$\\text{Quick Ratio} = \\frac{\\text{Cash} + \\text{Marketable Securities} + \\text{Accounts Receivable}}{\\text{Current Liabilities}}$

$\\text{ROA} = \\frac{10,000}{50,000} = 0.20$ or $20\\%$

Question 1

Which of the following is the correct journal entry to record the purchase of inventory on account?

Accepted Answer

Debit Inventory; Credit Accounts Payable

Question 2

A company sells goods for $5,000 cash. The cost of goods sold is $3,000. What is the correct set of journal entries?

Accepted Answer

Debit Cash $5,000; Credit Sales Revenue $5,000. Debit Cost of Goods Sold $3,000; Credit Inventory $3,000.

Question 3

Which of the following is a strength of the statement of cash flows?

Accepted Answer

It provides information about a company's liquidity and solvency.

Question 4

Which is a weakness of the statement of cash flows?

Accepted Answer

It does not show non-cash transactions.

Question 5

Where is net income reported in the financial statements?

Accepted Answer

On the income statement

Question 6

Which of the following is considered a current asset?

Accepted Answer

Accounts Receivable

Question 7

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

Accepted Answer

$2.0$ \text{:} 1$

Question 8

Which formula is used to calculate the quick (acid-test) ratio?

Accepted Answer

$\text{Quick Ratio} = \frac{\text{Cash} + \text{Marketable Securities} + \text{Accounts Receivable}}{\text{Current Liabilities}}$

Question 9

If a company has net income of $10,000, sales of $100,000, and average total assets of $50,000, what is its return on assets (ROA)?

Accepted Answer

$\text{ROA} = \frac{10,000}{50,000} = 0.20$ or $20\%$

Question 10

Which ratio best measures a company's ability to pay its short-term obligations?

Accepted Answer

Current Ratio

Question 11

A company has sales of $200,000, cost of goods sold of $120,000, and operating expenses of $50,000. What is its net income?

Accepted Answer

$200,000 - 120,000 - 50,000 = 30,000$

Question 12

Which of the following transactions would NOT affect the current ratio?

Accepted Answer

Purchasing equipment with cash

Question 13

Which journal entry records the payment of salaries?

Accepted Answer

Debit Salaries Expense; Credit Cash

Question 14

A company issues common stock for $20,000 cash. What is the correct journal entry?

Accepted Answer

Debit Cash $20,000; Credit Common Stock $20,000

Question 15

Which of the following is NOT a component of the statement of cash flows?

Accepted Answer

Shareholders' Equity Activities

Question 16

If a company has a current ratio less than 1, what does this indicate?

Accepted Answer

Current liabilities exceed current assets

Question 17

Which formula is used to calculate inventory turnover?

Accepted Answer

$\text{Inventory Turnover} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}$

Question 18

A company has total liabilities of $80,000 and total equity of $120,000. What is its debt-to-equity ratio?

Accepted Answer

$\text{Debt-to-Equity Ratio} = \frac{80,000}{120,000} = 0.67$

Question 19

Which of the following best describes the purpose of financial ratios?

Accepted Answer

To analyze and compare financial performance across companies and periods

Financial Accounting Study Notes: Chapters 6–10 Key Topics and Exam Preparation

Study Guide - Practice Questions