Q: Which of the following is the correct formula for calculating stockholders’ equity?

$$\text{Stockholders' equity} = \text{Assets} - \text{Liabilities}$$

Q: Which of the following is the correct formula for the debt ratio?

$$\text{Debt Ratio} = \frac{\text{Total Liabilities}}{\text{Total Assets}}$$

Question 1

Which of the following best describes the purpose of the trial balance in financial accounting?

Accepted Answer

To verify that total debits equal total credits after posting to the ledger.

Question 2

Akter Corporation has Furniture totaling $$316,000, Cash of 36$$,000, and a $$128,000 Note Payable. The business also has Accounts Payable of 104$$,000 and Accounts Receivable of $86,000. What is Akter’s stockholders’ equity?

Accepted Answer

$206,000

Question 3

Which of the following journal entries correctly records the payment of a $12,000 invoice by a customer for previously billed services?

Accepted Answer

Cash $$12,000; Accounts Receivable 12$$,000

Question 4

A company has $$144,000 in liabilities and 196$$,000 in equity. What is the debt ratio?

Accepted Answer

42.4\%

Question 5

Littleton, Inc. began the year with total assets of $$354,000 and liabilities of 224$$,000. During the year, the business earned revenue of $$206,000 and incurred expenses of 96$$,000. The stockholders received cash dividends of $48,000 and no additional stock has been issued. What is stockholders’ equity at year-end?

Accepted Answer

$192,000

Question 6

Which of the following statements is correct regarding the effect of a credit entry?

Accepted Answer

Unearned Revenue is increased with a credit.

Question 7

Takagi Printing, Inc. erroneously recorded a purchase of equipment on account by debiting Equipment and crediting Cash. What will be the effect of this error on the trial balance?

Accepted Answer

Equipment overstated

Question 8

Jerry Lopez is a stockholder of Genesis Corporation. In exchange for additional shares of common stock, Lopez provided Genesis Corporation with $150,000 of computer equipment. What is the correct journal entry to record this transaction?

Accepted Answer

Equipment $$150,000; Common Stock 150$$,000

Question 9

Which of the following is the correct formula for calculating stockholders’ equity?

Accepted Answer

$$	ext{Stockholders' equity} = 	ext{Assets} - 	ext{Liabilities}$$

Question 10

If a company’s total assets are $$340,000 and total equity is 196$$,000, what is the company’s total liabilities?

Accepted Answer

$144,000

Question 11

Which of the following is a detailed record of all increases and decreases that have occurred in a specific individual asset, liability, or equity during a specific period?

Accepted Answer

Ledger

Question 12

Which of the following is a collection of all the accounts, the changes in those accounts, and their balances?

Accepted Answer

Ledger

Question 13

A company’s retained earnings at the beginning of the year were $$130,000. During the year, it earned net income of 112$$,000 and paid dividends of $48,000. What are retained earnings at year-end?

Accepted Answer

$192,000

Question 14

Which of the following best describes the effect of earning service revenue on account?

Accepted Answer

Increase Service Revenue and increase Accounts Receivable

Question 15

If a company receives $7,600 in cash for services previously performed and billed, which accounts are affected and how?

Accepted Answer

Debit Cash $$7,600; Credit Accounts Receivable 7$$,600

Question 16

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

Accepted Answer

$$	ext{Debt Ratio} = \frac{	ext{Total Liabilities}}{	ext{Total Assets}}$$

Question 17

A company earned $$206,000 in revenue and incurred 96$$,000 in expenses during the year. What is the net income for the year?

Accepted Answer

$110,000

Question 18

Which of the following would cause an increase in retained earnings?

Accepted Answer

Earning net income

Question 19

If a company’s assets increase by $$50,000 and liabilities increase by 20$$,000, what is the change in stockholders’ equity?

Accepted Answer

$30,000 increase

Question 20

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

Accepted Answer

Paying cash for office supplies

Fundamental Concepts and Problems in Financial Accounting

Study Guide - Practice Questions

Study Guide - Flashcards