Q: Which of the following is the correct formula for calculating ending inventory using the FIFO method?

$$Ending\ Inventory = Cost\ of\ most\ recent\ purchases \times Units\ in\ ending\ inventory$$

Question 1

Which of the following best describes the primary purpose of financial accounting?

Accepted Answer

To provide information to external users for decision-making purposes.

Question 2

Which of the following equations correctly represents the basic accounting equation?

Accepted Answer

$$Assets = Liabilities + Owner's\ Equity$$

Question 3

A company receives $5,000 cash in advance for services to be performed next month. What is the correct journal entry?

Accepted Answer

Debit Cash $$5,000; Credit Unearned Revenue 5$$,000

Question 4

Which financial statement reports a company’s financial position at a specific point in time?

Accepted Answer

Balance Sheet

Question 5

If a company fails to record accrued expenses at year-end, what is the effect on the financial statements?

Accepted Answer

Liabilities are understated and net income is overstated.

Question 6

A company uses the allowance method for doubtful accounts. If it writes off a $2,000 uncollectible account, what is the effect on total assets?

Accepted Answer

Total assets are unchanged.

Question 7

A $10,000, 6-month note receivable is issued on October 1 with an annual interest rate of 8%. What amount of interest revenue should be recognized on December 31?

Accepted Answer

$$200$$

Question 8

Which inventory costing method results in the highest cost of goods sold during a period of rising prices?

Accepted Answer

LIFO

Question 9

A company purchased equipment for $50,000 with an estimated useful life of 10 years and no salvage value. What is the annual depreciation expense using the straight-line method?

Accepted Answer

$$2,500$$

Question 10

Which of the following is NOT a component of the Statement of Stockholders’ Equity?

Accepted Answer

Notes Payable

Question 11

A company declared and paid a $3,000 cash dividend. What is the effect on the accounting equation?

Accepted Answer

Assets decrease by $$3,000; Stockholders’ Equity decreases by 3$$,000

Question 12

Which of the following is the correct formula for calculating ending inventory using the FIFO method?

Accepted Answer

$$Ending\ Inventory = Cost\ of\ most\ recent\ purchases 	imes Units\ in\ ending\ inventory$$

Question 13

Which of the following transactions would require an adjusting journal entry at year-end?

Accepted Answer

Providing services that were paid for in advance

Question 14

A company’s bank statement shows a balance of $$12,000. Outstanding checks total 2$$,000 and deposits in transit total $1,500. What is the adjusted cash balance?

Accepted Answer

$$11,500$$

Question 15

Which of the following best describes the matching principle in accrual accounting?

Accepted Answer

Expenses are matched with the revenues they help to generate in the same period.

Question 16

A company issues a $20,000, 1-year note payable at 9% interest on July 1. What is the interest expense to be recorded on December 31?

Accepted Answer

$$900$$

Question 17

Which of the following is the correct closing entry for revenue accounts at year-end?

Accepted Answer

Debit Revenue; Credit Retained Earnings

Question 18

If a company purchases inventory for $8,000 on account and later pays the supplier, what is the effect on the accounting equation when the payment is made?

Accepted Answer

Assets decrease; Liabilities decrease

Question 19

Which of the following best describes amortization?

Accepted Answer

The allocation of the cost of an intangible asset over its useful life.

Question 20

Which of the following would increase retained earnings?

Accepted Answer

Net income for the period

Comprehensive Study Guide: Financial Accounting Exam Topics

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