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web.groovymark@gmail.com
- December 8, 2024
Question 21
What is included in the journal entry to record sales on account?
- A) Debit accounts receivable
- B) Credit cash
- C) Debit sales revenue
- D) Credit accounts payable
Answer: A) Debit accounts receivable
Explanation: When sales are made on account, accounts receivable is debited to reflect the increase in the amount owed to the company.
Question 22
How are dividends typically recorded with debits and credits?
- A) Debit dividends, Credit retained earnings
- B) Credit dividends, Debit cash
- C) Debit dividends, Credit cash
- D) Debit cash, Credit dividends
Answer: C) Debit dividends, Credit cash
Explanation: Dividends are recorded as a debit because they reduce equity, and cash is credited because it is used to pay the dividends.
Question 23
Which of the following would be a use of cash in a financing activity?
- A) Issuing common stock
- B) Purchasing inventory
- C) Repaying a loan
- D) Paying employee wages
Answer: C) Repaying a loan
Explanation: Repaying a loan is a financing activity, as it involves reducing the company's debt by using cash.
Question 24
How is bad debt expense recorded using the allowance method?
- A) Debit accounts receivable
- B) Debit bad debt expense
- C) Credit accounts receivable
- D) Credit bad debt expense
Answer: B) Debit bad debt expense
Explanation: Under the allowance method, bad debt expense is debited, and the allowance for doubtful accounts is credited to reflect the estimated uncollectible amounts.
Question 25
When are closing entries made?
- A) At the beginning of the accounting period
- B) During the accounting period
- C) At the end of the accounting period
- D) After recording adjusting entries
Answer: C) At the end of the accounting period
Explanation: Closing entries are made at the end of the accounting period to close temporary accounts (revenues, expenses, and dividends) to retained earnings.
Question 26
What is the purpose of adjusting entries?
- A) To close all accounts
- B) To correct errors
- C) To allocate revenues and expenses to the appropriate accounting period
- D) To reflect cash transactions
Answer: C) To allocate revenues and expenses to the appropriate accounting period
Explanation: Adjusting entries ensure that revenues and expenses are recorded in the correct accounting period according to the accrual accounting method.
Question 27
What is the correct journal entry to record the issuance of common stock for cash?
- A) Debit cash, Credit common stock
- B) Debit cash, Credit accounts payable
- C) Debit common stock, Credit cash
- D) Debit retained earnings, Credit common stock
Answer: A) Debit cash, Credit common stock
Explanation: When common stock is issued for cash, the cash account is debited, and the common stock account is credited to reflect the equity issued.
Question 28
What happens when dividends are declared?
- A) Liabilities decrease
- B) Equity increases
- C) Assets increase
- D) Liabilities increase
Answer: D) Liabilities increase
Explanation: When dividends are declared, the company incurs a liability to pay shareholders, which increases the dividends payable account.
Question 29
How are prepaid expenses classified?
- A) As a liability
- B) As an expense
- C) As an asset
- D) As equity
Answer: C) As an asset
Explanation: Prepaid expenses are classified as assets because they represent future economic benefits for expenses already paid but not yet incurred.
Question 30
What is the adjusting entry to record depreciation expense?
- A) Debit accumulated depreciation, Credit depreciation expense
- B) Debit depreciation expense, Credit accumulated depreciation
- C) Debit cash, Credit accumulated depreciation
- D) Debit accumulated depreciation, Credit equipment
Answer: B) Debit depreciation expense, Credit accumulated depreciation
Explanation: Depreciation expense is debited to allocate the cost of an asset, and accumulated depreciation is credited to reduce the asset's book value.
Question 31
What is the formula for calculating net income?
- A) Sales – Cost of Goods Sold – Operating Expenses
- B) Revenue – Liabilities
- C) Gross Profit – Operating Expenses
- D) Total Assets – Total Liabilities
Answer: A) Sales - Cost of Goods Sold - Operating Expenses
Explanation: Net income is calculated by subtracting the cost of goods sold and operating expenses from total sales.
Question 32
How is unearned revenue classified on the balance sheet?
- A) As an asset
- B) As a liability
- C) As equity
- D) As revenue
Answer: B) As a liability
Explanation: Unearned revenue is classified as a liability because it represents an obligation to deliver goods or services in the future.
Question 33
What is the correct journal entry to record a cash payment for an expense?
- A) Debit cash, Credit expense
- B) Debit expense, Credit cash
- C) Debit accounts payable, Credit cash
- D) Debit expense, Credit accounts payable
Answer: B) Debit expense, Credit cash
Explanation: When a company pays for an expense in cash, the expense account is debited, and cash is credited to reflect the payment.
Question 34
What is the formula for calculating earnings per share (EPS)?
- A) Net income ÷ Total Revenue
- B) Net income ÷ Number of Outstanding Shares
- C) Gross Profit ÷ Number of Shares Issued
- D) Retained Earnings ÷ Total Liabilities
Answer: B) Net income ÷ Number of Outstanding Shares
Explanation: Earnings per share (EPS) is calculated by dividing net income by the number of shares outstanding, representing the company's profit per share.
Question 35
What is the correct adjusting entry to record accrued salaries?
- A) Debit salaries expense, Credit cash
- B) Debit salaries payable, Credit salaries expense
- C) Debit salaries expense, Credit salaries payable
- D) Debit cash, Credit salaries expense
Answer: C) Debit salaries expense, Credit salaries payable
Explanation: Accrued salaries are recorded by debiting salaries expense to recognize the cost and crediting salaries payable to reflect the obligation to pay in the future.
Question 36
What is a contra-asset account?
- A) An account that increases an asset’s value
- B) An account that offsets an asset account
- C) An account that increases liability
- D) An account that decreases revenue
Answer: B) An account that offsets an asset account
Explanation: A contra-asset account is used to reduce the value of an associated asset account, such as accumulated depreciation offsetting property, plant, and equipment.
Question 37
How are sales discounts recorded?
- A) Debit accounts payable, Credit sales
- B) Debit cash, Credit sales
- C) Debit sales discounts, Credit accounts receivable
- D) Debit accounts receivable, Credit sales discounts
Answer: C) Debit sales discounts, Credit accounts receivable
Explanation: Sales discounts are recorded by debiting sales discounts to reflect the reduction in revenue and crediting accounts receivable for the discounted amount.
Question 38
What is the purpose of a trial balance?
- A) To summarize all transactions for the period
- B) To ensure that total debits equal total credits
- C) To prepare financial statements
- D) To record adjusting entries
Answer: B) To ensure that total debits equal total credits
Explanation: A trial balance is used to verify that the total debits and credits in the general ledger are equal, ensuring the accuracy of the accounts before preparing financial statements.
Question 39
What is a multiple-step income statement?
- A) A statement that reports total sales and total expenses
- B) A statement that separates gross profit, operating income, and net income
- C) A statement that reports net income after deducting all expenses
- D) A statement that only reports operating income
Answer: B) A statement that separates gross profit, operating income, and net income
Explanation: A multiple-step income statement provides a detailed breakdown of gross profit, operating income, and net income, allowing for a more comprehensive analysis of the company's profitability.
Question 40
What is included in the journal entry to record a credit sale?
- A) Debit cash, Credit sales
- B) Debit accounts receivable, Credit sales
- C) Debit sales, Credit accounts payable
- D) Debit sales, Credit accounts receivable
Answer: B) Debit accounts receivable, Credit sales
Explanation: When a credit sale is made, accounts receivable is debited to record the amount due, and sales are credited to reflect the revenue earned.
