Q: Which of the following is the correct formula for calculating profit margin?

$$\text{Profit Margin} = \frac{\text{Net Income}}{\text{Net Sales}}$$

Question 1

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

Accepted Answer

Revenues are recorded when products or services are delivered, and expenses are recorded when incurred.

Question 2

A company paid $6,000 for a one-year insurance policy on December 1. What adjusting entry should be made on December 31?

Accepted Answer

Debit Insurance Expense $$500; Credit Prepaid Insurance 500$$

Question 3

Which of the following is the correct formula for calculating profit margin?

Accepted Answer

$$	ext{Profit Margin} = \frac{	ext{Net Income}}{	ext{Net Sales}}$$

Question 4

On December 31, a company has $$1,200 of unexpired insurance coverage remaining from a prepaid insurance balance of 5$$,000. What is the adjusting entry?

Accepted Answer

Debit Insurance Expense $$3,800; Credit Prepaid Insurance 3$$,800

Question 5

A company earned $2,000 for services performed in December, but the customer will not pay until January. What is the correct adjusting entry on December 31?

Accepted Answer

Debit Accounts Receivable $$2,000; Credit Service Revenue 2$$,000

Question 6

Which of the following is NOT a step in the framework for adjustments?

Accepted Answer

Close all temporary accounts to retained earnings.

Question 7

If a company has current assets of $$80,000 and current liabilities of 40$$,000, what is its current ratio?

Accepted Answer

$$2.0$$

Question 8

Which of the following accounts would NOT appear on a post-closing trial balance?

Accepted Answer

Service Revenue

Question 9

A company received $$10,000 cash in advance for services to be performed next year. At year-end, 2$$,500 of the services have been performed. What is the adjusting entry?

Accepted Answer

Debit Unearned Revenue $$2,500; Credit Service Revenue 2$$,500

Question 10

Which of the following best explains the purpose of adjusting entries?

Accepted Answer

To ensure that revenues are recorded in the period in which they are earned and expenses in the period in which they are incurred.

Question 11

A company’s adjusted trial balance shows Supplies of $$1,300 and Supplies Expense of 3$$,800. If the beginning balance of Supplies was $5,100, how much supplies were purchased during the year?

Accepted Answer

$$0 (No $$purchases; all supplies used were from beginning balance)

Question 12

Which of the following is the correct closing entry for a company with $80,000 in Salaries Expense at year-end?

Accepted Answer

Debit Salaries Expense $$80,000; Credit Income Summary 80$$,000

Question 13

If a company’s net income is $$17,000 and net sales are 189$$,800, what is the profit margin?

Accepted Answer

$$0.0896 or$$ $$8.96\%$$

Question 14

Which of the following accounts is classified as a current asset on a classified balance sheet?

Accepted Answer

Prepaid Insurance

Question 15

A company’s adjusted trial balance includes: Service Revenue $$25,000, Salaries Expense 14$$,700, Depreciation Expense $$1,800, and Utilities Expense 1$$,200. What is the company’s net income?

Accepted Answer

$$7,300$$

Question 16

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

Accepted Answer

Recording depreciation expense for the period

Question 17

If a company’s current assets are $$104,800 and current liabilities are 76$$,000, what is the current ratio?

Accepted Answer

$$1.38$$

Question 18

Which of the following is the correct adjusting entry for supplies if the beginning balance was $$2,400, 2$$,500 were purchased, and $440 remain at year-end?

Accepted Answer

Debit Supplies Expense $$4,460; Credit Supplies 4$$,460

Question 19

Which of the following best describes the matching principle?

Accepted Answer

Expenses are recorded in the same period as the revenues they help generate.

Principles of Accounting: Chapter 3 Study Guidance – Adjusting and Closing Entries

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