Q: Which formula correctly calculates the current ratio?

$$ \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} $$

Q: A company’s classified balance sheet reports $$50,000 in current assets and 25$$,000 in current liabilities. What is the current ratio?

$$ \text{Current Ratio} = \frac{50,000}{25,000} = 2.0 $$

Question 1

Which of the following is NOT a benefit of preparing a work sheet in the accounting cycle?

Accepted Answer

It is a required financial report for external users.

Question 2

What is the correct order of the five steps in preparing a work sheet?

Accepted Answer

Enter unadjusted trial balance, enter adjustments, prepare adjusted trial balance, sort adjusted trial balance amounts to financial statements, total statement columns and compute income or loss.

Question 3

Which accounts are closed at the end of the accounting period during the closing process?

Accepted Answer

Revenues, expenses, and withdrawals

Question 4

After posting closing entries, which of the following statements is TRUE regarding the post-closing trial balance?

Accepted Answer

It contains only permanent accounts with nonzero balances.

Question 5

Which of the following is a temporary account that is used only during the closing process?

Accepted Answer

Income Summary

Question 6

A classified balance sheet separates assets and liabilities into which of the following categories?

Accepted Answer

Current and noncurrent

Question 7

Which of the following is NOT considered a current asset?

Accepted Answer

Equipment

Question 8

Which formula correctly calculates the current ratio?

Accepted Answer

$$ 	ext{Current Ratio} = \frac{	ext{Current Assets}}{	ext{Current Liabilities}} $$

Question 9

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

Accepted Answer

To simplify recordkeeping by reversing certain adjusting entries involving accrued revenues and expenses.

Question 10

Which of the following is a permanent account?

Accepted Answer

Owner’s Capital

Question 11

If a company forgets to close its revenue accounts at the end of the period, what is the likely effect on the owner’s capital account?

Accepted Answer

Owner’s capital will be understated.

Question 12

Which of the following is the correct sequence for closing entries?

Accepted Answer

Close revenues to Income Summary, close expenses to Income Summary, close Income Summary to Owner’s Capital, close Withdrawals to Owner’s Capital.

Question 13

Which of the following is TRUE regarding the use of a work sheet?

Accepted Answer

It is an internal document used to organize information for preparing adjusting entries and financial statements.

Question 14

Which of the following would NOT appear in the post-closing trial balance?

Accepted Answer

Service Revenue

Question 15

A company’s classified balance sheet reports $$50,000 in current assets and 25$$,000 in current liabilities. What is the current ratio?

Accepted Answer

$$ 	ext{Current Ratio} = \frac{50,000}{25,000} = 2.0 $$

Question 16

Which of the following is an example of a noncurrent asset?

Accepted Answer

Land

Question 17

Which of the following statements about the closing process is correct?

Accepted Answer

It updates the balance in the owner’s capital account to match the amount reported on the statement of owner’s equity and the balance sheet.

Question 18

Which of the following is the correct formula for the acid-test (quick) ratio?

Accepted Answer

$$ 	ext{Acid	ext{-}Test\ Ratio} = \frac{	ext{Cash} + 	ext{Short	ext{-}term Investments} + 	ext{Receivables}}{	ext{Current Liabilities}} $$

Completing the Accounting Cycle: Chapter 4 Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards