Q: What is the formula for calculating the book value of a plant asset?

$$\text{Book Value} = \text{Cost} - \text{Accumulated Depreciation}$$

Q: What is the formula for the current ratio?

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

Question 1

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

Accepted Answer

Accrual accounting records transactions when revenue is earned and expenses are incurred, regardless of when cash is received or paid, while cash-basis accounting records transactions only when cash changes hands.

Question 2

According to the revenue principle, when should revenue be recognized?

Accepted Answer

When goods are delivered or services are performed for an amount expected to be received.

Question 3

Alladin Travel Inc. prepays three months’ store rent ($3,000) on June 1. What is the correct adjusting entry on June 30?

Accepted Answer

Debit Rent Expense $$1,000; Credit Prepaid Rent 1$$,000

Question 4

Which of the following is an example of a deferral?

Accepted Answer

Prepaid insurance recorded as an asset and then adjusted to expense.

Question 5

A company purchased equipment for $24,000 with a useful life of 5 years. Using the straight-line method, what is the monthly depreciation expense?

Accepted Answer

Monthly depreciation = $$24,000 / 60 = 400$$

Question 6

Which account is a contra asset account and has a normal credit balance?

Accepted Answer

Accumulated Depreciation

Question 7

What is the formula for calculating the book value of a plant asset?

Accepted Answer

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

Question 8

Which of the following is NOT a current asset?

Accepted Answer

Equipment

Question 9

A company accrues salary expense of $900 at the end of June, to be paid on July 1. What is the effect on the June 30 balance sheet?

Accepted Answer

Increase in liabilities and decrease in equity

Question 10

Which of the following transactions would increase a company’s current ratio?

Accepted Answer

Paying off a short-term note payable with cash

Question 11

What is the formula for the current ratio?

Accepted Answer

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

Question 12

Which of the following is a purpose of adjusting entries at period-end?

Accepted Answer

To measure income and update the balance sheet

Question 13

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

Accepted Answer

Accounts Payable

Question 14

A company receives $400 in advance for services to be performed next month. How should this transaction be recorded?

Accepted Answer

Debit Cash $$400; Credit Unearned Service Revenue 400$$

Question 15

Which of the following best describes the debt ratio?

Accepted Answer

The proportion of a company’s assets financed with debt

Question 16

What is the formula for the debt ratio?

Accepted Answer

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

Question 17

Which of the following is a real-world application of data visualization in financial accounting?

Accepted Answer

Identifying patterns and trends in financial ratios using bar and line charts

Question 18

If a company’s current assets are $$50,000 and current liabilities are 25$$,000, what is its current ratio?

Accepted Answer

$$	ext{Current Ratio} = \frac{50,000}{25,000} = 2.0$$

Question 19

Which of the following transactions would decrease a company’s net working capital?

Accepted Answer

Accruing expenses at year-end

Question 20

A company earned $300 in commission revenue for work done in June but has not yet collected the cash. How should this be recorded?

Accepted Answer

Debit Accounts Receivable $$300; Credit Commission Revenue 300$$

Accrual Accounting and Income: Chapter 3 Study Notes

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