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web.groovymark@gmail.com
- December 12, 2024
Question 01
Adjustment to Assets: Equipment is depreciated over 10 years. Equipment cost is $278,050. What is the adjusting journal entry?
A) Debit Depreciation Expense $27,805; Credit Accumulated Depreciation $27,805
B) Debit Depreciation Expense $28,000; Credit Accumulated Depreciation $28,000
C) Debit Equipment $27,805; Credit Depreciation Expense $27,805
D) Debit Accumulated Depreciation $27,805; Credit Equipment $27,805
Answer: A) Debit Depreciation Expense $27,805; Credit Accumulated Depreciation $27,805
Explanation: This entry records the annual depreciation expense for the equipment over its useful life.
Question 02
Adjustment to Liabilities: Calculate the annual accrual of interest on debt of $60,000 at a rate of 10%. What is the adjusting journal entry?
A) Debit Interest Expense $6,000; Credit Interest Payable $6,000
B) Debit Interest Payable $6,000; Credit Interest Expense $6,000
C) Debit Interest Expense $60,000; Credit Interest Payable $60,000
D) Debit Interest Payable $60,000; Credit Interest Expense $60,000
Answer: A) Debit Interest Expense $6,000; Credit Interest Payable $6,000
Explanation: This entry records the interest expense accrued for the year on the outstanding debt.
Question 03
Adjustment to Liabilities: Salaries earned but not paid total $14,320. What is the adjusted journal entry?
A) Debit Salaries Expense $14,320; Credit Salaries Payable $14,320
B) Debit Salaries Payable $14,320; Credit Salaries Expense $14,320
C) Debit Salaries Expense $14,000; Credit Salaries Payable $14,000
D) Debit Cash $14,320; Credit Salaries Payable $14,320
Answer: A) Debit Salaries Expense $14,320; Credit Salaries Payable $14,320
Explanation: This entry records the expense for salaries that have been earned but not yet paid.
Question 04
What describes the amount of time expected to elapse until an asset is realized or a liability must be paid?
A) Solvency
B) Liquidity
C) Financial flexibility
D) Operating cycle
Answer: B) Liquidity
Explanation: Liquidity refers to how quickly an asset can be converted into cash or how soon a liability must be settled.
Question 05
What refers to a company’s ability to pay its debts as they mature?
A) Profitability
B) Solvency
C) Liquidity
D) Financial flexibility
Answer: B) Solvency
Explanation: Solvency is the measure of a company's ability to meet its long-term financial obligations.
Question 06
Which term measures the ability of an enterprise to take effective actions to alter the amounts and timing of cash flows to respond to unexpected needs?
A) Solvency
B) Financial flexibility
C) Liquidity
D) Profitability
Answer: B) Financial flexibility
Explanation: Financial flexibility refers to a company’s ability to adapt its financial strategies to changing conditions.
Question 07
What are the three main parts of the Balance Sheet?
A) Assets, Liabilities, Net Income
B) Assets, Liabilities, Equity
C) Revenues, Expenses, Equity
D) Cash, Receivables, Inventory
Answer: B) Assets, Liabilities, Equity
Explanation: The balance sheet is divided into these three sections to provide a clear view of a company's financial position.
Question 08
What are the two forms in which the Balance Sheet can be presented?
A) Report Form, Detailed Form
B) Account Form, Report Form
C) Condensed Form, Detailed Form
D) Single Step Form, Multi-Step Form
Answer: B) Account Form, Report Form
Explanation: The balance sheet can be presented in either account form (with assets on the left and liabilities and equity on the right) or report form (with assets, liabilities, and equity listed one below the other).
Question 09
What are short-term highly liquid investments that will mature within three months or less?
A) Cash equivalents
B) Accounts Receivable
C) Short-term investments
D) Cash
Answer: A) Cash equivalents
Explanation: Cash equivalents are assets that are easily convertible to cash, typically with very short maturities.
Question 10
What is generally considered to consist of currency and demand deposits?
A) Cash equivalents
B) Cash
C) Liquid assets
D) Short-term investments
Answer: B) Cash
Explanation: Cash includes physical currency and funds available on demand in bank accounts.
Question 11
How are investments in debt securities classified for valuation and reporting purposes?
A) Current, Long-term, Noncurrent
B) Held-to-maturity, Trading, Available-for-sale
C) Operating, Investing, Financing
D) Realized, Unrealized, Nonrealizable
Answer: B) Held-to-maturity, Trading, Available-for-sale
Explanation: These classifications determine how the securities are reported on the balance sheet based on management's intent.
Question 12
What describes tangible long-lived assets used in regular operations of a business?
A) Intangible Assets
B) Current Assets
C) Property, Plant, and Equipment
D) Long-term Investments
Answer: C) Property, Plant, and Equipment
Explanation: This category includes physical assets such as buildings, machinery, and equipment that are used in operations.
Question 13
Which assets lack physical substance and include patents, copyrights, and goodwill?
A) Tangible Assets
B) Financial Instruments
C) Intangible Assets
D) Current Assets
Answer: C) Intangible Assets
Explanation: Intangible assets do not have a physical form but still provide value to a company.
Question 14
What is the excess of total current assets over total current liabilities called?
A) Working Capital
B) Liquidity
C) Net Assets
D) Solvency Ratio
Answer: A) Working Capital
Explanation: Working capital is a measure of a company's short-term financial health and operational efficiency.
Question 15
Which of the following is a component of Stockholders’ Equity Section of the Balance Sheet?
A) Current Assets
B) Capital Stock
C) Current Liabilities
D) Total Revenues
Answer: B) Capital Stock
Explanation: The stockholders' equity section reflects the ownership interest in the company, including capital stock issued.
Question 16
What includes the aggregate amount of other comprehensive income items?
A) Retained Earnings
B) Treasury Stock
C) Accumulated Other Comprehensive Income
D) Additional Paid-in Capital
Answer: C) Accumulated Other Comprehensive Income
Explanation: This account tracks the cumulative amount of income and expenses not recognized in net income.
Question 17
What refers to the cost of shares repurchased by the company?
A) Retained Earnings
B) Treasury Stock
C) Capital Stock
D) Additional Paid-in Capital
Answer: B) Treasury Stock
Explanation: Treasury stock represents shares that were once a part of the outstanding shares but were later repurchased by the company.
Question 18
What describes unrealized gains and losses on available-for-sale debt investments?
A) Retained Earnings
B) Accumulated Other Comprehensive Income
C) Treasury Stock
D) Noncontrolling Interest
Answer: B) Accumulated Other Comprehensive Income
Explanation: This account reflects changes in the value of certain investments that have not yet been sold.
Question 19
What is the correct order to present current assets?
A) Cash, Accounts Receivable, Inventories, Prepaid Items
B) Cash, Inventories, Accounts Receivable, Prepaid Items
C) Cash, Accounts Receivable, Prepaid Items, Inventories
D) Cash, Accounts Receivable, Inventories, Prepaid Items
Answer: D) Cash, Accounts Receivable, Inventories, Prepaid Items
Explanation: Current assets are presented in order of liquidity, starting with the most liquid assets.
Question 20
What is an intangible asset example?
A) Land
B) Machinery
C) Customer Lists
D) Inventory
Answer: C) Customer Lists
Explanation: Customer lists are considered intangible assets as they do not have a physical presence but represent value.
