Q: Which of the following is the correct formula for calculating Earnings Per Share (EPS) for a company with preferred stock?

$$ \text{EPS} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Weighted Average Number of Common Shares Outstanding}} $$

Q: A company issues a 5-year, non-interest-bearing note receivable for $$50,000. The market rate is 10%. What is the present value of the note? (Use the present value factor 0.62092$ for 5 periods at 10%)

$$ 50,000 \times 0.62092 = 31,046 $$

Question 1

Which of the following best describes the primary objective of financial reporting according to GAAP?

Accepted Answer

To provide information that is useful to present and potential equity investors, lenders, and other creditors in making decisions about providing resources to the entity.

Question 2

A company purchases a piece of equipment for $50,000 cash. Which of the following journal entries correctly records this transaction?

Accepted Answer

Debit Equipment $$50,000; Credit Cash 50$$,000

Question 3

Which of the following is NOT a fundamental qualitative characteristic of useful accounting information?

Accepted Answer

Timeliness

Question 4

A company receives $12,000 cash on January 31 for a one-year contract to provide services beginning February 1. According to accrual accounting, how should this transaction be recorded on January 31?

Accepted Answer

Debit Cash $$12,000; Credit Unearned Revenue 12$$,000

Question 5

Which of the following best describes the difference between the gross and net methods for recording sales discounts?

Accepted Answer

The gross method records sales at the full invoice price and recognizes discounts only when taken; the net method records sales net of discounts and recognizes forfeited discounts as revenue.

Question 6

A company uses the allowance method for bad debts. At year-end, Accounts Receivable is $$100,000 and the Allowance for Doubtful Accounts has a credit balance of 3$$,000. An aging schedule indicates that $15,000 should be the ending balance in the allowance account. What is the required adjusting entry?

Accepted Answer

Debit Bad Debt Expense $$12,000; Credit Allowance for Doubtful Accounts 12$$,000

Question 7

Which of the following transactions would require an adjusting entry at the end of the period?

Accepted Answer

Accrued salaries earned by employees but not yet paid

Question 8

Which of the following is the correct formula for calculating Earnings Per Share (EPS) for a company with preferred stock?

Accepted Answer

$$ 	ext{EPS} = \frac{	ext{Net Income} - 	ext{Preferred Dividends}}{	ext{Weighted Average Number of Common Shares Outstanding}} $$

Question 9

Which of the following is an example of a contra-asset account?

Accepted Answer

Accumulated Depreciation

Question 10

A company uses the periodic inventory system. If ending inventory is understated by $10,000 in the current year, what is the effect on net income in the current and following year (assuming the error is corrected in the following year)?

Accepted Answer

Net income is understated in the current year and overstated in the following year.

Question 11

Which of the following best describes the treatment of unrealized holding gains and losses on available-for-sale debt securities under GAAP?

Accepted Answer

They are reported in Other Comprehensive Income and accumulated in Stockholders’ Equity.

Question 12

A company issues a 5-year, non-interest-bearing note receivable for $$50,000. The market rate is 10%. What is the present value of the note? (Use the present value factor 0.62092$ for 5 periods at 10%)

Accepted Answer

$$ 50,000 	imes 0.62092 = 31,046 $$

Question 13

Which of the following is NOT a required step in the five-step revenue recognition model under ASU 2014-09?

Accepted Answer

Recognize revenue when cash is received.

Question 14

A company using FIFO has the following inventory data: Beginning Inventory: 3 units @ $$4; Purchases: 10 units @ 7$$, 6 units @ $$8, 1 unit @ 12. If 16 $$units are sold during the period, what is the value of ending inventory?

Accepted Answer

$$ (1 	ext{ unit} 	imes 12) + (3 	ext{ units} 	imes 8) = 12 + 24 = 36 $$

Question 15

Which of the following is a Level 3 input in the fair value hierarchy established by FASB?

Accepted Answer

Company estimates based on discounted expected cash flows

Question 16

Which of the following is the correct formula for the present value of an ordinary annuity?

Accepted Answer

$$ PV = PMT 	imes (P_{n,i}) $$

Question 17

A company sells goods on credit for $100,000. It estimates that 2% of credit sales will be uncollectible. What is the journal entry to record the bad debt expense using the percentage of sales method?

Accepted Answer

Debit Bad Debt Expense $$2,000; Credit Allowance for Doubtful Accounts 2$$,000

Question 18

Which of the following is true regarding the treatment of discontinued operations on the income statement?

Accepted Answer

They are reported separately, net of tax, below income from continuing operations.

Comprehensive Study Notes for Financial Accounting: The Accounting Process, Recording, Adjusting, and Reporting

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