Q: A company has current assets of $$50,000 and current liabilities of 25$$,000. What is its current ratio?

$$ \text{Current Ratio} = \frac{\50$$,000}{\$$25,000} = 2.0 $$

Q: A company earned $$10,000 in service revenue and incurred 7$$,000 in expenses during the period. It also paid $$2,000 in dividends. What is the ending balance in Retained Earnings if the beginning balance was 5$$,000?

$$ \text{Ending Retained Earnings} = \5$$,000 + (\$$10,000 - \7$$,000) - \$$2,000 = \$6,000 $$

Question 1

Which of the following best describes the purpose of the closing process in accounting?

Accepted Answer

To zero out all temporary accounts and transfer their balances to Retained Earnings

Question 2

A company has current assets of $$50,000 and current liabilities of 25$$,000. What is its current ratio?

Accepted Answer

$$ 	ext{Current Ratio} = \frac{\50$$,000}{\$$25,000} = 2.0 $$

Question 3

Which of the following accounts would NOT appear on a post-closing trial balance?

Accepted Answer

Service Revenue

Question 4

What is the correct order for preparing financial statements from the adjusted trial balance?

Accepted Answer

Income Statement, Statement of Retained Earnings, Balance Sheet

Question 5

Which of the following is a characteristic of a classified balance sheet?

Accepted Answer

Assets are shown in order of liquidity and liabilities are classified as current or long-term

Question 6

A company earned $$10,000 in service revenue and incurred 7$$,000 in expenses during the period. It also paid $$2,000 in dividends. What is the ending balance in Retained Earnings if the beginning balance was 5$$,000?

Accepted Answer

$$ 	ext{Ending Retained Earnings} = \5$$,000 + (\$$10,000 - \7$$,000) - \$$2,000 = \$6,000 $$

Question 7

Which of the following is an example of a long-term asset?

Accepted Answer

Land

Question 8

What is the effect of closing the Dividends account at the end of the period?

Accepted Answer

It reduces Retained Earnings by the amount of dividends declared

Question 9

Which of the following best describes the operating cycle of a business?

Accepted Answer

The time span from acquiring goods and services to collecting cash from customers

Question 10

If a company has a net loss for the period, how is the Income Summary account closed?

Accepted Answer

Credit Income Summary and debit Retained Earnings

Question 11

Which of the following is NOT a step in the accounting cycle?

Accepted Answer

Record transactions directly in the financial statements

Question 12

Which of the following accounts is considered a permanent account?

Accepted Answer

Common Stock

Question 13

A company’s worksheet shows total debits of $$120,000 and total credits of 120$$,000 in the adjusted trial balance columns. What does this indicate?

Accepted Answer

The adjusted trial balance is in balance

Question 14

Which of the following best explains why the current ratio is important for evaluating business performance?

Accepted Answer

It measures the company’s ability to pay its current liabilities with its current assets

Question 15

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

Accepted Answer

$$ 	ext{Current Ratio} = \frac{	ext{Current Assets}}{	ext{Current Liabilities}} $$

Question 16

Which of the following is an example of a closing entry?

Accepted Answer

Debit Service Revenue; Credit Income Summary

Question 17

Which of the following statements about the worksheet is TRUE?

Accepted Answer

The worksheet helps prepare the adjusted trial balance and financial statements

Question 18

Which of the following best describes the relationship among the financial statements?

Accepted Answer

Ending Retained Earnings from the statement of retained earnings flows to the balance sheet

Question 19

Which of the following is NOT a characteristic of long-term liabilities?

Accepted Answer

They are due within one year

Completing the Accounting Cycle: Financial Statements, Closing Entries, and Business Performance

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