Q: What is the formula for net working capital?

$$\text{Net Working Capital} = \text{Total Current Assets} - \text{Total Current Liabilities}$$

Q: A company has total current assets of $$30,000 and total current liabilities of 20$$,000. What is the current ratio?

$$\text{Current Ratio} = \frac{30,000}{20,000} = 1.5$$

Q: A company has total liabilities of $$40,000 and total assets of 100$$,000. What is the debt ratio?

$$\text{Debt Ratio} = \frac{40,000}{100,000} = 0.4$$

Question 1

Which of the following is a primary disadvantage of the partnership form of business organization?

Accepted Answer

Unlimited liability for partners

Question 2

Which accounting principle requires that assets be recorded at their actual purchase price, not at their current market value?

Accepted Answer

Historical Cost Principle

Question 3

A company purchases a warehouse for $$100,000, although it was listed for 125$$,000. According to the historical cost principle, at what value should the warehouse be recorded?

Accepted Answer

$100,000

Question 4

Given the following balances at year-end: Assets = $$550,000, Liabilities = 200$$,000. What is Stockholders’ Equity?

Accepted Answer

$350,000

Question 5

If beginning stockholder’s equity is $$200,000, contributions for the year are 25$$,000, net income is $$75,000, and ending stockholder’s equity is 250$$,000, what amount of dividends were paid?

Accepted Answer

$50,000

Question 6

ABC Trucking owed $$30,000 to its diesel provider at the beginning of the month, paid 40$$,000 during the month, and ended with a balance of $45,000. How much diesel did ABC purchase on account during the month?

Accepted Answer

$55,000

Question 7

Office Inc. had $$15,000 of supplies at month-end, bought 5$$,000 during the month, and used $8,000. What was the beginning balance of supplies?

Accepted Answer

$18,000

Question 8

Which of the following transactions will increase both assets and liabilities on the accounting equation?

Accepted Answer

Receiving cash payment for services yet to be performed

Question 9

A company provides services on account for $50,000. What is the impact on the accounting equation?

Accepted Answer

Increase assets and increase stockholders’ equity

Question 10

Given the following account balances: Service Revenue $$20,000, Salary Expense 12$$,000, Depreciation Expense $3,000. What is net income?

Accepted Answer

$8,000

Question 11

Farmer Brown buys a tractor for $400,000, expects to use it for 10 years. What is the annual depreciation expense using straight-line depreciation?

Accepted Answer

$40,000

Question 12

What is the net book value of Farmer Brown’s tractor at the end of 6 years, assuming straight-line depreciation and no salvage value?

Accepted Answer

$160,000

Question 13

If a company forgets to record annual depreciation, what is the impact on the balance sheet and net income?

Accepted Answer

Assets and net income are both overstated

Question 14

Which of the following is true about adjusting entries?

Accepted Answer

They always involve one revenue or expense account and one asset or liability account

Question 15

KnifeThrower Inc pays $24,000 for a one-year insurance policy on September 1. What is the adjusting entry on December 31?

Accepted Answer

Debit Insurance Expense $$8,000; Credit Prepaid Insurance 8$$,000

Question 16

Which account is a contra asset with a normal credit balance?

Accepted Answer

Accumulated Depreciation

Question 17

What is the formula for net working capital?

Accepted Answer

$$	ext{Net Working Capital} = 	ext{Total Current Assets} - 	ext{Total Current Liabilities}$$

Question 18

A company has total current assets of $$30,000 and total current liabilities of 20$$,000. What is the current ratio?

Accepted Answer

$$	ext{Current Ratio} = \frac{30,000}{20,000} = 1.5$$

Question 19

A company has total liabilities of $$40,000 and total assets of 100$$,000. What is the debt ratio?

Accepted Answer

$$	ext{Debt Ratio} = \frac{40,000}{100,000} = 0.4$$

Question 20

After closing entries are posted, what is the balance of the revenue account?

Accepted Answer

$$0$$

Fundamental Concepts in Financial Accounting: Business Organization, Principles, and the Accounting Cycle

Study Guide - Practice Questions

Study Guide - Flashcards