Q: A company paid $2,400 for a one-year insurance policy on October 1. What is the insurance expense recognized by December 31?

$$Insurance\ Expense = \frac{2,400}{12} \times 3 = 600$$

Question 1

Which of the following best describes the primary objective of financial accounting?

Accepted Answer

To provide useful financial information to external users for decision-making.

Question 2

Which of the following is NOT a characteristic of useful financial information according to the conceptual framework?

Accepted Answer

Profitability

Question 3

A company purchased equipment for $50,000 cash. Which of the following is the correct journal entry?

Accepted Answer

Debit Equipment $$50,000; Credit Cash 50$$,000

Question 4

Which of the following equations correctly represents the basic accounting equation?

Accepted Answer

$$Assets = Liabilities + Equity$$

Question 5

If a company has total assets of $$120,000 and total liabilities of 70$$,000, what is the amount of equity?

Accepted Answer

$$Equity = Assets - Liabilities = 120,000 - 70,000 = 50,000$$

Question 6

Which of the following best describes the accrual basis of accounting?

Accepted Answer

Revenues are recorded when earned and expenses when incurred, regardless of cash flow.

Question 7

A company receives $10,000 cash in advance for services to be performed next month. What is the correct journal entry at the time of receipt?

Accepted Answer

Debit Cash $$10,000; Credit Unearned Revenue 10$$,000

Question 8

Which of the following statements about adjusting entries is TRUE?

Accepted Answer

Adjusting entries ensure that revenues and expenses are recorded in the correct period.

Question 9

A company paid $2,400 for a one-year insurance policy on October 1. What is the insurance expense recognized by December 31?

Accepted Answer

$$Insurance\ Expense = \frac{2,400}{12} 	imes 3 = 600$$

Question 10

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

Accepted Answer

Accumulated Depreciation

Question 11

A company has the following balances: Cash $$5,000; Accounts Receivable 10$$,000; Inventory $$7,000; Accounts Payable 8$$,000. What is the company's working capital?

Accepted Answer

$$Working\ Capital = (5,000 + 10,000 + 7,000) - 8,000 = 14,000$$

Question 12

Which of the following transactions would NOT affect the total assets of a company?

Accepted Answer

Collecting cash from a customer on account

Question 13

Which of the following best describes the matching principle?

Accepted Answer

Expenses are matched with revenues in the period in which efforts are made to generate those revenues.

Question 14

A company earned $$15,000 in service revenue, of which 12$$,000 was received in cash and $3,000 is still receivable. What is the amount of revenue recognized under the accrual basis?

Accepted Answer

$$Revenue = 15,000$$

Question 15

Which of the following is NOT a component of the statement of financial position (balance sheet)?

Accepted Answer

Revenue

Question 16

A company has beginning retained earnings of $$20,000, net income of 8$$,000, and pays dividends of $2,000. What is the ending retained earnings?

Accepted Answer

$$Ending\ Retained\ Earnings = 20,000 + 8,000 - 2,000 = 26,000$$

Question 17

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

Accepted Answer

Recording depreciation expense at year-end

Question 18

A company discovers that it understated its depreciation expense by $1,000 in the previous year. What is the effect on last year's net income?

Accepted Answer

Net income was overstated by $1,000

Question 19

Which of the following best describes the purpose of closing entries in the accounting cycle?

Accepted Answer

To transfer the balances of temporary accounts to retained earnings

Question 20

A company has total revenues of $$100,000, total expenses of 70$$,000, and dividends of $10,000. What is the net income?

Accepted Answer

$$Net\ Income = 100,000 - 70,000 = 30,000$$

MGAB01H3 Introduction to Financial Accounting I – Syllabus and Study Guide

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