Q: Which of the following is the correct formula for calculating ending inventory using the periodic system?

$$\text{Ending Inventory} = \text{Beginning Inventory} + \text{Purchases} - \text{Cost of Goods Sold}$$

Question 1

Which of the following best describes the accounting equation, and what does it represent?

Accepted Answer

Assets = Liabilities + Equity; it represents the financial position of a company at a specific point in time.

Question 2

A company purchased equipment for $$50,000, with an estimated residual value of 5$$,000 and a useful life of 10 years. Using the straight-line depreciation method, what is the annual depreciation expense?

Accepted Answer

$$ \frac{50,000 - 5,000}{10} = 4,500 $$

Question 3

Which principle requires that companies record assets at their original purchase price?

Accepted Answer

Historical Cost Principle

Question 4

A company issues 1,000 ordinary shares at $10 per share. What is the effect on equity?

Accepted Answer

Equity increases by $10,000

Question 5

Which of the following is NOT a component of internal control?

Accepted Answer

Opportunity cost analysis

Question 6

If a company uses the FIFO method during a period of rising prices, what is the likely effect on net income and ending inventory?

Accepted Answer

Net income is higher and ending inventory is higher.

Question 7

Which financial statement shows the cash inflows and outflows for a company over a period?

Accepted Answer

Statement of Cash Flows

Question 8

A company has beginning equity of $$100,000, net income of 20$$,000, issues shares worth $$10,000, and pays dividends of 5$$,000. What is the ending equity?

Accepted Answer

$$100,000 + 20,000 + 10,000 - 5,000 = 125,000$$

Question 9

Which of the following transactions would NOT affect the cash balance on the Statement of Cash Flows?

Accepted Answer

Depreciation expense

Question 10

Which ratio measures a company's ability to pay its short-term obligations?

Accepted Answer

Current Ratio

Question 11

A company has current assets of $$80,000 and current liabilities of 40$$,000. What is its current ratio?

Accepted Answer

$$ \frac{80,000}{40,000} = 2 $$

Question 12

Which of the following best describes the matching principle?

Accepted Answer

Expenses are matched with revenues in the period in which they are incurred.

Question 13

A company uses the periodic inventory system. At year-end, a physical count shows $$15,000 of inventory. Beginning inventory was 10$$,000, purchases were $$50,000, and sales were 70$$,000. What is the cost of goods sold?

Accepted Answer

$$10,000 + 50,000 - 15,000 = 45,000$$

Question 14

Which of the following is an example of a contra asset account?

Accepted Answer

Accumulated Depreciation

Question 15

Which of the following is NOT a purpose of adjusting entries?

Accepted Answer

To record cash transactions

Question 16

A company has sales of $$200,000, cost of goods sold of 120$$,000, and operating expenses of $50,000. What is the net income?

Accepted Answer

$$200,000 - 120,000 - 50,000 = 30,000$$

Question 17

Which of the following is a limitation of the Statement of Financial Position?

Accepted Answer

It may not reflect current market values of assets.

Question 18

Which of the following is the correct formula for calculating ending inventory using the periodic system?

Accepted Answer

$$	ext{Ending Inventory} = 	ext{Beginning Inventory} + 	ext{Purchases} - 	ext{Cost of Goods Sold}$$

Question 19

Which of the following best describes the purpose of a trial balance?

Accepted Answer

To ensure that total debits equal total credits before preparing financial statements

Comprehensive Study Notes for Financial Accounting

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