Q: Which of the following best describes the quick ratio?

$$\text{Quick Ratio} = \frac{\text{Cash} + \text{Marketable Securities} + \text{Accounts Receivable}}{\text{Current Liabilities}}$$

Question 1

A company purchases equipment for $10,000 cash. Which of the following is the correct journal entry to record this transaction?

Accepted Answer

Debit Equipment $$10,000; Credit Cash 10$$,000

Question 2

Which of the following best describes the purpose of adjusting journal entries at the end of an accounting period?

Accepted Answer

To ensure that revenues and expenses are recorded in the period in which they are earned or incurred

Question 3

Which of the following is a strength of the Statement of Cash Flows?

Accepted Answer

It provides information about a company's liquidity and ability to generate cash.

Question 4

Which of the following is a weakness of the Statement of Cash Flows?

Accepted Answer

It does not provide information about non-cash investing and financing activities.

Question 5

A company has the following balances: Current Assets $$50,000, Current Liabilities 25$$,000. What is the current ratio?

Accepted Answer

$$2.0$$

Question 6

Where is net income reported in the financial statements?

Accepted Answer

On the income statement and as part of retained earnings in the statement of changes in equity

Question 7

Which of the following is NOT considered a current asset?

Accepted Answer

Equipment

Question 8

A company has net income of $$40,000, sales of 200$$,000, and average total assets of $100,000. What is the Return on Assets (ROA)?

Accepted Answer

$$0.4 or$$ $$40\%$$

Question 9

Which of the following transactions would NOT affect the current ratio?

Accepted Answer

Declaring a cash dividend (not yet paid)

Question 10

A company issues common stock for $15,000 cash. What is the effect on the accounting equation?

Accepted Answer

Assets increase by $$15,000; Equity increases by 15$$,000

Question 11

Which of the following best describes the quick ratio?

Accepted Answer

$$	ext{Quick Ratio} = \frac{	ext{Cash} + 	ext{Marketable Securities} + 	ext{Accounts Receivable}}{	ext{Current Liabilities}}$$

Question 12

If a company has cash flows from operating activities of $$30,000, cash flows from investing activities of -10$$,000, and cash flows from financing activities of $5,000, what is the net increase in cash?

Accepted Answer

$$25,000$$

Question 13

Which of the following is an example of an investing activity on the statement of cash flows?

Accepted Answer

Purchase of equipment

Question 14

Which of the following ratios is used to evaluate a company's ability to pay its short-term obligations?

Accepted Answer

Current Ratio

Question 15

A company has current assets of $$80,000, inventory of 20$$,000, and current liabilities of $40,000. What is the quick ratio?

Accepted Answer

$$1.5$$

Question 16

Which of the following best explains why net income does not equal cash flow from operations?

Accepted Answer

Net income includes non-cash items such as depreciation and accruals.

Question 17

Which of the following would increase the current ratio, assuming all other factors remain constant?

Accepted Answer

Paying off a current liability with cash

Question 18

A company records depreciation expense of $5,000 for the year. What is the effect on the financial statements?

Accepted Answer

Net income decreases by $$5,000; accumulated depreciation increases by 5$$,000

Question 19

Which of the following is the correct formula for calculating net income?

Accepted Answer

$$	ext{Net Income} = 	ext{Revenues} - 	ext{Expenses}$$

Question 20

Which of the following best describes the main purpose of financial ratios?

Accepted Answer

To analyze and interpret financial statement data for decision making

Exam Preparation Notes: Liabilities, Shareholders' Equity, Statement of Cash Flows, and Financial Statement Analysis

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