Q: Retained earnings at the end of the period is calculated as:

$$\text{Retained earnings at the beginning of the period} + \text{Net income} - \text{Dividends declared}$$

Q: Gross profit is calculated as:

$$\text{Net sales} - \text{Cost of goods sold}$$

Q: A company purchased equipment with a 5-year life for $60,000 on July 1, 2018. What is the accumulated depreciation and carrying amount at December 31, 2019?

Accumulated depreciation $$= \frac{60,000}{5} \times 1.5 = 18,000$$; Carrying amount $$= 60,000 - 18,000 = 42,000$$

Question 1

Which accounting standards must a publicly traded corporation in Canada follow?

Accepted Answer

International financial reporting standards

Question 2

Which of the following is NOT a characteristic of a corporation?

Accepted Answer

Shareholders have unlimited liability

Question 3

On a classified statement of financial position, how are current assets listed?

Accepted Answer

In the order in which they are expected to be converted into cash

Question 4

Which of the following is NOT considered an asset?

Accepted Answer

Dividends declared

Question 5

Retained earnings at the end of the period is calculated as:

Accepted Answer

$$	ext{Retained earnings at the beginning of the period} + 	ext{Net income} - 	ext{Dividends declared}$$

Question 6

Under the accrual basis of accounting, when is revenue recognized?

Accepted Answer

When earned, while expenses are recognized when incurred to generate revenue

Question 7

A credit to an asset account indicates:

Accepted Answer

A decrease in the asset

Question 8

Which of the following best describes an accrual?

Accepted Answer

An expense incurred but not paid or revenue earned but not received and not yet recognized

Question 9

Fang's Tune-Up Shop Ltd. uses the accrual basis of accounting. Fang services a car on May 31. The customer picks up the vehicle on June 1 and mails payment on June 5. Fang receives the cheque on June 6. When is the revenue recognized?

Accepted Answer

May 31

Question 10

Gross profit is calculated as:

Accepted Answer

$$	ext{Net sales} - 	ext{Cost of goods sold}$$

Question 11

Plumbers-on-the-Go Ltd. started the year with total assets of $$120,000 and total liabilities of 75$$,000. During the year, the business recorded $$82,000 in revenues, 45$$,000 in expenses, and paid dividends of $2,500. What is the net income for the year?

Accepted Answer

$$82,000 - 45$$,000 = $$37,000$$

Question 12

If total liabilities increased by $$18,000 and shareholders’ equity increased by 21$$,000 during a period, by how much did total assets change?

Accepted Answer

$$39,000$$ increase

Question 13

A company purchased equipment with a 5-year life for $60,000 on July 1, 2018. What is the accumulated depreciation and carrying amount at December 31, 2019?

Accepted Answer

Accumulated depreciation $$= \frac{60,000}{5} 	imes 1.5 = 18,000$$; Carrying amount $$= 60,000 - 18,000 = 42,000$$

Question 14

Griffin Inc. purchased supplies costing $$4,250. At period end, 2$$,100 remains. What is the correct adjusting entry?

Accepted Answer

Debit Supplies Expense $$2,150$$; Credit Supplies $$2,150$$

Question 15

On February 1, Chopper Motorcycles Ltd. signed a 5%, twelve-month bank loan payable for $168,000. What is the required adjusting entry for interest accrued to December 31?

Accepted Answer

Interest Expense $$= 168,000 	imes 0.05 	imes \frac{11}{12} = 7,700$$; Interest Payable $$= 7,700$$

Question 16

Operating expenses are $$45,000, sales returns and allowances 25$$,000, sales discounts $$16,000, sales 210$$,000, cost of goods sold $$79,000, income tax expense 11$$,000. What is net sales?

Accepted Answer

$$210,000 - 25,000 - 16,000 = 169,000$$

Question 17

Which of the following correctly identifies the normal balances of accounts?

Accepted Answer

Assets Debit; Liabilities Credit; Common Shares Credit; Revenues Credit; Expenses Debit

Question 18

If total liabilities increased by $22,500, what must have happened to assets and shareholders’ equity?

Accepted Answer

Assets must have increased by $$22,500, or shareholders’ equity must have decreased by 22$$,500

Step-by-Step Guidance for Financial Accounting Midterm Exam Questions

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