Accounting Questions
Ch 8 #8 Chattanooga Company began 2025 with a balance in stockholders' equity of $44,000. The company had originally gone into business years earlier when it issued 10,000 shares of stock for $1 per share. No more shares had been issued since that time. During the year, Chattanooga paid a total of $40,000 in dividends.How much was the company's earnings per share for 2025 if at December 31, 2025, total assets were $94,000 and total liabilities were $32,000? a. $4.80 b. $5.80 c. $4.00 d. $5.20
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Fiji, Inc. started 2025 with $12,000 in assets and $2,500 in liabilities. Fiji had issued 50 shares of stock when it went into business in 2019 for $10 per share, and not stock has been issued since that time. At December 31, 2025, Fiji had $23,000 in assets and $4,000 in liabilities. How much was Fiji's net income during 2025 if the company paid $1,000 in dividends during the year? a. $11,500 b. $12,000 c. $10,500 d. $11,000 e. None of the above
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On December 1, 2024, Otero received $150,000 as a prepayment from a customer for consulting services to be conducted over the next 15-month period beginning December 1, 2024. Otero's annual financial statement at December 31, 2025 would show which of the following related to this transaction? a. Revenue of $120,000 and a liability of $20,000 b. Revenue of $120,000 and a liability of $30,000 c. Revenue of $130,000 and a liability of $20,000 d. Revenue of $150,000 e. Revenue of $120,000 and a prepaid asset of $20,000
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Parma Company had $40,000 in sales during 2025. During the year, Parma purchased $12,000 in inventory. The company began the year with $2,000 in inventory and ended the year with $500 in inventory. In addition, during 2025, Parma received a prepayment of $2,000, which was correctly classified as unearned revenue. What was Parma's gross profit during 2012? a. $24,500 b. $28,000 c. $26,500 d. $28,500 e. None of the above
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Which of the following accounts would appear on the Balance Sheet? a. Land, depreciation expense, common stock, cash b. Retained earnings, interest payable, cost of goods sold, accounts payable c. Accounts receivable, retained earnings, utilities payable, accumulated depreciation d. Equipment, gross profit, interest expense, sales e. Inventory, note payable, unearned revenue, sales
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Which of the following is NOT true regarding the Statement of Cash Flows? a. It reconciles the beginning and ending cash It reconciles the beginning and ending cash. b. It reports all of the transactions in the cash account plus interest that has been accrued but not yet paid. c. It is divided into three categories: operating, investing, and financing. d. It is one of the four major financial statements. e. It classifies repayments of principal as a financing cash flow.
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Madison Inc. borrowed $90,000 on October 1, 2025. Madison will make no payments until October 1, 2029, and at that time, will pay $102,000. Which of the following would correctly state Madison's annual financial statements at December 31, 2027?
a
Unearned revenue is... a. Cash that has been received from customers but not yet earned b. Revenue that has not yet been received c. Revenue that has been earned but not yet received d. A concept used only in cash-basis accounting e. Cash that has not been either earned or received
a
Which of the following is NOT one of the Big Four accounting firms? a. Carlton & Co. b. KPMG c. PwC d. Deloitte e. EY
a
Which of the following statements are true? a. Retained earnings is a Balance Sheet Account b. If no dividends were paid, net income will always equal retained earnings c. The Balance Sheet is in balance when net income equals ending retained earnings d. The Balance Sheet covers a period of time, while the Income Statement is at one point in time
a
Pearl Co. had the following transactions in its land account: In 2013: Bought Land A for $4,000 In 2014: Bought Land B for $6,000 In 2020: Sold half of Land B for $4,000 A. $7,000 B. $6,000 C. $8,000 D.$4,000
a Explanation: Compare beginning cost of half of land, w amount sold for and add (no subtracting from here)
On July 5th, Macro Corporation bought inventory on account from Micro Company. On July 19th, Marcro Corporation sold the inventory on account to Customer. On July 25th, Macro paid Micro for the inventory. On July 30th, the Customer paid Macro for the sale. On what date does the inventory become an expense to Macro? a. July 19 b. July 5 c. July 30 d. July 25
a Explanation: Inventory does not become an expense until it is used / sold
It is December 23 and Lott Company's management want to increase net income. Which of the following options would help Lott's management increase their net income? a. Delay the purchase of inventory until next year b. Contact customers to try to collect accounts receivable sooner c. Delay paying a dividend until next year d. Sell land originally purchased for $40,000 for $38,000 cash e. None of the above will increase net income.
e
Generally Accepted Accounting Principles (GAAP) is the responsibility of...
the Financial Accounting Standards Board (FASB)
International Financial Reporting Standards (IFRS) is the responsibility of...
the International Accounting Standards Board (IASB)
Arbitrary Company purchased $86,000 of inventory during 2025. At the start of the year, Arbitrary had $12,000 in inventory, and at the end of the year, it had $16,000 in inventory. What was Arbitrary's inventory turnover ratio if its total sales was $192,000 during the year? a. 6.14 b. 5.86 c. 5.38 d. 5.13
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Ch 6 #11 The employees of Washington Company work Monday through Friday and earn $1,000 per day. They are paid every Friday for work they did that week. December 31st fell on a Thursday. With respect to this partial week only, what would be the impact on the December financial statements? a. Salary expense of $4,000, salary payable of $1,000 b. Salary expensive of $4,000, salary payable to $4,000 c. Salary expense of $1,000, salary payable of $1,000 d. Salary expense of $1,000, salary payable of $4,000
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Ch 7 #4 How much were investing cash flows if a plot of land was purchased during 2026 for $6,000, and an existing plot of land purchased in a prior year was sold for a $1,000 gain? The balance in the land account was $12,000 at the beginning of 2026, and the balance in the land account at the end of the year was $13,500. a. Net carrying value $60,000; depreciation expense $8,000 b. Net carrying value $52,000; depreciation expense $48,000 c. Net carrying value $48,000; depreciation expense $48,000 d. Net carrying value $8,000; depreciation expense $8,000; depreciation expense $8,000; depreciation expense $8,000 e. None of the above
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Ch 7 #5 Dividends are... a. An investing cash outflow when they are paid b. Deducted from retained earnings when they are paid c. Paid to the stockholders and creditors of the company d. A component of cost of goods sold
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Ch 7 #6 Melrose Corporation began 2025 with $16,000 in stockholders' equity. Of this amount $10,000 was in common stock, and there were no changes in the common stock account during 2025. At December 31, 2025, Melrose had $18,500 in stockholders' equity. Melrose paid out $6,000 in dividends during the year. How much was its net income in 2025? a. $8,500 b. $18,500 c. $2,500 d. $6,000 e. None of the above
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Ch 7 #7 Which of the following correctly states the financial statements at December 31, 2025 with respect to equipment purchased for $80,000 on July 1, 2022. The equipment is expected to last ten years with no salvage value. a. Net carrying value $60,000; depreciation expense $8,000 b. Net carrying value $52,000; depreciation expense $8,000 c. Net carrying value $48,000; depreciation expense $48,000 d. Net carrying value $8,000; depreciation expense $8,000 e. None of the above
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Ch 8 #4 Venice Company had $46,000 in total assets, $26,000 in current liabilities, and $10,000 in stockholders' equity at December 31, 2026. At that time Venice's current ratio was 1.5. How much did Venice have in current assets at December 31, 2026? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a. $24,000 b. $15,000 c. $10,000 d. $39,000
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Ch 8 #6 Daily, Inc. began 2025 with $6,400 in inventory and ended the year with $5,600 in inventory. During 2025, Daily sold $32,000 of its inventory for a total of $69,000. At the end of 2025, Daily still owed $3,500 to its suppliers of inventory. How much was Daily's inventory turnover ratio? a. 5.46 b. 5.20 c. 5.33 d. 5.86
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Ch 8 #7 Madison Company issued 200 shares of stock for $10 apiece when it began business on January 1, 2019. No stock has been issued since that time. The balance in stockholders' equity at January 1, 2025 was $40,000. During 2025, $10,000 was paid in dividends. At December 31, 2025, Madison had total assets of $92,000 and total liabilities of $32,000. What was Madison's earnings per share? a. $260 b. $160 c. $200 d. $150
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Which of the following is true? a. Depreciation expense on the Income Statement is never for more than one year b. Depreciation expense always equals accumulated depreciation c. Accumulated depreciation is a liability account on the company's Balance Sheet d. Depreciation expense is the amount of cash paid for depreciation during the year.
a Explanation: The balance in accumulated depreciation is on the Balance Sheet, so the ending balance continues to roll forward. At the end of every period, this balance is increased by the amount of depreciation recorded. When depreciation is recorded, accumulated depreciation is increased, so the net carrying value of the asset decreases. Depreciation expense is recorded on the fixed assets buildings and equipment. It is not recorded on land. Accumulated depreciation is a contra-asset account, meaning that it reduces the total assets. It is not a liability.
Which of the following is a solvency ratio? a. Current ratio b. Deb-to-equity ratio c. Earnings per share d. Return on equity ratio
a Explanation: The current ratio is a commonly used estimate of the company's ability to pay its debts. Whether or not a company can pay its debts in the coming year is important information for readers of the financial statements, because insufficient cash is the number one reason businesses fail. The current ratio is called a "solvency" ratio, meaning it is a rough measure of the company's ability to remain solvent during the coming year
Beagle Inc. had total sales of $67,000 during the year. In one sale, Beagle sold inventory on account for $8,000, and Beagle had originally paid $3,800 for this inventory. How much did total assets change as a result of this one sale? a. $4,200 b. $8,000 c. ($3,800) d. $11,800
a Explanation: When the company sells inventory, it records two separate balancing entries. First the sale is recorded, and this increases sales on the Income Statement and accounts receivable on the Balance Sheet. Then an entry is made to reduce the inventory account and increase the expense account cost of goods sold.
Your bookkeeper forgot to make the adjustment for depreciation expense at the end of the period. What impact does that error have on your financial statements? a. Assets are overstated, and expenses are understated b. Liabilities are overstated, and expenses are understated c. Both assets and net income are understated d. Both assets and expenses are overstated
a Explanation: Liabilities are understated because the 2019 interest was not added to the liability account interest payable. Net income is overstated because the interest expense for 2019 was not recorded, which left net income too high.
Which of the following is a Balance Sheet account? a. Sales b. Utilities payable c. Interest expense d. Net income
b
Which of the following is correctly classified? a. Borrowing money from the bank is an operating cash flow b. Buying a building is an investing cash flow c. Selling stock to stockholders is an investing cash flow d. Paying for operations of the business is an investing cash flow
b
Which of the following is true of the 10-K form? a. It is required to be the cover sheet of the company's annual financial statements b. It is an SEC form publicly-held corporations are required to file annually c. Privately-held companies must file this form with their banks to borrow money d. The form is only required to be filed when there has been a substantial change of officers of the corporation
b
Which of the following is true regarding stockholders? a. They are creditors of the company b. They are owners of the company c. They expect to receive interest on their investment d. They expect to receive their investment back at a specified point in time
b
Which of the following is true? a. Assets + Liabilities = Stockholders' Equity b. Assets - Liabilities = Stockholders' Equity c. Assets = Stockholders' Equity - Liabilities d. Assets = Liabilities + Retained Earnings e. Assets - Retained Earnings = Liabilities
b
The accounting equation is out of balance when... a. Ending cash does not equal ending net income b. Total assets do not equal the total of liabilities plus stockholders' equity c. Ending retained earnings does not equal net income d. The ending balance on the Statement of Cash Flows does not equal the ending balance of total assets on the Balance Sheet
b Explanation: - The books are in balance when assets equal liabilities plus stockholder's equity. If no dividends are paid during the first period in business, net income will equal ending retained earnings. After the first period, this is unlikely to happen. Assets would equal stockholder's equity only if there are no liabilities. Retained earnings is unlikely to ever equal cash.
During the month, Pinto Company earned $12,000 in revenue, but only $10,000 of that had been received by the end of the month. Pinto's only expense was advertising of $3,000, but the company will pay for that next month. How much did Pinto report in net income for the month? a. $10,000 b. $9,000 c. $7,000 d. $12,000
b Explanation: In accordance with accrual accounting, Mars would report the full amount of both revenue earned and expenses incurred during January. Mars earned $10,000 even though only $7,000 in cash was all that was received during January. Also, Mars incurred $2,500 of wage expense during January even though only $1,000 was paid. ($10,000 - $2,500 = $7,500)
Chimi Inc. went into business this year and, during the year, collected $62,000 in cash from customers. At the end of the year, Chimi had a balance in accounts receivable of $6,000 and a balance is unearned revenue of $2,000. How much were Chimi's total sales during the year? a. $62,000 b. $58,000 c. $68,000 d. $66,000
d Explanation: Add cash and accounts receivable, then subtract unearned revenue from this total because it is not yet a sale
Morgan Company paid $400 for advertising brochures when it went into business on January 1. By January 31, Morgan had given away one-fourth of these flyers. Which entry should Morgan make at January 31 to correctly state its accounts? a. Decrease cash by $100, and increase supplies expense by $100 b. Decrease the asset account supplies by $100, and increase supplies expense by $100 c. Increase both the asset account supplies and the expense account supplies expense by $100 d. Make no entry to the asset accounts, and increase supplies expense by $100.
b Explanation: Supplies expense is for the amount of supplies used during the period. It is only that amount that is shown as an expense of the period. When supplies are bought, the amount bought is a current asset on the company's books. It would be a coincidence if the supplies and supplies expense had the same balance.
During January, Bradbury Co. made $46,000 in total sales. All of the sales were for cash, except one sale to Lima for $1,500, which was on account. When Lima pays Bradbury in February, which of the following will be true? a. Both Bradbury's total revenue and cash will increase by $1,500 in February b. There will be no change to either Bradbury's total assets or net income for February c. Bradbury's total assets will increase by $1,500 when the cash is received, but no other accounts will be changed d. Bradbury's net income will increase by $1,500, but no other accounts will be impacted.
b Explanation: When a payment is collected from a customer on account, the entry is to reduce accounts receivable and to increase cash. It is an exchange of one asset for another, so neither total assets nor net income change.
Which of the following is true? a. Total expenses always equals the amount of cash paid for them during the period b. Revenue can include some amounts that have not yet been received by the company c. Ending balances on the Balance Sheet are zeroed out before starting the new period d. Expenses are recorded as an expense only after they have been paid.
b Explanation: When a sale is made on account, you increase revenue on the Income Statement and increase accounts receivable on the Balance Sheet. When the cash is collected, you reduce accounts receivable and increase cash. New income was impacted when the sale was made. Collecting what you are owed is an exchange of one asset for another.
Which of the following best describes interest payable? a. The amount of interest expense incurred during the period b. The total amount of interest owed at the end of the period c. The total amount of interest that has been paid on the loan by the end of the period d. The total amount of interest that will be owed at the loan's maturity.
b Explanation: A payable is an amount you owe as of the date on the Balance Sheet. If you pay for something before it was incurred, it is an asset, such as prepaid insurance or prepaid rent. An amount you are entitled to receive in the future is a receivable, also an asset. An amount you receive before you have earned it is when one of your customers prepays you.
Accrual Accounting... a. Is not allowed under the GAAP b. Is the same as cash basis of accounting c. Requires showing revenue on the Income Statement when it is earned, whether or not the cash has been received d. Impacts the Income Statement but not the Balance Sheet
c
Retained earnings is... a. The cash held by the company b. A liability of the company c. All the net incomes of the company since it has been in business minus any dividends paid d. All the cash the company has earned since it has been in business minus any dividends paid
c
Utilities payable at the end of the reporting period are... a. The total utilities used during the time period b. The amount paid for utilities during the period c. The utilities used but not yet paid at the end of the period d. The amount paid for utilities but not yet used at the end of the period
c
Which of the following accounts appears on the Income Statement? a. Inventory b. Retained earnings c. Interest expense d. Dividend expense e. Amount paid for salaries
c
Which of the following is a liability account? a. Retained Earnings b. Equipment c. Utilities payable d. Common stock
c
Which of the following ratios is of the most importance in determining the price of a stock on the stock market? a. Current ratio b. Debt-to-equity c. Earnings per share d. Return on equity
c Explanation: "Earnings per share" is important to analysts because it is the return, or the amount earned, on each share of stock outstanding. In addition, it is easy to compare companies in different industries and of different sizes by using this one ratio
Which of the following is true when a company borrows money from the bank? a. The amount borrowed will eventually become an expense on the company's Income Statement b. The interest that must be paid increases both assets and liabilities c. The interest associated with the loan will eventually be shown as an expense on the company's Income Statement d. When the cash is received by the company, both assets and stockholders' equity are increased.
c Explanation: - When a company borrows money, both assets and liabilities are increased. These are both Balance Sheet accounts, so net income is not impacted at the time the money is borrowed. The amount borrowed increases liabilities, but not stockholder's equity. Assets are increased as a result of the borrowing along with liabilities being increased.
Which of the following is true regarding depreciation? a. Depreciation expense will always equal the balance in accumulated depreciation b. The number directly to the right of the equipment account is the original cost of the equipment minus depreciation c. When the entry for depreciation expense is recorded net fixed assets are also reduced d. The total depreciation expense for any year is an accumulation of all the depreciation that has been recorded on the equipment over all the years it has been held by the company
c Explanation: As depreciation is recorded, it increase the amount in the accumulated depreciation account. Accumulated depreciation is subtracted from the fixed asset account, so the net carrying value of the fixed asset decreases. There is no cash flow associated with recording depreciation. Depreciation is recorded on buildings and equipment but not on land. Depreciation is only recorded on fixed assets, not current assets.
Which of the following is true of the Statement of Retained Earnings? a. This statement must be prepared before the Income Statement can be completed b. The ending balance on this statement is the total of stockholders' equity c. The ending balance on the statement is the cash that is available for dividends d. The ending retained earnings always becomes the beginning retained earnings at the start of the next period
d?
Elyptical, Inc. paid three months of rent for $9,000 on April 1st. At April 30th, which of the following would correctly state Elyptical's accounts? a. Prepaid rent $0; rent expense $9,000 b. Prepaid rent $0; rent expense $3,000 c. Prepaid rent $6,000; rent expense $3,000 d. Prepaid rent $3,000; rent expense $6,000
c Explanation: Insurance expense is the amount of insurance that expired during the period. The portion that expired is no longer an asset, so it is taken out of prepaid insurance and put into insurance expense. When payments are made for insurance, cash is reduced and prepaid insurance is increased. Now you have an asset of having your insurance paid ahead of time. When insurance expense is recorded, the expired portion is taken out of the asset account, so the balance in that account decreases.
Which of the following is true regarding accounts receivable? a. Both revenue and liabilities are increased when the sale is made b. Revenue is increased when the cash is collected c. Total assets do not change when the cash is collected d. Total assets do not change when the sale is made
c Explanation: When land is sold, the land account is decreased and the cash account is increased. If more is taken out of the land account than is put into cash (as would be the case when land is sold for a loss), then total assets have decreased by the difference which is the amount of the loss.
Which of the following is true? a. The ending balances in the stockholders' equity accounts will always become the beginning balances at the start of the next period b. Ending retained earnings will always equal ending stockholders' equity if the books are in balance c. Assets minus liabilities must equal stockholders' equity d. Stockholders' equity is the total cash the company earned as well as received from stockholders
c Explanation: - The section of the Balance Sheet called "stockholder's equity" has two basic accounts: common stock and retained earnings. Common stock is a Balance Sheet account and does not appear on the Income Statement. Issuing common stock increases assets and increases stockholder's equity, but because it does not go on the Income Statement, it does not increase net income.
Which of the following is true about stockholders' equity? a. This section of the Balance Sheet will always equal total assets b. This section of the Balance Sheet can only be increased if the company sells more stock to its stockholders c. Corporations always must have at least two accounts in this section of the Balance Sheet: common stock and retained earnings d. Retained earnings in stockholders equity is the one account on the Balance Sheet that the ending balance at the end of the period is zeroed out and does not carry over to the following period.
c Explanation: Retained earnings comes from an accumulation of net incomes. Because of accrual accounting, net income is not cash, but a book figure of our best estimate of how much the company earned each year. The cash the company has is an asset. Total assets minus total liabilities equals stockholder's equity, which includes both common stock and retained earnings.
On October 1, 2025, Wolfie Co. bought equipment for $12,000. Wolfie expects the equipment will last for three years and then be worthless. Which of the following is correct for the company's annual financial statements at December 31, 2026? a. Depreciation expense $4,000; accumulated depreciation $7,000 b. Depreciation expense $5,000; accumulated depreciation $5,000 c. Depreciation expense $4,000; accumulated depreciation $5,000 d. Depreciation expense $5,000; accumulated depreciation $4,000
c Explanation: The net carrying value is computed as follows: $8,000 - Cost of asset (3,000)- Accumulated depreciation $5,000 - Net carrying valueAccumulated depreciation was computed as follows: $1,000 - Depreciation in 2019 ($8,000/4 years = $2,000/2 = $1,000)* +2,000 - Depreciation in 2020 ($8,000/4 years = $2,000 $3,000 - Accumulated depreciation at Dec. 31, 2020*The depreciation in 2019 was divided by 2 because it was purchased halfway through the year.
Dividends are... a. Payments made to both creditors and stockholders b. Required to be paid to creditors c. Voluntary payments made by the company to creditors d. Payments made to stockholders
d
FASB... a. Is responsible for preparing the audits of all US based publicly-held companies b. Is the group in charge of the international standards, IFRS c. Are the rules companies based in the US are required to follow when preparing financial statements d. Applies only to privately-held companies e. Is the organization in the US responsible for GAAP
d
Which of the following is true of unearned revenue? a. It represents revenue that has been earned but not yet received b. Liabilities are increased when unearned revenue is earned c. Assets are decreased when unearned revenue is earned d. Unearned revenue is not shown on the company's income statement until it is earned
d
Which of the following is true regarding the Statement of Cash Flows? a. It must be prepared prior to the Income Statement b. It is the one statement that relies on accrual accounting c. This statement is based on the principles of double-entry bookkeeping d. The beginning balance of this statement is the ending balance of cash at the end of the prior period
d
Anjou Inc. owes its only employee $600 at the end of its first month in business. Anjou will pay its employee in the next month. Which of the following is true? a. Because no payment was made in month 1, Anjou does not need to record any entries until month 2, when the payment is made b. Even though the payment has not yet been made, Anjou must reduce its cash account and record a liability for the amount due c. Anjou records the transaction in the first month as if the payment was made. The entry is to reduce cash and record salary expense on the Income Statement d. Anjou records the salary expense on the Income Statement and salaries payable on the Balance Sheet
d Explanation: Accrual accounting requires that you record the expense in the period that it becomes an expense. This expense for electricity occurred during month 1, so it needs to be shown as an expense of month 1. This would be done by using the account "utilities expense" on the Income Statement to show the $400 expense. The other side of this entry is to record the liability "utilities payable" on the Balance Sheet for $400. Then in month 2 when you pay this bill, you would reduce cash by $400 and reduce the liability accounting utilities payable by $400.