Q: A company paid $2,400 for a one-year insurance policy on October 1. What is the insurance expense recognized by December 31?

$$Insurance Expense = \frac{2,400}{12} \times 3 = 600$$

Question 1

Which of the following best describes the primary purpose of financial accounting?

Accepted Answer

To measure, record, and communicate business activities to external users for decision-making.

Question 2

Which financial statement shows a company's financial position at a specific point in time?

Accepted Answer

Balance Sheet

Question 3

A company purchased equipment for $50,000 cash. Which of the following is the correct journal entry?

Accepted Answer

Debit Equipment $$50,000; Credit Cash 50$$,000

Question 4

Which equation correctly represents the basic accounting equation?

Accepted Answer

$$Assets = Liabilities + Stockholders' Equity$$

Question 5

If a company has total assets of $$120,000 and total liabilities of 80$$,000, what is its stockholders' equity?

Accepted Answer

$$Stockholders' Equity = Assets - Liabilities = 120,000 - 80,000 = 40,000$$

Question 6

Which of the following transactions would increase both assets and liabilities?

Accepted Answer

Purchasing inventory on account

Question 7

A company earned $$10,000 in service revenue and received 6$$,000 in cash, with the remainder on account. What is the impact on assets?

Accepted Answer

Increase Cash by $$6,000 and Increase Accounts Receivable by 4$$,000

Question 8

Which of the following is NOT a component of the Statement of Cash Flows?

Accepted Answer

Retained Earnings Activities

Question 9

A company reports the following: Revenues $$80,000, Expenses 60$$,000, Dividends $$5,000. What is the ending retained earnings if beginning retained earnings were 20$$,000?

Accepted Answer

$$Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends = 20,000 + (80,000 - 60,000) - 5,000 = 35,000$$

Question 10

Which of the following best describes accrual accounting?

Accepted Answer

Revenues are recorded when earned and expenses when incurred, regardless of cash flow.

Question 11

A company paid $2,400 for a one-year insurance policy on October 1. What is the insurance expense recognized by December 31?

Accepted Answer

$$Insurance Expense = \frac{2,400}{12} 	imes 3 = 600$$

Question 12

Which of the following is an example of a current liability?

Accepted Answer

Accounts Payable

Question 13

Which of the following would be classified as an investing activity on the Statement of Cash Flows?

Accepted Answer

Purchase of equipment

Question 14

A company issues $100,000 of common stock for cash. What is the effect on the accounting equation?

Accepted Answer

Increase Assets by $$100,000; Increase Stockholders' Equity by 100$$,000

Question 15

Which of the following best describes the matching principle?

Accepted Answer

Expenses should be recorded in the same period as the revenues they help generate.

Question 16

A company has the following balances: Cash $$15,000, Accounts Receivable 10$$,000, Inventory $$5,000, Equipment 20$$,000, Accounts Payable $$8,000, Notes Payable 12$$,000. What is total assets?

Accepted Answer

$$Total Assets = Cash + Accounts Receivable + Inventory + Equipment = 15,000 + 10,000 + 5,000 + 20,000 = 50,000$$

Question 17

Which of the following is NOT a characteristic of useful financial information?

Accepted Answer

Ambiguity

Question 18

A company receives a $5,000 utility bill but will pay it next month. What is the correct journal entry?

Accepted Answer

Debit Utilities Expense $$5,000; Credit Accounts Payable 5$$,000

Question 19

Which of the following best describes the purpose of the Statement of Retained Earnings?

Accepted Answer

To show changes in retained earnings due to net income and dividends over a period.

ACC 200: Principles of Financial Accounting – Syllabus and Course Structure

Study Guide - Practice Questions

Study Guide - Flashcards