Question 1

Which of the following journal entries correctly records the purchase of a house for $1,000,000, financed by a $800,000 bank loan and $200,000 cash?

Accepted Answer

DR House $1,000,000; CR Bank Loan $800,000; CR Cash $200,000

Question 2

According to the accounting cycle, what is the effect of an increase in assets?

Accepted Answer

It is recorded as a debit (DR).

Question 3

Techstart Inc. issues common shares for $9,000 cash. What is the correct journal entry?

Accepted Answer

DR Cash $9,000; CR Common Shares $9,000

Question 4

If Techstart Inc. receives a $10,000 bank loan, what is the impact on the balance sheet equation $Assets = Liabilities + Equity$?

Accepted Answer

Assets increase by $10,000 and Liabilities increase by $10,000.

Question 5

Which account is affected when Techstart Inc. pays $6,000 for insurance expense?

Accepted Answer

DR Insurance Expense $6,000; CR Cash $6,000

Question 6

On Dec 31, Techstart Inc. declares dividends of $3,000. What is the correct adjusting entry?

Accepted Answer

DR Dividends Declared $3,000; CR Dividends Payable $3,000

Question 7

What is the ending balance of retained earnings if the beginning balance is $0, net profit is $7,000, and dividends declared are $3,000?

Accepted Answer

$4,000

Question 8

Which of the following is a current liability for Techstart Inc. as of Dec 31?

Accepted Answer

Dividends Payable

Question 9

Calculate the gross profit (GP) for Techstart Inc. if revenue is $75,000 and cost of revenue is $12,000. Use the formula $GP = Revenue - Cost\ of\ Revenue$.

Accepted Answer

$63,000

Question 10

If Techstart Inc. has total operating expenses (OE) of $56,000 and gross profit of $63,000, what is the net profit? Use the formula $Net\ Profit = GP - OE$.

Accepted Answer

$7,000

Question 11

Which of the following best describes the purpose of a trial balance?

Accepted Answer

To ensure that total debits equal total credits in the ledger accounts.

Question 12

What is the correct journal entry for receiving $5,000 in revenue that has not yet been earned (unearned revenue)?

Accepted Answer

DR Cash $5,000; CR Unearned Revenue $5,000

Question 13

Which account is credited when Techstart Inc. pays $7,000 for prepaid marketing expense?

Accepted Answer

CR Prepaid Marketing $7,000

Question 14

If Techstart Inc. has equipment worth $16,000 and cash of $3,000, what is the total asset value?

Accepted Answer

$19,000

Question 15

Which of the following is NOT considered an equity account?

Accepted Answer

Bank Loan

Question 16

What is the effect on the accounting equation when Techstart Inc. pays $12,000 for rent expense?

Accepted Answer

Assets decrease by $12,000; Equity decreases by $12,000.

Question 17

Which of the following transactions would increase both assets and equity?

Accepted Answer

Issuing common shares for cash

Question 18

If Techstart Inc. has a bank loan of $10,000 classified as a current liability, what does this mean?

Accepted Answer

The loan is due within one year.

Question 19

Which of the following best describes the role of accounts in financial accounting?

Accepted Answer

Accounts track all activity within an account, such as cash, bank loan, or common shares.

Question 20

If Techstart Inc. has total operating expenses of $56,000 and net profit of $7,000, what is the total revenue, given cost of revenue is $12,000? Use the formulas $GP = Revenue - Cost\ of\ Revenue$ and $Net\ Profit = GP - OE$.

Accepted Answer

$75,000

The Accounting Cycle and Financial Statements: Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards