Q: Which of the following is the correct formula for calculating the carrying amount of a depreciable asset?

$$\text{Carrying Amount} = \text{Cost} - \text{Accumulated Depreciation}$$

Q: Which of the following is the correct formula for the debt ratio?

$$\text{Debt Ratio} = \frac{\text{Total Liabilities}}{\text{Total Assets}}$$

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 receipts and payments.

Question 2

A company receives $12,000 in advance for services to be performed over two months. At the end of the first month, half the services have been performed. What is the correct adjusting journal entry at month-end?

Accepted Answer

Debit Unearned Revenue $$6,000; Credit Service Revenue 6$$,000

Question 3

According to the IFRS revenue recognition criteria, which step comes immediately before recognizing revenue?

Accepted Answer

Allocate the transaction price to the separate performance obligations in the contract.

Question 4

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

Accepted Answer

$2,000

Question 5

Which of the following is the correct formula for calculating the carrying amount of a depreciable asset?

Accepted Answer

$$	ext{Carrying Amount} = 	ext{Cost} - 	ext{Accumulated Depreciation}$$

Question 6

A company has equipment with a cost of $60,000 and a useful life of 5 years with no residual value. What is the annual depreciation expense using straight-line depreciation?

Accepted Answer

$$12,000$$

Question 7

Which of the following adjusting entries is required when supplies purchased earlier for $$3,100 now have only 800 $$remaining at year-end?

Accepted Answer

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

Question 8

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 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 accounts is NOT closed at the end of the accounting period?

Accepted Answer

Equipment

Question 11

A company earned $3,000 of interest revenue that has not yet been received in cash. What is the correct adjusting entry?

Accepted Answer

Debit Interest Receivable $$3,000; Credit Interest Revenue 3$$,000

Question 12

Which of the following best describes the purpose of adjusting entries?

Accepted Answer

To measure income and update the balance sheet by ensuring all revenues and expenses are recorded in the correct period.

Question 13

A company pays employees $1,000 per day, Monday through 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 14

Which of the following is the correct formula for the debt ratio?

Accepted Answer

$$	ext{Debt Ratio} = \frac{	ext{Total Liabilities}}{	ext{Total Assets}}$$

Question 15

Which of the following is an example of an accrued expense?

Accepted Answer

Salaries incurred but not yet paid

Question 16

Which financial statement shows the changes in retained earnings during the period?

Accepted Answer

Statement of Retained Earnings

Question 17

A company has total assets of $$200,000 and total liabilities of 80$$,000. What is its debt ratio?

Accepted Answer

$$0.4$$

Question 18

Which of the following best describes the effect of recognizing depreciation expense on the financial statements?

Accepted Answer

Decreases assets and decreases net income

Question 19

Which of the following is the correct sequence for preparing financial statements?

Accepted Answer

Income Statement, Statement of Retained Earnings, Balance Sheet

Accrual Accounting and the Financial Statements – Chapter 3 Study Notes

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