Accounting Basic Questions

Under the accrual basis of accounting, revenues are reported in the accounting period when: a)Cash Is Received b) Service Or Goods Have Been Delivered

a) Cash Is Received

Assets are usually reported on the balance sheet at which amount? a) Cost b) Current Market Value c) Expected Selling Price

a) Cost

Financial accounting is focused on the __________ financial statements of a company. a) External b) Internal

a) External

Net Sales minus the Cost of Goods Sold equals: a) Gross Profit b) Income From Operations c) Net Income

a) Gross Profit

An increase in the balance in a retailer's Merchandise Inventory falls under which category in a Cash Flow Statement? a) Operating b) Investing c) Financing

a) Operating

Depreciation Expense falls under which category in a Cash Flow Statement? a) Operating b) Investing c) Financing

a) Operating

The Loss on the Sale of Equipment falls under which category in a Cash Flow Statement? a) Operating b) Investing c) Financing

a) Operating

What is the normal balance for contra asset accounts? Debit or Credit

Credit

The type of stock that gets its dividend before the common stock gets its dividend is called __________ stock.

Preferred

A patent costs $100,000, it's useful life is 25 years. Calculate the amortization of this patent.

100,000/20 years = 5,000 According to the rules, you are to use the lesser of the two... The patent's useful life or legal life. The legal life of a patent is 20 years. Therefore you use 20 years instead of 25. If the useful life were 15 years, you would use 15.

If a company has current assets of $230,000 and current liabilities of $100,000 the company's current ratio is __________ : 1.

2.3 (230,000/100,000 = 2.3) Current Ratio = Current Assets/Current Liabilities

Intangible assets are not depreciated, they are?

Amortized

The financial statement that reports the revenues and expenses for a period of time such as a year or a month is the

Income Statement

Is Research & Development considered an asset or expense?

Expense

True or False: Dividends appear as an expense on the corporation's income statement.

False

True or False: Land is a depreciable non-current asset

False

True or False: The amount reported on the balance sheet for Property, Plant and Equipment is the company's estimate of the fair market value as of the balance sheet date.

False The amounts listed on the balance sheet are the costs of these long-term assets minus the amount of accumulated depreciation. Rarely, would the net of those amounts be any indication of the fair market value of those assets.

True or False: The third line of the balance sheet at the end of the year should begin with "For the Year Ended".

False The balance sheet reports amounts at a moment in time such as the last instant of an accounting period. (It would say 31/12/2021 or As of 31/12/2021)

On December 1 a company borrowed $100,000 at 12% per year. The interest will be paid quarterly, with the first payment due on March 1. What should the company report on its income statement for December?

Interest Expense Of $1,000 (The income statement must report the interest incurred regardless of the date the interest is paid. $100,000 X .12 X 1/12 = $1,000.)

Prepaid insurance is reported as an __________ on a company's balance sheet. a) Asset b) Liability c) Stockholder's Equity

a) Asset

What are the two inventory recording systems?

Perpetual & Periodic

Accounting entries involve a minimum of how many accounts?

Two

Which financial statement's structure is closest to that of the basic accounting equation? a) Balance Sheet b) Income Statement c) Statement Of Cash Flows d) Statement Of Comprehensive Income e) Statement Of Stockholders' Equity

a) Balance Sheet

If a company's stock is publicly traded, is it a requirement that the earnings per share appear on the income statement? YES OR NO

YES

Is it acceptable that some of the expenses reported on the income statement be estimates? YES OR NO

YES Depreciation Expense is an example of a significant expense that is an estimate.

Which of the following is a contra account? a) Accumulated Depreciation b) Mary Smith, Capital c) Goodwill

a) Accumulated Depreciation

When reconciling a bank statement, Interest credited to bank account is: a) Added To BOOK Balance b) Deducted From BOOK Balance c) Added To BANK Balance d) Deducted From BANK Balance

a) Added To BOOK Balance

Which type of journal entries are made at the end of each accounting period so that the financial statements better reflect the accrual method of accounting? a) Adjusting b) Closing c) Reversing

a) Adjusting

The income statement heading will specify which of the following? a) A POINT In Time b) A PERIOD Of Time

b) A PERIOD Of Time

The amount spent for capital expenditures will be reported in which section of the statement of cash flows? a) Cash Provided/used In Financing Activities b) Cash Provided/used In Investing Activities c) Cash Provided/used In Operating Activities

b) Cash Provided/used In Investing Activities

When reconciling a bank statement, Bank Service Charges are: a) Added To BOOK Balance b) Deducted From BOOK Balance c) Added To BANK Balance d) Deducted From BANK Balance

b) Deducted From BOOK Balance

The personal assets of the owner of a company will not appear on the company's balance sheet because of which principle/guideline? a) Cost b) Economic Entity c) Monetary Unit

b) Economic Entity

The generally accepted accounting principles used in the financial statements of U.S corporations are researched and developed by which organization? a) American Accounting Association (AAA) b) Financial Accounting Standards Board (FASB) c) Internal Revenue Service (IRS)

b) Financial Accounting Standards Board (FASB)

Which is the annual report to the SEC that contains the financial statements of a publicly-traded corporation? a) Form 1040 b) Form 10-K c) Form 10-Q d) Schedule C

b) Form 10-K

A company disposes of equipment that it no longer uses in its business. The amount received by the company is more than the amount the asset is carried at in the accounting records. The company will report a(n) a) Expense b) Gain c) Loss d) Revenue

b) Gain

Proceeds from the sale of equipment used in the business falls under which category in a Cash Flow Statement? a) Operating b) Investing c) Financing

b) Investing

Unearned Revenues is what type of account? a) Asset b) Liability c) Stockholders' (Owner's) Equity

b) Liability (The company that is to perform the service or is to deliver the product has received the cash in advance and therefore has an obligation (liability) to deliver the service or the product.)

The income statement format that segregates the operating revenues and expenses from the non-operating revenues and expenses is the a) Single-step b) Multiple-step

b) Multiple-step

The balance sheet heading will specify a: a) Period Of Time b) Point In Time

b) Point In Time

Which of the following is an asset account? a) Accounts Payable b) Prepaid Insurance c) Unearned Revenue

b) Prepaid Insurance

Which is a better indicator of a company's liquidity? a) Current Ratio b) Quick Ratio

b) Quick Ratio

Which of the following is normally a current liability? a) Note Payable Due In Two Years b) Unearned Revenue

b) Unearned Revenue Unearned Revenue will most likely be earned within one year of the balance sheet date. Therefore it is a current liability. (As it is earned, it moves from the balance sheet to the income statement as revenue.)

A corporation's net income will cause an increase to which of the following? a) Accumulated Other Comprehensive Income b) Common Stock c) Retained Earnings

c) Retained Earnings

On June 1, $800 of goods are sold with credit terms of 1/10, n/30. How much should the seller expect to receive if the buyer pays on June 8? a) $720 b) $784 c) $792 d) $800

c) $792 800 x 0.01 = 8 800 - 8 = 792 Terms of 1/10, n30 means that if the amount due is paid within 10 days, the customer will enjoy a 1% discount. Otherwise, the amount is due in full within 30 days.

ABC Co. has current assets of $50,000 and total assets of $150,000. ABC has current liabilities of $30,000 and total liabilities of $80,000. What is the amount of ABC's owner's equity? a) $20,000 b) $30,000 c) $70,000 d) $120,000

c) 70,000 Total assets of $150,000 minus total liabilities of $80,000 equals owner's equity of $70,000. (The current is just there to confuse you... it is already included in the totals)

When reconciling a bank statement, Deposits are: a) Added To BOOK Balance b) Deducted From BOOK Balance c) Added To BANK Balance d) Deducted From BANK Balance

c) Added To BANK Balance

A corporation's working capital is calculated using which amounts? a) Total Assets and Total Liabilities b) Total Assets and Current Liabilities c) Current Assets and Current Liabilities

c) Current Assets and Current Liabilities Working Capital = Current Assets - Current Liabilities

Declaration and payment of dividends on company's stock falls under which category in a Cash Flow Statement? a) Operating b) Investing c) Financing

c) Financing

Purchase of Treasury Stock (company's own stock) falls under which category in a Cash Flow Statement? a) Operating b) Investing c) Financing

c) Financing

Retirement of long-term Bonds Payable falls under which category in a Cash Flow Statement? a) Operating b) Investing c) Financing

c) Financing

Which of the following is a category, classification, or element of the balance sheet? a) Expenses b) Gains c) Liabilities d) Losses

c) Liabilities

A large company purchases a $250 digital camera and expenses it immediately instead of recording it as an asset and depreciating it over its useful life. This practice may be acceptable because of which principle/guideline? a) Cost b) Matching c) Materiality

c) Materiality Because this is a large company, $250 is considered to be an insignificant amount. Hence if the company depreciates the camera at $50 per year for five years or expenses $250 in the year it is purchased, an investor or lender would not be misled by the additional expense of $200 per year in the first year and the $50 difference in the next four years.

Gross Profit minus Operating Expenses is best defined as: a) Net Income b) Net Sales c) Operating Income

c) Operating Income

How will the total amount of a company's working capital change when a $10,000 account receivable is collected? a) The Total Decreases By $10,000 b) The Total Increases By $10,000 c) The Total Remains The Same

c) The Total Remains The Same Cash increased by $10,000 and Accounts Receivable decreased by $10,000. Since both of these are current assets there is no change in the total amount of current assets and no change in the total amount of working capital.

When reconciling a bank statement, outstanding checks are: a) Added To BOOK Balance b) Deducted From BOOK Balance c) Added To BANK Balance d) Deducted From BANK Balance

d) Deducted From BANK Balance

In what order will a company's current assets appear on a classified balance sheet? a) Alphabetical Order b) Company's Choice c) Descending Order (Largest To Smallest) d) Order Of Liquidity

d) Order Of Liquidity Current assets appear in the order in which they are expected to be converted to cash. This is referred to as the order of liquidity.

ABC Co. received $1,000 in December for services it will perform in the following month. ABC uses the accrual basis of accounting. In December ABC debited Cash for $1,000. What will be the other account involved in the December accounting entry prepared by ABC (and what type of account is it)? a) Accounts Receivable (asset) b) Prepaid Services (asset) c) Service Revenues (revenue) d) Unearned Revenues (liability)

d) Unearned Revenue it should be credited because ABC has not earned the $1,000 and ABC has an obligation to perform the service in the future.