Q: What is the formula for calculating straight-line depreciation expense for a plant asset?

$$\text{Depreciation Expense} = \frac{\text{Cost of Asset}}{\text{Useful Life}}$$

Q: What is the formula for the current ratio?

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

Question 1

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

Accepted Answer

Accrual accounting records transactions when they occur, regardless of cash flow, while cash-basis accounting records transactions only when cash is received or paid.

Question 2

According to the revenue recognition principle, when should revenue be recorded?

Accepted Answer

When goods are delivered or services are performed and the amount is expected to be received.

Question 3

Which adjusting entry is required at the end of the period for prepaid rent if one month of a three-month prepaid rent has expired?

Accepted Answer

Debit Rent Expense, Credit Prepaid Rent

Question 4

What is the formula for calculating straight-line depreciation expense for a plant asset?

Accepted Answer

$$	ext{Depreciation Expense} = \frac{	ext{Cost of Asset}}{	ext{Useful Life}}$$

Question 5

If Alladin Travel, Inc. paid $$700 for supplies and 400 $$remain at month-end, what is the supplies expense for the month?

Accepted Answer

$$300$$

Question 6

Which account is credited when recording the adjusting entry for accrued salary expense at the end of the period?

Accepted Answer

Salary Payable

Question 7

What is the book value of equipment if the cost is $$24,000 and accumulated depreciation is 400$$?

Accepted Answer

$$23,600$$

Question 8

Which of the following is a contra asset account?

Accepted Answer

Accumulated Depreciation

Question 9

What is the effect on the current ratio if a company issues stock and receives cash?

Accepted Answer

The current ratio increases.

Question 10

Which of the following transactions would require an accrual adjusting entry?

Accepted Answer

Incurring salary expense that will be paid next month.

Question 11

What is the formula for the current ratio?

Accepted Answer

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

Question 12

Which of the following accounts is NOT closed at the end of the accounting period?

Accepted Answer

Equipment

Question 13

If a company collects cash for unearned service revenue, what is the initial journal entry?

Accepted Answer

Debit Cash, Credit Unearned Service Revenue

Question 14

Which of the following best describes the matching principle?

Accepted Answer

Expenses are recognized in the same period as the related revenues are earned.

Question 15

A company has total assets of $$100,000 and total liabilities of 40$$,000. What is its debt ratio?

Accepted Answer

$$0.4$$

Question 16

Which of the following is considered a current asset?

Accepted Answer

Accounts Receivable

Question 17

What is the effect on the debt ratio if a company pays cash to purchase a building?

Accepted Answer

The debt ratio remains unchanged.

Question 18

Which financial statement reports assets, liabilities, and stockholders’ equity as of a specific date?

Accepted Answer

Balance Sheet

Question 19

Which type of chart is best for visualizing data over time?

Accepted Answer

Line chart

Question 20

If Alladin Travel, Inc. earned $$7,500 in service revenue and incurred 4$$,600 in total expenses, what is the net income for the month?

Accepted Answer

$$2,900$$

Accrual Accounting and Income: Chapter 3 Study Notes

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