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

$$ (\text{Cost} - \text{Residual Value}) / \text{Useful Life} $$

Question 1

Which of the following best describes the time period concept in financial accounting?

Accepted Answer

It assumes that a business’ activities can be sliced into small time segments and that financial statements can be prepared for specific periods, such as a month, quarter, or year.

Question 2

According to the revenue recognition principle, when should revenue be recognized?

Accepted Answer

When the performance obligation is satisfied, regardless of when cash is received.

Question 3

Smart Touch Learning prepaid three months of office rent for $3,000 on December 1. By December 31, how much should be reported as Prepaid Rent on the balance sheet?

Accepted Answer

$2,000

Question 4

Which of the following is an example of a deferral adjustment?

Accepted Answer

Recording prepaid insurance as an expense as it is used up.

Question 5

What is the formula for straight-line depreciation?

Accepted Answer

$$ (	ext{Cost} - 	ext{Residual Value}) / 	ext{Useful Life} $$

Question 6

If Smart Touch Learning purchased furniture for $18,000 with a useful life of 5 years and no residual value, what is the monthly depreciation expense using the straight-line method?

Accepted Answer

$300

Question 7

Which of the following statements about accumulated depreciation is TRUE?

Accepted Answer

It is a contra asset account with a normal credit balance.

Question 8

What is the book value of an asset?

Accepted Answer

The asset’s cost minus accumulated depreciation.

Question 9

Smart Touch Learning collected $600 in advance for services to be performed from May through October. Under the accrual basis, how much revenue should be recognized each month?

Accepted Answer

$100

Question 10

Which journal entry correctly records the adjusting entry for $400 of supplies used during the period?

Accepted Answer

Debit Supplies Expense $$400; Credit Supplies 400$$

Question 11

A company pays its employee a monthly salary of $2,400, half on the 15th and half on the 1st of the next month. What adjusting entry is needed on December 31?

Accepted Answer

Debit Salaries Expense $$1,200; Credit Salaries Payable 1$$,200

Question 12

Which of the following best describes a contra account?

Accepted Answer

An account that is paired with and listed immediately after its related account and has a normal balance opposite to the related account.

Question 13

If Smart Touch Learning did not record the adjusting entry for supplies used, what would be the effect on the financial statements?

Accepted Answer

Assets would be overstated and expenses would be understated.

Question 14

Which of the following is an example of an accrued expense?

Accepted Answer

Interest expense incurred but not yet paid

Question 15

How is the amount of interest expense calculated for a note payable?

Accepted Answer

$$ 	ext{Principal} 	imes 	ext{Interest Rate} 	imes 	ext{Time} $$

Question 16

Which of the following is true about deferred revenue?

Accepted Answer

It is a liability account representing cash received before services are performed.

Question 17

If Smart Touch Learning collected $$600 in advance for services and earned 200 by $$December 31, what adjusting entry should be made?

Accepted Answer

Debit Unearned Revenue $$200; Credit Service Revenue 200$$

Question 18

Which of the following best describes the purpose of an adjusted trial balance?

Accepted Answer

To list all accounts and their balances after adjusting entries have been made.

Question 19

Which of the following is NOT a step in the revenue recognition process?

Accepted Answer

Record cash receipts as revenue regardless of performance obligations.

The Adjusting Process in Financial Accounting: Principles, Examples, and Applications

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