Q: Which formula is used to calculate straight-line depreciation?

$$\text{Depreciation Expense} = \frac{\text{Asset Cost} - \text{Salvage Value}}{\text{Useful Life}}$$

Q: Which of the following is the correct formula for profit margin?

$$\text{Profit Margin} = \frac{\text{Net Income}}{\text{Net Sales}}$$

Question 1

Which of the following best describes the main difference between accrual basis and cash basis accounting?

Accepted Answer

Accrual basis records revenues when earned and expenses when incurred, while cash basis records them when cash is received or paid.

Question 2

A company pays $2,400 for a 24-month insurance policy on December 1, 2021. Using accrual accounting, how much insurance expense should be recognized on the income statement for the month ended December 31, 2021?

Accepted Answer

$100

Question 3

Which principle requires that expenses be recorded in the same period as the revenues they help generate?

Accepted Answer

Expense recognition (matching) principle

Question 4

A company purchased $$9,720 of supplies during December. At year-end, a physical count shows 8$$,670 of supplies remain. What is the correct adjusting entry for supplies expense?

Accepted Answer

Debit Supplies Expense $$1,050; Credit Supplies 1$$,050

Question 5

Which formula is used to calculate straight-line depreciation?

Accepted Answer

$$	ext{Depreciation Expense} = \frac{	ext{Asset Cost} - 	ext{Salvage Value}}{	ext{Useful Life}}$$

Question 6

FastForward purchased equipment for $$26,000 with a 8$$,000 salvage value and a 5-year useful life. What is the monthly depreciation expense using straight-line depreciation?

Accepted Answer

$300

Question 7

If a company receives $15,000 in advance for services and performs two-thirds of the work by year-end, what is the adjusting entry?

Accepted Answer

Debit Unearned Revenue $$10,000; Credit Service Revenue 10$$,000

Question 8

Which adjusting entry is required when wages of $3,200 have been incurred but not yet paid at year-end?

Accepted Answer

Debit Wages Expense $$3,200; Credit Wages Payable 3$$,200

Question 9

A company earned $1,800 of consulting revenue by year-end that has not yet been billed or received. What is the correct adjusting entry?

Accepted Answer

Debit Accounts Receivable $$1,800; Credit Consulting Revenue 1$$,800

Question 10

Which of the following is the correct formula for profit margin?

Accepted Answer

$$	ext{Profit Margin} = \frac{	ext{Net Income}}{	ext{Net Sales}}$$

Question 11

Given the following: Unadjusted revenues = $$80,700; Service revenue adjustment = 10$$,000; Unadjusted expenses = $$48,000; Total expense adjustments = 35$$,780. What is the adjusted net income?

Accepted Answer

$6,920

Question 12

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

Accepted Answer

To ensure that revenues and expenses are recognized in the correct accounting period

Question 13

If a company has a Prepaid Insurance account with a $$6,000 balance and 1$$,100 of unexpired coverage remains at year-end, what is the insurance expense for the period?

Accepted Answer

$4,900

Question 14

Which of the following is an example of a deferral adjusting entry?

Accepted Answer

Transferring a portion of prepaid rent to rent expense

Question 15

A company’s adjusted trial balance shows: Services Revenue $$20,000; Total Expenses 13$$,300; Withdrawals $$3,000; Beginning Capital 24$$,800. What is the ending capital balance?

Accepted Answer

$28,500

Question 16

Which of the following is the correct sequence for preparing financial statements from an adjusted trial balance?

Accepted Answer

Income Statement → Statement of Owner’s Equity → Balance Sheet → Statement of Cash Flows

Question 17

If a company’s net income is $$6,240 and net sales are 60$$,000, what is the profit margin?

Accepted Answer

$$10.4\%$$

Question 18

Which of the following adjusting entries increases both an asset and a revenue account?

Accepted Answer

Debit Accounts Receivable; Credit Service Revenue

Question 19

A company’s physical count of supplies at year-end is $$300. The Supplies account shows 4$$,180 before adjustment. What is the adjusting entry?

Accepted Answer

Debit Supplies Expense $$3,880; Credit Supplies 3$$,880

Adjusting Accounts for Financial Statements: Accrual Accounting and Adjusting Entries

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