Q: Which of the following is the correct formula for the debt ratio?

$$\text{Debt Ratio} = \frac{\text{Total Liabilities}}{\text{Total Assets}}$$

Question 1

Which of the following best describes the relationship between the income statement, statement of retained earnings, and the balance sheet?

Accepted Answer

Net income from the income statement flows into the statement of retained earnings, which then provides the ending retained earnings balance for the balance sheet.

Question 2

Given the following trial balance information, calculate the company's net income:

Cash: $$24,500
Accounts Receivable: 18$$,700
Supplies: $$4,200
Prepaid Insurance: 3$$,600
Equipment: $$75,000
Accumulated Depreciation - Equipment: 15$$,000
Accounts Payable: $$9,800
Unearned Revenue: 6$$,500
Common Stock: $$40,000
Retained Earnings: 7$$,800
Dividends: $$5,000
Service Revenue: 92$$,000
Salaries Expense: $$28,000
Rent Expense: 9$$,600
Depreciation Expense: $$7,500
Income Tax Expense: 4$$,700

Accepted Answer

$42,200

Question 3

Which of the following accounts is considered a permanent account?

Accepted Answer

Retained Earnings

Question 4

A company prepaid 12 months of rent for $24,000 on July 1st. What is the adjusting journal entry on December 31st?

Accepted Answer

Debit Rent Expense $$12,000; Credit Prepaid Rent 12$$,000

Question 5

Which of the following journal entries correctly records an accrued revenue of $5,000?

Accepted Answer

Debit Accounts Receivable $$5,000; Credit Service Revenue 5$$,000

Question 6

If a company receives $$2,000 in advance on December 1st for services to be performed, and by December 31st 1$$,000 has been earned, what is the adjusting entry on December 31st?

Accepted Answer

Debit Unearned Revenue $$1,000; Credit Service Revenue 1$$,000

Question 7

Which of the following best describes the effect on the accounting equation of an accrued salary expense in December that will not be paid until January?

Accepted Answer

Increase liabilities and decrease equity

Question 8

Which of the following is the correct formula for the debt ratio?

Accepted Answer

$$	ext{Debt Ratio} = \frac{	ext{Total Liabilities}}{	ext{Total Assets}}$$

Question 9

Under accrual accounting, when is revenue recognized?

Accepted Answer

When it is earned, regardless of when cash is received

Question 10

A company purchased supplies on account for $$9,000. Later, it paid 4$$,500 of the amount owed. What is the ending balance in Accounts Payable related to these transactions?

Accepted Answer

$4,500

Question 11

Which of the following is NOT a temporary account?

Accepted Answer

Prepaid Insurance

Question 12

Which of the following best describes the order of the accounting cycle?

Accepted Answer

Analyze transactions, journalize, post to ledger, prepare trial balance, adjust, prepare financial statements, close accounts

Question 13

Which of the following is the correct closing entry for Service Revenue of $92,000?

Accepted Answer

Debit Service Revenue $$92,000; Credit Retained Earnings 92$$,000

Question 14

If a company uses the cash basis of accounting, when are expenses recognized?

Accepted Answer

When cash is paid

Question 15

Which of the following accounts would be increased with a credit?

Accepted Answer

Service Revenue

Question 16

A company has the following balances: Total Assets $$120,000, Total Liabilities 48$$,000. What is the debt ratio?

Accepted Answer

$$0.40$$

Question 17

Which of the following is an example of a deferred expense adjusting entry?

Accepted Answer

Debit Rent Expense; Credit Prepaid Rent

Question 18

Which of the following best describes the impact of recording revenue on equity?

Accepted Answer

Revenue increases retained earnings, which increases equity

Question 19

Which of the following is the correct journal entry to record the payment of $4,500 for supplies previously purchased on account?

Accepted Answer

Debit Accounts Payable $$4,500; Credit Cash 4$$,500

Question 20

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

Accepted Answer

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

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