Q: Which of the following is the correct formula for calculating the ending balance in Retained Earnings?

$$\text{Beginning Retained Earnings} + \text{Net Income} - \text{Dividends}$$

Question 1

Which of the following best describes the historical cost principle in accounting?

Accepted Answer

Assets are recorded at the amount paid to acquire them, regardless of subsequent changes in value.

Question 2

A company purchased 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 component of the fraud triangle?

Accepted Answer

Materiality

Question 4

A company uses the accrual basis of accounting. When should revenue be recognized according to the revenue recognition principle?

Accepted Answer

When the company delivers goods or services, regardless of when cash is received.

Question 5

Which of the following adjusting entries is required at the end of the period for accrued expenses?

Accepted Answer

Debit an expense account; Credit a liability account

Question 6

A company has the following balances: Assets $$120,000, Liabilities 50$$,000. What is the amount of Stockholders' Equity?

Accepted Answer

$70,000

Question 7

Which of the following best describes the purpose of a bank reconciliation?

Accepted Answer

To ensure the company’s cash records match the bank’s records.

Question 8

Under the perpetual inventory system, which journal entry is made when inventory is sold for cash?

Accepted Answer

Debit Cash; Credit Sales Revenue; Debit Cost of Goods Sold; Credit Inventory

Question 9

Which of the following is a contra-asset account?

Accepted Answer

Accumulated Depreciation

Question 10

A company uses FIFO to value its inventory. If prices are rising, which of the following statements is true?

Accepted Answer

Ending Inventory will be higher than under LIFO.

Question 11

Which of the following is the correct formula for calculating the ending balance in Retained Earnings?

Accepted Answer

$$	ext{Beginning Retained Earnings} + 	ext{Net Income} - 	ext{Dividends}$$

Question 12

Which of the following is NOT a step in the accounting cycle?

Accepted Answer

Calculating depreciation expense

Question 13

A company estimates that $2,000 of its accounts receivable will be uncollectible. Which adjusting entry should be made?

Accepted Answer

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

Question 14

Which of the following best describes the matching principle?

Accepted Answer

Expenses should be recognized in the same period as the revenues they help to generate.

Question 15

Which of the following is a key difference between US GAAP and IFRS?

Accepted Answer

IFRS allows revaluation of property, plant, and equipment; US GAAP does not.

Question 16

A company has the following information: Beginning Inventory = $$10,000, Purchases = 25$$,000, Ending Inventory = $8,000. What is the Cost of Goods Sold?

Accepted Answer

$$\10$$,000 + \$$25,000 - \8$$,000 = \$$27,000$$

Question 17

Which of the following is an example of an internal control activity?

Accepted Answer

Requiring two signatures on checks over $5,000

Question 18

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

Accepted Answer

To transfer the balances of temporary accounts to retained earnings

Question 19

A company issues a $10,000, 6-month, 8% note payable. What is the interest expense at maturity?

Accepted Answer

$$\10$$,000 	imes 8\% 	imes \frac{6}{12} = \$$400$$

Question 20

Which of the following is true regarding the allowance method for uncollectible accounts?

Accepted Answer

It matches bad debt expense to the period in which the related sales are made.

Financial Accounting 201: Comprehensive Final Exam Study Guide

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