Q: Which of the following is the correct formula for straight-line depreciation?

$$ \text{Straight-line depreciation} = \frac{\text{Cost} - \text{Residual value}}{\text{Useful life}} $$

Question 1

Which of the following best describes the main difference between cash basis accounting and accrual basis accounting?

Accepted Answer

Cash basis accounting records revenues and expenses only when cash is exchanged, while accrual basis accounting records revenues when earned and expenses when incurred.

Question 2

A company pays $1,200 for a six-month insurance policy on May 1. Using accrual accounting, how much insurance expense should be recognized on May 31?

Accepted Answer

$200

Question 3

Which principle requires that expenses be recorded in the same period as the revenues they help generate?

Accepted Answer

Matching principle

Question 4

A company receives $600 on April 30 for services to be performed over the next six months. Under accrual accounting, how much revenue should be recognized by May 31?

Accepted Answer

$100

Question 5

Which of the following is the correct formula for straight-line depreciation?

Accepted Answer

$$ 	ext{Straight-line depreciation} = \frac{	ext{Cost} - 	ext{Residual value}}{	ext{Useful life}} $$

Question 6

On December 31, a company determines that $400 of supplies have been used during the month. What is the correct adjusting entry?

Accepted Answer

Debit Supplies Expense $$400; Credit Supplies 400$$

Question 7

A company purchased furniture for $18,000 with a useful life of 5 years and no residual value. What is the monthly depreciation expense using the straight-line method?

Accepted Answer

$300

Question 8

Which account is a contra asset account related to depreciation?

Accepted Answer

Accumulated Depreciation

Question 9

If a company fails to record an adjusting entry for accrued salaries at year-end, what is the effect on the financial statements?

Accepted Answer

Net income is overstated and liabilities are understated.

Question 10

A company incurs $$100 interest on a 60$$,000 loan at 2% annual interest for one month. What is the correct adjusting entry at month-end?

Accepted Answer

Debit Interest Expense $$100; Credit Interest Payable 100$$

Question 11

Which of the following best describes a deferred revenue?

Accepted Answer

A liability created when cash is received before services are performed.

Question 12

What is the purpose of preparing an adjusted trial balance?

Accepted Answer

To ensure total debits equal total credits after adjusting entries.

Question 13

Which of the following is NOT a step in the five-step revenue recognition process?

Accepted Answer

Record the cash receipt.

Question 14

A company earned $800 in service revenue in December but will not receive payment until January. What is the correct adjusting entry at December 31?

Accepted Answer

Debit Accounts Receivable $$800; Credit Service Revenue 800$$

Question 15

Which of the following best describes the matching principle?

Accepted Answer

Expenses are recorded in the same period as the revenues they help generate.

Question 16

If a company does not adjust for supplies used during the period, what is the effect on the financial statements?

Accepted Answer

Assets are overstated and expenses are understated.

Question 17

Which of the following is an example of an accrued expense?

Accepted Answer

Salaries owed to employees but not yet paid.

Question 18

What is the book value of an asset?

Accepted Answer

$$ 	ext{Book value} = 	ext{Cost} - 	ext{Accumulated Depreciation} $$

Question 19

Which of the following is the correct formula for calculating interest expense for one month on a $60,000 loan at 2% annual interest?

Accepted Answer

$$ 	ext{Interest} = 60,000 	imes 0.02 	imes \frac{1}{12} $$

Question 20

Which of the following best describes the purpose of a worksheet in the accounting cycle?

Accepted Answer

To summarize data for the preparation of the financial statements.

Chapter 3: The Adjusting Process – Financial Accounting Study Notes

Guida di studio - Domande di pratica

Study guide - Flashcard