Question 1

Which of the following is a primary disadvantage of a general partnership compared to an LLC?

Accepted Answer

General partners are personally liable for business debts.

Question 2

According to the historical cost principle, how should a company record the purchase of equipment?

Accepted Answer

At the amount paid to acquire the equipment.

Question 3

A company has the following balances at year-end: Cash $$10,000, Accounts Receivable 5$$,000, Equipment $$15,000, Accumulated Depreciation 6$$,000. What is the total assets amount?

Accepted Answer

$24,000

Question 4

If a company provides services on account for $50,000, what is the immediate impact on the accounting equation?

Accepted Answer

Assets increase and stockholders’ equity increases.

Question 5

Which of the following best describes the purpose of adjusting entries?

Accepted Answer

To ensure revenues and expenses are recorded in the correct period.

Question 6

A company pays $24,000 for a one-year insurance policy on September 1. What is the adjusting entry on December 31?

Accepted Answer

Debit Insurance Expense $$8,000; Credit Prepaid Insurance 8$$,000

Question 7

Farmer Brown buys a tractor for $400,000, expecting to use it for 10 years with no salvage value. What is the annual depreciation expense using straight-line depreciation?

Accepted Answer

$40,000

Question 8

If a company forgets to record annual depreciation expense, what is the effect on the balance sheet and net income?

Accepted Answer

Assets and net income are both overstated.

Question 9

Which of the following accounts is closed to retained earnings at the end of the period?

Accepted Answer

Dividends

Question 10

A company has current assets of $$20, current liabilities of 10$$, long-term liabilities of $$10, and stockholders’ equity of 30. $$What is the current ratio?

Accepted Answer

$$2.00$$

Question 11

If a company’s beginning retained earnings is $$100,000, ending retained earnings is 150$$,000, dividends are $$25,000, and owners made contributions of 50$$,000, what is net income for the year?

Accepted Answer

$$75,000$$

Question 12

Which of the following is true regarding the separate entity assumption?

Accepted Answer

The business is treated as distinct from its owners for accounting purposes.

Question 13

A company’s assets at 12/31/16 totaled $$400,000 and stockholders’ equity was 250$$,000. During 2017, assets increased by $$150,000 and liabilities increased by 100$$,000. What was stockholders’ equity at 12/31/17?

Accepted Answer

$$300,000$$

Question 14

Which of the following best describes the impact of paying a $5,000 dividend on the accounting equation?

Accepted Answer

Assets decrease and stockholders’ equity decreases.

Question 15

If a company receives a $60,000 payment in advance for services to be performed over a year, what is the correct initial journal entry?

Accepted Answer

Debit Cash $$60,000; Credit Unearned Revenue 60$$,000

Question 16

Which of the following is a characteristic of a contra asset account?

Accepted Answer

It has a normal credit balance and reduces the value of a related asset.

Question 17

A company’s trial balance shows Service Revenue $$20,000 and Salary Expense 12$$,000. What is the net income?

Accepted Answer

$$8,000$$

Question 18

Which of the following best describes the double taxation of corporations?

Accepted Answer

Corporate profits are taxed, and dividends paid to shareholders are taxed again.

Question 19

If a company’s total assets are $$50, total liabilities are 20$$, and stockholders’ equity is $30, what is the debt ratio?

Accepted Answer

$$0.40$$

Question 20

Which of the following is true about the closing process in accounting?

Accepted Answer

It resets temporary accounts to zero for the next period.

Fundamentals of Financial Accounting: Business Organization, Principles, and the Accounting Equation

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