreciation expense at the end of the period.

Question 15

If a company uses the straight-line method, what is the monthly depreciation expense for equipment costing $12,000 with a useful life of 4 years and no salvage value?

Accepted Answer

$$\250$

Question 16

Which of the following best describes the matching principle?

Accepted Answer

Expenses are recognized in the same period as the related revenues.

Question 17

A company earned $1,000 of service revenue on account. What is the correct adjusting entry at the end of the period if the cash has not yet been received?

Accepted Answer

Debit Accounts Receivable $$1,000; Credit Service Revenue 1$$,000

Question 18

Which of the following best describes the purpose of data visualization in financial accounting?

Accepted Answer

To provide a visual summary of information, making it easier to spot patterns and trends.

Question 19

Which chart type is most appropriate for visualizing changes in a company’s revenue over several years?

Accepted Answer

Line chart

Question 20

If a company fails to adjust for supplies used during the period, what is the effect on the financial statements?

Accepted Answer

Assets are overstated and expenses are understated.

Accrual Accounting and Income: Chapter 3 Study Notes

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