Q: Which formula correctly represents the fundamental accounting equation?

$$\text{Assets} = \text{Liabilities} + \text{Owners' Equity}$$

Q: What is the formula for calculating straight-line depreciation?

$$\frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life in time}}$$

Q: What is the formula for calculating book value?

$$\text{Book Value} = \text{Cost} - \text{Accumulated Depreciation}$$

Q: Which formula is used to calculate gross profit?

$$\text{Gross Profit} = \text{Net Sales} - \text{COGS}$$

Q: Which formula is used to calculate interest?

$$\text{Interest} = \text{Principal} \times \text{Interest \%} \times \frac{n}{12}$$

Question 1

Which formula correctly represents the fundamental accounting equation?

Accepted Answer

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

Question 2

A company purchases equipment for $$24,000, pays 1$$,200 in sales taxes, $$200 for insurance during transit, and 400 $$for installation and testing. What is the total cost recorded for the equipment?

Accepted Answer

$$25,800$$

Question 3

Which method of depreciation results in the highest expense in the first year?

Accepted Answer

Double-declining-balance

Question 4

A company issues 500 shares of $$5 par common stock for 3$$,000. What is the correct journal entry?

Accepted Answer

Debit Cash $$3,000$$, Credit Common Stock $$2,500$$, Credit Paid-in Capital in Excess of Par $$500$$

Question 5

Which of the following is NOT a required payroll deduction?

Accepted Answer

Retirement Plan Contributions

Question 6

A company purchases land for $$150,000 and incurs 3$$,000 in legal fees, $$12,000 to demolish an old building, and 5$$,000 for grading and leveling. What is the total cost recorded for the land?

Accepted Answer

$$170,000$$

Question 7

What is the formula for calculating straight-line depreciation?

Accepted Answer

$$\frac{	ext{Cost} - 	ext{Salvage Value}}{	ext{Useful Life in time}}$$

Question 8

Which characteristic of a corporation is considered a disadvantage?

Accepted Answer

Double taxation

Question 9

A company declares a cash dividend of $3 per share for 10,000 shares of common stock. What is the correct journal entry?

Accepted Answer

Debit Cash Dividends $$30,000$$, Credit Dividends Payable $$30,000$$

Question 10

Which of the following items should be included in the cost of a newly purchased machine?

Accepted Answer

Purchase price, shipping costs, and installation costs

Question 11

What is the formula for calculating book value?

Accepted Answer

$$	ext{Book Value} = 	ext{Cost} - 	ext{Accumulated Depreciation}$$

Question 12

A company paid $$6 per share to purchase 1,100 shares of its 3 $$par common stock as treasury stock. How did this affect total equity?

Accepted Answer

Decreased total equity by $$6,600$$

Question 13

After a 2-for-1 stock split, a share trading at $150 would now trade at:

Accepted Answer

$$75$$

Question 14

Which formula is used to calculate gross profit?

Accepted Answer

$$	ext{Gross Profit} = 	ext{Net Sales} - 	ext{COGS}$$

Question 15

Which of the following is NOT included in stockholders’ equity?

Accepted Answer

Bonds payable

Question 16

A company constructs a new office building with architect fees of $$30,000, building permits 5$$,000, construction materials and labor $$800,000, interest expense 4$$,000, and removal of old buildings $15,000. What is the total cost capitalized?

Accepted Answer

$$854,000$$

Question 17

Which formula is used to calculate interest?

Accepted Answer

$$	ext{Interest} = 	ext{Principal} 	imes 	ext{Interest \%} 	imes \frac{n}{12}$$

Question 18

Which of the following best describes a stock split?

Accepted Answer

A division of each share into multiple shares

Question 19

Which formula is used to calculate the cash ratio?

Accepted Answer

$$	ext{Cash Ratio} = \frac{	ext{Cash} + 	ext{Cash Equivalents}}{	ext{Total Liabilities}}$$

Principles of Accounting – Quiz 4 Study Guide: Step-by-Step Guidance

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