Q: Which formula correctly calculates gross profit margin?

$$\text{Gross profit margin} = \frac{\text{Gross profit}}{\text{Net sales}}$$

Q: A company sells 12 units from inventory. It bought 10 units at $$5 each and 10 units at 7 $$each. Using FIFO, what is the cost of goods sold?

$$\text{COGS} = 10 \times 5 + 2 \times 7 = 64$$

Q: A machine has a cost of $$12,000, residual value 2$$,000, and useful life of 5 years. What is the annual straight-line depreciation expense?

$$\text{Depreciation} = \frac{12,000 - 2,000}{5} = 2,000$$

Question 1

Which of the following best describes the purpose of the statement of cash flows?

Accepted Answer

To summarize cash inflows and outflows from operating, investing, and financing activities over a period.

Question 2

A company purchases equipment for $5,000 cash. Which accounts are affected and how?

Accepted Answer

Dr Equipment $$5,000; Cr Cash 5$$,000

Question 3

Under accrual accounting, when should revenue be recognized?

Accepted Answer

When the company satisfies its performance obligation by transferring control of the good or service to the customer.

Question 4

A company paid $1,200 for 12 months of insurance in advance. What is the correct initial journal entry?

Accepted Answer

Dr Prepaid Insurance $$1,200; Cr Cash 1$$,200

Question 5

Which formula correctly calculates gross profit margin?

Accepted Answer

$$	ext{Gross profit margin} = \frac{	ext{Gross profit}}{	ext{Net sales}}$$

Question 6

A company sells 12 units from inventory. It bought 10 units at $$5 each and 10 units at 7 $$each. Using FIFO, what is the cost of goods sold?

Accepted Answer

$$	ext{COGS} = 10 	imes 5 + 2 	imes 7 = 64$$

Question 7

Which of the following statements about the allowance method for uncollectible accounts is correct?

Accepted Answer

Receivables are reported at their net realizable value.

Question 8

A machine has a cost of $$12,000, residual value 2$$,000, and useful life of 5 years. What is the annual straight-line depreciation expense?

Accepted Answer

$$	ext{Depreciation} = \frac{12,000 - 2,000}{5} = 2,000$$

Question 9

Which of the following is NOT a typical adjustment in the indirect method for calculating operating cash flow?

Accepted Answer

Subtracting proceeds from sale of equipment.

Question 10

A company’s net income is $$5,000. Depreciation expense is 800. $$Accounts receivable increased by $$600, inventory decreased by 200$$, and accounts payable increased by $300. What is the approximate operating cash flow?

Accepted Answer

$$5,000 + 800 - 600 + 200 + 300 = 5,700$$

Question 11

Which of the following best explains why net income and operating cash flow can differ?

Accepted Answer

Net income is based on accrual accounting, while operating cash flow tracks actual cash movements.

Question 12

If inventory is measured at the lower of cost and net realizable value, and the estimated selling price is $$1,500 with costs to complete and sell of 200$$, what is the net realizable value?

Accepted Answer

$$1,500 - 200 = 1,300$$

Question 13

A company writes off a specific customer balance of $100 under the allowance method. What is the correct journal entry?

Accepted Answer

Dr Allowance for Doubtful Accounts $$100; Cr Accounts Receivable 100$$

Question 14

Which formula correctly calculates receivables turnover?

Accepted Answer

$$	ext{Receivables turnover} = \frac{	ext{Net credit sales}}{	ext{Average accounts receivable}}$$

Question 15

Which of the following is TRUE regarding the accounting equation?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Equity}$$

Question 16

A company sells equipment with a cost of $$10,000 and accumulated depreciation of 7$$,000 for $3,500 cash. What is the gain or loss on disposal?

Accepted Answer

Gain of $500

Question 17

Which of the following is NOT a reason why a balanced trial balance does NOT guarantee correct accounts?

Accepted Answer

A balanced trial balance always means all transactions are correct.

Question 18

Which of the following is a correct statement about depreciation?

Accepted Answer

Depreciation allocates the cost of an asset over its useful life.

Question 19

A company receives $10,000 from a bank loan. How does this affect the accounting equation?

Accepted Answer

Assets increase by $$10,000; liabilities increase by 10$$,000.

Financial Accounting: Core Concepts and Applications — Structured Study Notes

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