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web.groovymark@gmail.com
- December 12, 2024
Question 21
What is the balance sheet format that lists assets on the left side and liabilities and stockholders’ equity on the right side?
A) Report Form
B) Account Form
C) Condensed Form
D) Multi-Step Form
Answer: B) Account Form
Explanation: The account form presents the balance sheet with assets on the left and liabilities and equity on the right.
Question 22
What investments should always be reported as current assets?
A) Held-to-maturity securities
B) Trading securities
C) Available-for-sale securities
D) Long-term investments
Answer: B) Trading securities
Explanation: Trading securities are intended to be sold in the near term and are classified as current assets.
Question 23
What is included in the owners’ equity section reported in the balance sheet?
A) Accounts Receivable
B) Current Liabilities
C) Noncontrolling Interest
D) Inventory
Answer: C) Noncontrolling Interest
Explanation: Noncontrolling interest represents the portion of equity in subsidiaries not wholly owned by the reporting company.
Question 24
What are acceptable balance sheet formats?
A) Report form and Condensed form
B) Condensed form and Account form
C) Report form and Account form
D) Single-step form and Multi-step form
Answer: C) Report form and Account form
Explanation: Both report form and account form are recognized formats for presenting the balance sheet.
Question 25
What is a trait of usefulness of the balance sheet?
A) It reflects fair value.
B) It provides historical cost information.
C) It shows future projections.
D) It lists all financial value items.
Answer: B) It provides historical cost information.
Explanation: The balance sheet primarily presents assets and liabilities based on historical cost rather than fair value.
Question 26
According to the accounting formula, total assets of a business are equal to what?
A) Total assets minus total stockholders’ equity
B) Liabilities plus total stockholders’ equity
C) Net assets plus total liabilities
D) Current assets minus current liabilities
Answer: B) Liabilities plus total stockholders' equity
Explanation: The accounting equation states that assets equal liabilities plus equity (A = L + E).
Question 27
Which should be included in the current assets section of the balance sheet?
A) Patents
B) Goodwill
C) Machinery
D) Inventory
Answer: D) Inventory
Explanation: Inventory is expected to be sold or converted to cash within the operating cycle and is classified as a current asset.
Question 28
What is working capital?
A) Excess of total current assets over total current liabilities
B) Total assets minus total liabilities
C) Cash and receivables less current liabilities
D) Retained earnings plus total liabilities
Answer: A) Excess of total current assets over total current liabilities
Explanation: Working capital indicates the short-term financial health of a company by comparing current assets and current liabilities.
Question 29
What is included in long-term liabilities?
A) Obligations expected to be liquidated within the operating cycle
B) Investments intended to be converted to cash
C) Deferred income taxes and most lease obligations
D) Accounts payable
Answer: C) Deferred income taxes and most lease obligations
Explanation: Long-term liabilities are obligations that are not due within the next year and include deferred taxes and long-term leases.
Question 30
What is the proper classification of Treasury stock on the balance sheet?
A) Current asset
B) Reduction of stockholders’ equity
C) Investment
D) Other asset
Answer: B) Reduction of stockholders' equity
Explanation: Treasury stock is recorded as a contra equity account, reducing the total stockholders' equity on the balance sheet.
Question 31
A trial balance is defined as:
A) A list of accounts and their balances at a given time.
B) A summary of cash flows from operating activities.
C) A report of a company’s profitability over a period.
D) A detailed listing of liabilities and assets.
Answer: A) A list of accounts and their balances at a given time.
Explanation: The trial balance is prepared to ensure that total debits equal total credits before preparing financial statements.
Question 32
A company usually prepares a trial balance at what point?
A) At the end of the fiscal year only
B) Before each financial statement is prepared
C) At the beginning of the accounting period
D) Only during audits
Answer: B) Before each financial statement is prepared
Explanation: A trial balance is often prepared at the end of each accounting period to check for accuracy in the ledger accounts.
Question 33
The procedures for preparing a trial balance consist of what?
A) Listing the cash accounts and their balances.
B) Only totaling the debit column.
C) Proving the equality of the two columns.
D) Listing accounts in order of liquidity.
Answer: C) Proving the equality of the two columns.
Explanation: The main steps involve listing account titles with balances and ensuring that total debits equal total credits.
Question 34
What is the adjusting journal entry for depreciation on equipment?
A) Debit Accumulated Depreciation; Credit Depreciation Expense
B) Debit Depreciation Expense $6,800; Credit Accumulated Depreciation $6,800
C) Debit Equipment; Credit Depreciation Expense
D) Debit Depreciation Expense; Credit Cash
Answer: B) Debit Depreciation Expense $6,800; Credit Accumulated Depreciation $6,800
Explanation: This entry records the depreciation expense for the period for the company's equipment.
Question 35
What is the adjusting journal entry for estimating bad debts?
A) Debit Allowance for Doubtful Accounts; Credit Bad Debt Expense
B) Debit Bad Debt Expense; Credit Allowance for Doubtful Accounts $4,980
C) Debit Accounts Receivable; Credit Bad Debt Expense
D) Debit Cash; Credit Bad Debt Expense
Answer: B) Debit Bad Debt Expense; Credit Allowance for Doubtful Accounts $4,980
Explanation: This entry records the estimated uncollectible accounts based on the company's analysis.
Question 36
What is the adjusting journal entry for physical inventory count showing less inventory on hand?
A) Debit Inventory; Credit Cost of Goods Sold
B) Debit Cost of Goods Sold; Credit Inventory $4,500
C) Debit Inventory; Credit Cash
D) Debit Accounts Payable; Credit Inventory
Answer: B) Debit Cost of Goods Sold; Credit Inventory $4,500
Explanation: This entry reflects the decrease in inventory and adjusts the cost of goods sold accordingly.
Question 37
What is the adjusting journal entry for prepaid expenses when part of it is used up?
A) Debit Prepaid Insurance; Credit Insurance Expense
B) Debit Insurance Expense; Credit Prepaid Insurance
C) Debit Cash; Credit Prepaid Insurance
D) Debit Accounts Receivable; Credit Insurance Expense
Answer: B) Debit Insurance Expense; Credit Prepaid Insurance
Explanation: This entry reflects the consumption of the prepaid expense, moving it from an asset to an expense.
Question 38
How should unearned revenue be adjusted when part of it is recognized as earned?
A) Debit Unearned Revenue; Credit Cash
B) Debit Cash; Credit Unearned Revenue
C) Debit Unearned Revenue; Credit Revenue
D) Debit Revenue; Credit Unearned Revenue
Answer: C) Debit Unearned Revenue; Credit Revenue
Explanation: This entry recognizes the revenue that was previously deferred as unearned when the service has been performed.
Question 39
What is the journal entry for recognizing a sale of goods not previously recorded?
A) Debit Cash; Credit Sales Revenue
B) Debit Accounts Receivable; Credit Sales Revenue
C) Debit Inventory; Credit Sales Revenue
D) Debit Sales Revenue; Credit Accounts Payable
Answer: B) Debit Accounts Receivable; Credit Sales Revenue
Explanation: This entry reflects the sale of goods that had not yet been recorded in the accounts.
Question 40
What entry is made to record accrued interest on a note payable?
A) Debit Interest Expense; Credit Cash
B) Debit Interest Payable; Credit Interest Expense
C) Debit Interest Expense; Credit Interest Payable
D) Debit Cash; Credit Interest Expense
Answer: C) Debit Interest Expense; Credit Interest Payable
Explanation: This entry reflects the accrual of interest expense that has been incurred but not yet paid.
