Q: What is the formula for calculating the debt ratio?

$$\frac{\text{Total liabilities}}{\text{Total assets}}$$

Question 1

Which of the following best describes the main difference between accrual accounting and cash-basis accounting?

Accepted Answer

Accrual accounting records the impact of transactions when they occur, regardless of cash flow, while cash-basis accounting records only cash transactions.

Question 2

A company receives $5,000 cash in advance for services to be performed next month. According to accrual accounting, how should this transaction be recorded?

Accepted Answer

Debit Cash $$5,000; Credit Unearned Revenue 5$$,000

Question 3

Which of the following is NOT a step in the IFRS revenue recognition criteria?

Accepted Answer

Record expenses when cash is paid.

Question 4

A business pays $$3,000 for rent in advance on June 1. By June 30, 1$$,000 worth of rent has expired. What is the carrying amount of Prepaid Rent on the balance sheet at June 30?

Accepted Answer

$2,000

Question 5

Which journal entry correctly records the adjustment for supplies if the unadjusted balance is $$3,100 and the supplies on hand at year-end are 800$$?

Accepted Answer

Debit Supplies Expense $$2,300; Credit Supplies 2$$,300

Question 6

A company purchased equipment for $60,000 at the beginning of the year. The equipment has a useful life of 5 years and no residual value. What is the annual depreciation expense, and what is the carrying amount at year-end?

Accepted Answer

Annual depreciation: $$12,000; Carrying amount: 48$$,000

Question 7

Which of the following best describes a deferral in accounting?

Accepted Answer

A transaction where cash is paid or received in advance and recognized as an asset or liability until earned or used.

Question 8

Which account is considered a contra-asset and has a normal credit balance?

Accepted Answer

Accumulated Depreciation

Question 9

If a company has current assets of $$50,000 and current liabilities of 25$$,000, what is its current ratio?

Accepted Answer

$2.0

Question 10

Which of the following transactions would require an accrual adjusting entry at year-end?

Accepted Answer

Earning interest revenue that has not yet been received

Question 11

A company pays employees $1,000 per day, Monday through Friday, and pays every Friday. If December 31 falls on a Tuesday, what is the adjusting entry for accrued salaries at year-end?

Accepted Answer

Debit Salary Expense $$2,000; Credit Salary Payable 2$$,000

Question 12

Which financial statement reports assets, liabilities, and shareholders’ equity at a specific point in time?

Accepted Answer

Balance Sheet

Question 13

What is the formula for calculating the debt ratio?

Accepted Answer

$$\frac{	ext{Total liabilities}}{	ext{Total assets}}$$

Question 14

Which of the following is TRUE regarding closing entries?

Accepted Answer

Closing entries are made to prepare accounts for the next period by setting revenues, expenses, and dividends to zero.

Question 15

If a company’s current ratio is 0.73, what does this indicate about its liquidity compared to a company with a current ratio of 1.57?

Accepted Answer

The company with a current ratio of 1.57 has higher liquidity.

Question 16

Which of the following best describes the carrying amount of a long-term asset?

Accepted Answer

The original cost of the asset less accumulated depreciation.

Question 17

Which adjusting entry is required when revenue has been earned but not yet received?

Accepted Answer

Debit Accounts Receivable; Credit Service Revenue

Question 18

Which of the following is classified as a current asset?

Accepted Answer

Accounts Receivable

Question 19

A company’s net income is $$10,000, and dividends paid are 2$$,000. If the beginning retained earnings were $5,000, what are the ending retained earnings?

Accepted Answer

$13,000

Question 20

Which type of chart is most effective for visualizing trends in a company’s current ratio over several years?

Accepted Answer

Line chart

Accrual Accounting and the Financial Statements – Chapter 3 Study Notes

Study Guide - Practice Questions

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