Q: Which formula correctly calculates the current ratio?

$$\frac{\text{Total current assets}}{\text{Total current liabilities}}$$

Question 1

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

Accepted Answer

Accrual accounting records the impact of transactions when they occur, regardless of cash flow, while cash-basis accounting records only cash transactions.

Question 2

A company pays $6,000 on July 1 for store rent covering the next three months. Using accrual accounting, what is the adjusting entry required at July 31?

Accepted Answer

Debit Rent Expense $$2,000; Credit Prepaid Rent 2$$,000

Question 3

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

Accepted Answer

When the business transfers promised goods or services to the customer in an amount that reflects the consideration expected to be received

Question 4

Freddy's Auto Service purchased equipment for $24,000 with a useful life of 5 years and no residual value. Using the straight-line method, what is the monthly depreciation expense?

Accepted Answer

$400

Question 5

Which of the following is an example of a deferral adjusting entry?

Accepted Answer

Transferring prepaid rent to rent expense at the end of the month

Question 6

A company has an unadjusted Supplies account balance of $$3,200. At year-end, a count shows 1$$,500 of supplies remain. What is the amount of supplies expense to be recognized?

Accepted Answer

$1,700

Question 7

Which account is credited when recording depreciation expense for equipment?

Accepted Answer

Accumulated Depreciation—Equipment

Question 8

At the end of June, Freddy's Auto Service has earned $200 of service revenue that was previously recorded as unearned. What is the adjusting entry?

Accepted Answer

Debit Unearned Service Revenue $$200; Credit Service Revenue 200$$

Question 9

Which of the following best describes an accrued expense?

Accepted Answer

An expense incurred but not yet paid in cash

Question 10

A company pays employees $7,000 per day, Monday through Friday, and the year ends on Wednesday, December 31. What is the adjusting entry for salary expense at year-end?

Accepted Answer

Debit Salary Expense $$21,000; Credit Salaries Payable 21$$,000

Question 11

Which of the following is a contra asset account?

Accepted Answer

Accumulated Depreciation

Question 12

If a company has total current assets of $$50,000 and total current liabilities of 40$$,000, what is its working capital?

Accepted Answer

$10,000

Question 13

Which formula correctly calculates the current ratio?

Accepted Answer

$$\frac{	ext{Total current assets}}{	ext{Total current liabilities}}$$

Question 14

A company has total liabilities of $$120,000 and total assets of 400$$,000. What is its debt ratio?

Accepted Answer

$$\frac{120,000}{400,000} = 0.30$$

Question 15

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

Accepted Answer

A company incurs interest expense that has not yet been paid

Question 16

What is the book value of equipment purchased for $50,000 with a useful life of 5 years and no residual value after one year of straight-line depreciation?

Accepted Answer

$40,000

Question 17

Which of the following is NOT a current liability?

Accepted Answer

Note Payable due in 5 years

Question 18

Which of the following best describes the closing process in accounting?

Accepted Answer

Transferring the balances of revenue, expense, and dividend accounts to retained earnings

Question 19

Which of the following accounts would NOT appear on an adjusted trial balance used to prepare the income statement?

Accepted Answer

Dividends

Question 20

A company earned $300 in service revenue in June but will not receive payment until July. What is the adjusting entry at June 30?

Accepted Answer

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

Accrual Accounting & Income: Principles and Applications

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