ACCOUNTING FINAL EXAM WITH QUESTIONS AND ANSWERS #6
Entity - correct answer a person, unit, organization or group
Proprietorship - correct answer business owned by one person
Partnership - correct answer business owned by two or more persons or entities
Corporation - correct answer business owned by one or more entities who own shares
of stock in the business. Separate entity than it's owners, limited liability
Assets= - correct answer liabilities + stockholder's equity
How to find net income - correct answer revenue - expenses
How to find ending retained earnings - correct answer beginning retained earnings + net
income - dividends
How to find total stockholder's equity - correct answer retained earnings + common
stock
The 4 financial statements should be prepared in which order - correct answer income
statement, statement of retained earnings, balance sheet, statement of cash flows
Financial accounting is principally concerned with: - correct answer reporting to external
users
What do liquidity ratios measure - correct answer the short term ability of a company to
pay it's obligations as they are due and meet unexpected cash needs
Calculate current ratio - correct answer current assets / current liabilites
Calculate working capital - correct answer current assets - current liabilites
What is earnings per share (eps), what does it measure, and how do you calculate -
correct answer net income earned on each share of common stock; measures the
company's profitability.
(net income - preferred stock dividends) / average common stock shares outstanding
What do solvency ratios measures - correct answer measure the ability of the company
to survive over a long period of time
Debt to total assets ratio definition & calculation - correct answer measures the
percentage of total financing provided by creditors.
Total liabilities / total assets
,Free cash flow - correct answer cash provided by operating activities adjusted for
capital expenditures and dividends paid
Expense recognition principle (matching) requires...? - correct answer that costs
(expenses) be recognized in the same accounting period of their related revenue
Faithful representation - correct answer info is complete, neutral, and free from error
Going concern assumption - correct answer principle that assumes the enterprise will
continue into the foreseeable future
Revenue recognition principle - correct answer revenue is recognized in the time period
of when it is earned, which is not always the same time period it is recieved
Cost of goods sold is recorded as - correct answer an expense
Long term assets held for use in the production or sale of other assets or services -
correct answer plant and equipment
How would you write the journal entry:
Completed payroll for jordan valley and billed $440 for services - correct answer
accounts receivable 440
service rev. 440
How would you write the journal entry:
Received $200 cash in advance from jones to set up accounting system - correct
answer debit: cash 200 credit: unearned rev. 200
How to find the book value - correct answer cost of asset - accum. Depreciation
With cash-basis accounting, when do you record revenue and expenses? - correct
answer recording revenue when cash is received, & record expense when cash is paid
Accrual-basis accounting
(preferred over cash-basis accounting) - correct answer records rev. In the period when
rev. Is earned (rev. Recognition principle) and matches expenses to the period in which
the rev. Was earned (expense recognition principle)
Temporary accounts include which accounts? (whatever is closed out at the end of the
accounting period and moved to a different statement) - correct answer income
statement accounts + dividend account which are closed out at the end of the
accounting period to be put on the retained earnings account
How to solve net income for the accrual basis of accounting - correct answer revenue
earned - expenses
, A corp. Purchased a 3 year (36 months) insurance policy on dec. 1, year a for $3,600.
The corp. Debited prepaid insurance account in recording the original transaction. The
adjusting entry for dec. 31 year a will include the transaction: - correct answer credit to
prepaid insurance for $100.
3 years = 36 months
$3, months = $100 per month
When you fail to adjust a prepaid expense that has partially expired, which was
originally recorded by debiting prepaid expenses, what happens to the assets and
expenses? - correct answer overstatement of assets, understatement of expenses
What is the order of the accounting cycle steps (1-9) in correct sequence - correct
answer 1. Analyze transactions 2. Journalize transactions 3. Post to ledger 4. Prepare
trial balance 5. Journalize/post adjusting entries 6. Prepare adjusted trial balance 7.
Prepare financial statements 8. Journalize/post closing entires 9. Prepare post-closing
trial balance
Service enterprise is a company that makes most of it's revenue by: - correct answer
providing a service (firm, doctor, realtor)
Merchandising company - correct answer company that makes most of its revenue by
selling products (inventory) ex: walmart, target, schnucks
What two things do you have to remember to subtract from sales revenue when
calculating net sales - correct answer sales revenue - sales returns and allowances -
sales discounts
What is the cost of goods sold and what kind of account is it? - correct answer total cost
of merchandise sold during the period.
Expense account
How to solve gross profit - correct answer the excess of: net sales / cost of goods sold
How to calculate gross profit rate - correct answer gross profit / net sales
Perpetual inventory system is a detailed inventory system which maintains..... - correct
answer the cost of each inventory item and the records continuously show the inventory
that should be on hand. Every time an item is sold, cost of goods sold and the inventory
account are updated.
Periodic inventory system - correct answer does not maintain detailed records of goods
on hand and determines cost of goods sold & inventory at the end of the accounting
period.
Purchases is an account that is used under the periodic inventory system to record -
correct answer the purchase of inventory items during the period
Entity - correct answer a person, unit, organization or group
Proprietorship - correct answer business owned by one person
Partnership - correct answer business owned by two or more persons or entities
Corporation - correct answer business owned by one or more entities who own shares
of stock in the business. Separate entity than it's owners, limited liability
Assets= - correct answer liabilities + stockholder's equity
How to find net income - correct answer revenue - expenses
How to find ending retained earnings - correct answer beginning retained earnings + net
income - dividends
How to find total stockholder's equity - correct answer retained earnings + common
stock
The 4 financial statements should be prepared in which order - correct answer income
statement, statement of retained earnings, balance sheet, statement of cash flows
Financial accounting is principally concerned with: - correct answer reporting to external
users
What do liquidity ratios measure - correct answer the short term ability of a company to
pay it's obligations as they are due and meet unexpected cash needs
Calculate current ratio - correct answer current assets / current liabilites
Calculate working capital - correct answer current assets - current liabilites
What is earnings per share (eps), what does it measure, and how do you calculate -
correct answer net income earned on each share of common stock; measures the
company's profitability.
(net income - preferred stock dividends) / average common stock shares outstanding
What do solvency ratios measures - correct answer measure the ability of the company
to survive over a long period of time
Debt to total assets ratio definition & calculation - correct answer measures the
percentage of total financing provided by creditors.
Total liabilities / total assets
,Free cash flow - correct answer cash provided by operating activities adjusted for
capital expenditures and dividends paid
Expense recognition principle (matching) requires...? - correct answer that costs
(expenses) be recognized in the same accounting period of their related revenue
Faithful representation - correct answer info is complete, neutral, and free from error
Going concern assumption - correct answer principle that assumes the enterprise will
continue into the foreseeable future
Revenue recognition principle - correct answer revenue is recognized in the time period
of when it is earned, which is not always the same time period it is recieved
Cost of goods sold is recorded as - correct answer an expense
Long term assets held for use in the production or sale of other assets or services -
correct answer plant and equipment
How would you write the journal entry:
Completed payroll for jordan valley and billed $440 for services - correct answer
accounts receivable 440
service rev. 440
How would you write the journal entry:
Received $200 cash in advance from jones to set up accounting system - correct
answer debit: cash 200 credit: unearned rev. 200
How to find the book value - correct answer cost of asset - accum. Depreciation
With cash-basis accounting, when do you record revenue and expenses? - correct
answer recording revenue when cash is received, & record expense when cash is paid
Accrual-basis accounting
(preferred over cash-basis accounting) - correct answer records rev. In the period when
rev. Is earned (rev. Recognition principle) and matches expenses to the period in which
the rev. Was earned (expense recognition principle)
Temporary accounts include which accounts? (whatever is closed out at the end of the
accounting period and moved to a different statement) - correct answer income
statement accounts + dividend account which are closed out at the end of the
accounting period to be put on the retained earnings account
How to solve net income for the accrual basis of accounting - correct answer revenue
earned - expenses
, A corp. Purchased a 3 year (36 months) insurance policy on dec. 1, year a for $3,600.
The corp. Debited prepaid insurance account in recording the original transaction. The
adjusting entry for dec. 31 year a will include the transaction: - correct answer credit to
prepaid insurance for $100.
3 years = 36 months
$3, months = $100 per month
When you fail to adjust a prepaid expense that has partially expired, which was
originally recorded by debiting prepaid expenses, what happens to the assets and
expenses? - correct answer overstatement of assets, understatement of expenses
What is the order of the accounting cycle steps (1-9) in correct sequence - correct
answer 1. Analyze transactions 2. Journalize transactions 3. Post to ledger 4. Prepare
trial balance 5. Journalize/post adjusting entries 6. Prepare adjusted trial balance 7.
Prepare financial statements 8. Journalize/post closing entires 9. Prepare post-closing
trial balance
Service enterprise is a company that makes most of it's revenue by: - correct answer
providing a service (firm, doctor, realtor)
Merchandising company - correct answer company that makes most of its revenue by
selling products (inventory) ex: walmart, target, schnucks
What two things do you have to remember to subtract from sales revenue when
calculating net sales - correct answer sales revenue - sales returns and allowances -
sales discounts
What is the cost of goods sold and what kind of account is it? - correct answer total cost
of merchandise sold during the period.
Expense account
How to solve gross profit - correct answer the excess of: net sales / cost of goods sold
How to calculate gross profit rate - correct answer gross profit / net sales
Perpetual inventory system is a detailed inventory system which maintains..... - correct
answer the cost of each inventory item and the records continuously show the inventory
that should be on hand. Every time an item is sold, cost of goods sold and the inventory
account are updated.
Periodic inventory system - correct answer does not maintain detailed records of goods
on hand and determines cost of goods sold & inventory at the end of the accounting
period.
Purchases is an account that is used under the periodic inventory system to record -
correct answer the purchase of inventory items during the period
