Q: Which of the following correctly represents the basic accounting equation?

$$\text{Assets} = \text{Liabilities} + \text{Stockholder's Equity}$$

Question 1

Which of the following correctly represents the basic accounting equation?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Stockholder's Equity}$$

Question 2

A company pays $2,000 for a one-year insurance policy on January 1. At the end of March, what adjusting entry should be made?

Accepted Answer

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

Question 3

Which of the following accounts would appear on the Balance Sheet but NOT on the Income Statement?

Accepted Answer

Accounts Receivable

Question 4

If a company earns revenue but has not yet received payment, which type of adjusting entry is required?

Accepted Answer

Accrual adjustment

Question 5

Which of the following is increased with a debit and decreased with a credit?

Accepted Answer

Dividends

Question 6

A company has the following balances: Cash $$10,000, Accounts Receivable 5$$,000, Inventory $$3,000, Equipment 20$$,000, Accounts Payable $$4,000, Notes Payable 8$$,000. What is the company's total assets?

Accepted Answer

$$10,000 + 5,000 + 3,000 + 20,000 = 38,000$$

Question 7

Which of the following best describes the matching principle?

Accepted Answer

Expenses are recorded in the same period as the revenues they help generate.

Question 8

A company issues $1,000 of common stock for cash. Which accounts are affected and how?

Accepted Answer

Debit Cash $$1,000; Credit Common Stock 1$$,000

Question 9

Which of the following is a contra asset account?

Accepted Answer

Accumulated Depreciation

Question 10

A company has current assets of $$15,000 and current liabilities of 10$$,000. What is the current ratio?

Accepted Answer

$$\frac{15,000}{10,000} = 1.5$$

Question 11

Which of the following transactions would NOT affect the accounting equation?

Accepted Answer

Signing a contract to purchase inventory in the future

Question 12

If a company has net income of $$5,000 and pays dividends of 1$$,000, what is the effect on retained earnings?

Accepted Answer

Retained earnings increase by $4,000

Question 13

Which of the following ratios measures a company's solvency?

Accepted Answer

Debt to total assets ratio

Question 14

A company receives $3,000 cash in advance for services to be performed next month. What is the correct journal entry?

Accepted Answer

Debit Cash $$3,000; Credit Unearned Revenue 3$$,000

Question 15

Which of the following accounts normally has a credit balance?

Accepted Answer

Revenue

Question 16

A company purchased equipment for $10,000. It is expected to last 5 years with no salvage value. What is the annual depreciation expense using straight-line method?

Accepted Answer

$$\frac{10,000}{5} = 2,000$$

Question 17

Which of the following best describes a classified balance sheet?

Accepted Answer

It separates assets and liabilities into current and noncurrent categories.

Question 18

A company has total assets of $$50,000 and total liabilities of 20$$,000. What is stockholder's equity?

Accepted Answer

$$50,000 - 20,000 = 30,000$$

Question 19

Which of the following is an example of a deferred expense?

Accepted Answer

Prepaid Insurance

Question 20

A company earned $$8,000 in revenue and incurred 5$$,000 in expenses during the year. What is the net income?

Accepted Answer

$$8,000 - 5,000 = 3,000$$

Financial Accounting Exam 1 Review: Core Concepts and Applications

Study Guide - Practice Questions

Study Guide - Flashcards