Hardest Accounting Exam Quiz

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Hardest Accounting Exam Quiz - Quiz


Are you ready to take the most challenging accounting exam? Could you pass this quiz? The financial accounting exam involves concepts that are taught to new students. Accounting is when a professional evaluates numbers and records for businesses or individuals, which you learn at the beginning of the course. If you are looking for a way to test your accounting knowledge, this quiz is a must-do for you. Do take this quiz, try to answer all of its questions correctly, and we will see how much you manage to score. All the best to you.


Questions and Answers
  • 1. 

    Financial transactions are summarized in:

    • A.

      Financial statement footnotes

    • B.

      The independent auditor's opinion letter

    • C.

      The entity's accounts

    • D.

      None of the above

    Correct Answer
    C. The entity's accounts
    Explanation
    The correct answer is "The entity's accounts". Financial transactions are summarized and recorded in the entity's accounts, which include various financial statements such as the balance sheet, income statement, and cash flow statement. These accounts provide a comprehensive overview of the organization's financial activities and are used for decision-making, analysis, and reporting purposes. The financial statement footnotes and the independent auditor's opinion letter provide additional information and assurance regarding the accuracy and completeness of the entity's accounts.

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  • 2. 

    Which classification of accounting is most concerned with the use of economic and financial information to plan and control many of the activities of the entity?

    • A.

      Financial accounting

    • B.

      Auditing-Public accounting

    • C.

      Managerial accounting

    • D.

      Income tax accounting

    Correct Answer
    C. Managerial accounting
    Explanation
    Managerial accounting is the classification of accounting that is most concerned with the use of economic and financial information to plan and control the activities of an entity. It involves analyzing and interpreting financial data to aid in decision-making, budgeting, and performance evaluation. Unlike financial accounting, which focuses on reporting financial information to external stakeholders, managerial accounting is primarily used by internal management to make strategic and operational decisions. Auditing-Public accounting, financial accounting, and income tax accounting are not primarily focused on planning and controlling activities within an entity, making managerial accounting the correct answer.

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  • 3. 

    The accounting equation is Assets = Liabilities - Owners Equity.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The given statement is false. The correct accounting equation is Assets = Liabilities + Owners Equity. The equation represents the fundamental relationship between a company's assets, liabilities, and owners' equity. It states that the total value of a company's assets is equal to the sum of its liabilities and owners' equity. By mistakenly subtracting owners' equity instead of adding it, the given statement is incorrect.

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  • 4. 

    The distinction between a current asset and other assets:

    • A.

      Is based on how long the asset has been owned.

    • B.

      Is based on amounts that will be paid to other entities within a year.

    • C.

      Is based on the ability to determine the current fair market value of the asset.

    • D.

      Is based on when the asset is expected to be converted to cash, or used to benefit the entity.

    Correct Answer
    D. Is based on when the asset is expected to be converted to cash, or used to benefit the entity.
    Explanation
    The distinction between a current asset and other assets is based on when the asset is expected to be converted to cash or used to benefit the entity. Current assets are those that are expected to be converted to cash or used up within a year, while other assets are those that are expected to provide benefits beyond a year. This distinction is important for financial reporting purposes as it helps in assessing the liquidity and financial health of an entity.

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  • 5. 

    The time frame associated with a balance sheet is:

    • A.

      A point in time in the past

    • B.

      A one-year past period of time

    • C.

      A single date in the future

    • D.

      A function of the information included in it

    Correct Answer
    A. A point in time in the past
    Explanation
    The time frame associated with a balance sheet is a point in time in the past. A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific date. It shows the company's assets, liabilities, and shareholders' equity at that particular moment. It does not represent a period of time or a future date but rather captures a specific point in the past.

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  • 6. 

    Owners' equity refers to which to the following?

    • A.

      A listing of the organization's assets and liabilities

    • B.

      The ownership right of the owner(s) of the entity

    • C.

      Probable future sacrifices of economic benefits

    • D.

      All of the above

    • E.

      None of the above

    Correct Answer
    B. The ownership right of the owner(s) of the entity
    Explanation
    Owners' equity refers to the ownership right of the owner(s) of the entity. This means that it represents the residual interest in the assets of the organization after deducting liabilities. It is the amount that the owners would have left if all the organization's assets were sold and all its debts were paid off. Therefore, the correct answer is "The ownership right of the owner(s) of the entity."

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  • 7. 

    Which answer describes an internal auditor?

    • A.

      Internal auditors state an opinion on the financial statements – this opinion is printed in the Annual Report.

    • B.

      The internal auditor is an employee of the external auditor.

    • C.

      The internal auditor performs tasks similar to the external auditor – but the internal auditor is employed in industry rather than public accounting.

    • D.

      All of the above

    • E.

      None of the above

    Correct Answer
    C. The internal auditor performs tasks similar to the external auditor – but the internal auditor is employed in industry rather than public accounting.
    Explanation
    The correct answer is "The internal auditor performs tasks similar to the external auditor – but the internal auditor is employed in industry rather than public accounting." This answer accurately describes the role of an internal auditor, who is responsible for evaluating and assessing the effectiveness of an organization's internal controls, risk management processes, and governance. Unlike external auditors who work for public accounting firms and provide independent opinions on financial statements, internal auditors are employed by the organization they audit and focus on internal processes and controls.

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  • 8. 

    The time frame associated with an income statement is:

    • A.

      A point in time in the past

    • B.

      A past period of time

    • C.

      A future period of time

    • D.

      A function of the information included in it

    Correct Answer
    B. A past period of time
    Explanation
    The time frame associated with an income statement is a past period of time. An income statement summarizes the financial performance of a company over a specific period, typically a month, quarter, or year. It includes revenues, expenses, and net income or loss for that period. Therefore, the income statement reflects the financial results of the company for a past period, allowing stakeholders to assess its profitability and financial health during that time.

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  • 9. 

    The purpose of the income statement is to show the:

    • A.

      Change in the fair market value of the assets from the prior income statement

    • B.

      Market value per share of stock at the date of the statement

    • C.

      Revenues collected during the period covered by the statement

    • D.

      Net income or net loss for the period covered by the statement

    Correct Answer
    D. Net income or net loss for the period covered by the statement
    Explanation
    The purpose of the income statement is to show the net income or net loss for the period covered by the statement. This statement provides a summary of the company's revenues, expenses, and profits or losses over a specific period of time, typically a fiscal quarter or year. It helps stakeholders, such as investors and creditors, evaluate the financial performance and profitability of the company. By subtracting the total expenses from the total revenues, the income statement calculates the net income (profit) or net loss for the period, which indicates the company's financial health and viability.

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  • 10. 

    The accounting equation is: Assets = Liabilities + Retained Earnings

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The accounting equation is: Assets = Liabilities + Equity. Retained Earnings is a component of Equity, but it is not part of the accounting equation itself. The equation represents the fundamental principle of double-entry bookkeeping, where the total value of assets must always equal the total value of liabilities and equity.

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  • 11. 

    The accounting equation is: Assets = Liabilities / Owners Equity

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The given accounting equation is incorrect. The correct accounting equation is: Assets = Liabilities + Owners Equity. This equation represents the fundamental relationship between a company's assets, liabilities, and owners' equity. It states that the total value of a company's assets is equal to the sum of its liabilities and owners' equity.

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  • 12. 

    The Statement of Cash Flows:

    • A.

      Shows how cash changed during the period

    • B.

      Is an optional financial statement

    • C.

      Shows the change in the market value of the entity's common stock during the period

    • D.

      Shows the dividends that will be paid in the future

    Correct Answer
    A. Shows how cash changed during the period
    Explanation
    The statement of cash flows is a financial statement that shows how cash changed during a specific period. It provides information on the inflows and outflows of cash from operating activities, investing activities, and financing activities. This statement helps users understand the sources and uses of cash within the entity and provides insights into its liquidity and cash management. It is a mandatory financial statement required by accounting standards and provides valuable information for decision-making and analysis.

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  • 13. 

    Beg. Retained Earnings = 100,000Ending Retained Earnings = 250,000Assume that there were no dividends declared. What is Net Income for the year?

    • A.

      150,000

    • B.

      250,000

    • C.

      175,000

    • D.

      125,000

    • E.

      100,000

    Correct Answer
    A. 150,000
    Explanation
    The net income for the year can be calculated by subtracting the beginning retained earnings from the ending retained earnings. In this case, the beginning retained earnings are $100,000 and the ending retained earnings are $250,000. Therefore, the net income for the year is $250,000 - $100,000 = $150,000.

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  • 14. 

    The accounting equation is: Assets = Liabilities + Contributed Capital

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The correct answer is False because the accounting equation is Assets = Liabilities + Owner's Equity, not Contributed Capital. Owner's Equity includes both contributed capital and retained earnings.

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  • 15. 

    Total Assets = 350,000Total Liabilities = 200,000Contributed Capital = 50,000Retained Earnings = ?

    • A.

      75,000

    • B.

      100,000

    • C.

      55,000

    • D.

      90,000

    • E.

      Not enough data to answer the question

    Correct Answer
    B. 100,000
    Explanation
    The retained earnings can be calculated by subtracting the total liabilities and contributed capital from the total assets. In this case, 350,000 - 200,000 - 50,000 = 100,000. Therefore, the retained earnings is 100,000.

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  • 16. 

    Beg. Retained Earnings = 110,000Ending Retained Earnings = 225,000Assume that there were 50,000 in dividends declared. What is Net Income for the year?

    • A.

      115,000

    • B.

      65,000

    • C.

      75,000

    • D.

      165,000

    • E.

      Not enough Data to answer this question.

    Correct Answer
    D. 165,000
    Explanation
    The net income for the year can be calculated by subtracting the dividends declared from the change in retained earnings. In this case, the change in retained earnings is $225,000 - $110,000 = $115,000. Since $50,000 in dividends were declared, the net income for the year is $115,000 + $50,000 = $165,000.

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  • 17. 

    What do the following accounts have in common?Short-term investmentsAccounts payableCash equivalentsWages payable

    • A.

      They are all found on the income statement.

    • B.

      They are all assets.

    • C.

      They would all be classified as "current".

    • D.

      They are all expenses.

    • E.

      They are all liabilities.

    Correct Answer
    C. They would all be classified as "current".
    Explanation
    The accounts mentioned in the question, short-term investments, accounts payable, cash equivalents, and wages payable, all have something in common. They would all be classified as "current". This means that they are all expected to be settled or realized within a short period, usually within one year. Classifying them as current helps in analyzing the liquidity and financial health of a company.

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  • 18. 

    Which of the following is an Asset?

    • A.

      Accumulated Depreciation

    • B.

      Wages Payable

    • C.

      Net Sales

    • D.

      Depreciation Expense

    • E.

      Contributed Capital

    Correct Answer
    A. Accumulated Depreciation
    Explanation
    Accumulated Depreciation is considered an asset because it represents the cumulative amount of depreciation that has been charged against an asset over its useful life. It is a contra-asset account, meaning it is subtracted from the cost of the asset to determine its net book value. Accumulated Depreciation is reported on the balance sheet and helps to reflect the decrease in value of the asset over time.

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  • 19. 

    Total Current Assets = 300,000Total Liabilities = 200,000Contributed Capital = 50,000What is the amount of retained earnings?

    • A.

      50,000

    • B.

      150,000

    • C.

      250,000

    • D.

      300,000

    • E.

      Not enough data to answer the question.

    Correct Answer
    E. Not enough data to answer the question.
    Explanation
    The amount of retained earnings cannot be determined based on the given information. Retained earnings is calculated by subtracting total liabilities and contributed capital from total current assets. However, only the total current assets, total liabilities, and contributed capital are provided. The amount of retained earnings cannot be determined without additional information.

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  • 20. 

    The current assets of most companies are usually made up of:

    • A.

      Assets that are currently used in the operations of the company.

    • B.

      Cash and assets expected to be converted to cash within a year.

    • C.

      A very small proportion (less than 10%) of the total assets of the entity.

    • D.

      Cash, marketable securities, and accounts and long-term notes receivable.

    Correct Answer
    B. Cash and assets expected to be converted to cash within a year.
    Explanation
    The correct answer is cash and assets expected to be converted to cash within a year. This is because current assets are those that are expected to be used up or converted into cash within a year. These assets are necessary for the day-to-day operations of the company and include items such as cash, accounts receivable, inventory, and prepaid expenses. The other options mentioned, such as assets currently used in operations and marketable securities, may be included in current assets, but they do not encompass the entire category.

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  • 21. 

    For which of the following reconciling items would an adjusting entry be necessary?

    • A.

      A deposit in transit.

    • B.

      The bank has made an error. They have record a deposit by you as double the amount you actually deposited.

    • C.

      Outstanding checks.

    • D.

      A bank service charge.

    Correct Answer
    D. A bank service charge.
    Explanation
    An adjusting entry would be necessary for a bank service charge because it represents an expense that has been incurred but not yet recorded in the company's books. The company needs to recognize this expense and reduce its cash balance accordingly. On the other hand, the other options mentioned (deposit in transit, bank error, outstanding checks) do not require adjusting entries as they are reconciling items that are already recorded correctly in the company's books and just need to be reconciled with the bank statement.

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  • 22. 

    Beg. Retained Earnings = 175,000Ending Retained Earnings = 125,000Assume that there were no dividends declared. What is Net Income/Loss for the year?

    • A.

      25,000

    • B.

      (45,000)

    • C.

      65,000

    • D.

      (50,000)

    • E.

      55,000

    Correct Answer
    D. (50,000)
    Explanation
    The net income/loss for the year can be calculated by subtracting the ending retained earnings from the beginning retained earnings. In this case, the beginning retained earnings are $175,000 and the ending retained earnings are $125,000. Subtracting the ending retained earnings from the beginning retained earnings gives us a net loss of $50,000.

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  • 23. 

    A debit

    • A.

      Always increases assets.

    • B.

      Always increases liabilities.

    • C.

      Increases an expense account.

    • D.

      Increases a revenue account.

    Correct Answer
    C. Increases an expense account.
    Explanation
    A debit entry in accounting refers to an increase in an account. An expense account is an account that tracks the costs incurred by a company in order to generate revenue. Therefore, when a debit entry is made, it increases the balance of an expense account, reflecting an increase in expenses.

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  • 24. 

    The principal reason for reconciling the cash balance per books with the balance shown on the bank statement is to:

    • A.

      Determine the amount of cash in the account actually available to the entity.

    • B.

      Satisfy generally accepted accounting principles.

    • C.

      Verify the amount of petty cash on hand.

    • D.

      Determine whether or not the entity has issued an NSF check.

    Correct Answer
    A. Determine the amount of cash in the account actually available to the entity.
    Explanation
    The principal reason for reconciling the cash balance per books with the balance shown on the bank statement is to determine the amount of cash in the account actually available to the entity. This process helps identify any discrepancies between the cash balance recorded in the company's books and the balance reported by the bank. By comparing the two, the company can identify any outstanding checks, deposits in transit, bank fees, or errors that may have caused the difference. Ultimately, this reconciliation ensures that the company has an accurate understanding of its available cash balance.

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  • 25. 

    There are transactions that will cause your balance sheet to not balance.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    This statement is false because transactions do not cause the balance sheet to not balance. The purpose of a balance sheet is to show the financial position of a company at a specific point in time, with the assets equaling the liabilities and equity. Transactions may impact the individual components of the balance sheet, but they should still balance out. If the balance sheet does not balance, it is likely due to errors in recording or calculation.

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  • 26. 

    An accounts receivable results from the sale of:

    • A.

      Property, plant and equipment for cash.

    • B.

      Goods and services to customers on account.

    • C.

      Goods and services to customers for cash.

    • D.

      The firm's common stock.

    Correct Answer
    B. Goods and services to customers on account.
    Explanation
    An accounts receivable results from the sale of goods and services to customers on account. This means that the customers have not paid for the goods and services at the time of the sale, and the amount owed by the customers is recorded as an accounts receivable. This is a common practice in businesses where customers are allowed to make purchases on credit and pay at a later date. The other options, such as selling property, plant and equipment for cash or selling goods and services for cash, do not result in an accounts receivable as the payment is received immediately. The firm's common stock is not related to the sale of goods and services to customers.

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  • 27. 

    The allowance for doubtful accounts is a(n):

    • A.

      Asset.

    • B.

      Contra current asset.

    • C.

      Expense.

    • D.

      Contra revenue.

    Correct Answer
    B. Contra current asset.
    Explanation
    The allowance for doubtful accounts is a contra current asset because it is a deduction from accounts receivable, which is a current asset. The allowance is created to account for the possibility that some customers may not pay their outstanding debts. By deducting the allowance from accounts receivable, the company is able to report a more accurate net realizable value of its accounts receivable on the balance sheet.

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  • 28. 

    The net book value of a depreciable asset is:

    • A.

      The fair market value of the asset.

    • B.

      The amount for which the asset should be insured.

    • C.

      The difference between the asset's cost and accumulated depreciation.

    • D.

      The difference between the asset's cost and depreciation expense.

    Correct Answer
    C. The difference between the asset's cost and accumulated depreciation.
    Explanation
    The net book value of a depreciable asset is the difference between the asset's cost and accumulated depreciation. This means that it is the remaining value of the asset after accounting for the amount that has been depreciated over its useful life. It represents the value of the asset that is still recorded on the balance sheet. The fair market value of the asset and the amount for which it should be insured may be different from the net book value as they are based on external factors such as market conditions and insurance coverage. The depreciation expense, on the other hand, represents the amount of the asset's cost that is allocated as an expense over its useful life.

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  • 29. 

    Which of the following statements best describes the process of accounting for depreciation?

    • A.

      A process that attempts to recognize loss in economic value over a period of time.

    • B.

      A process for setting aside cash so funds will be available to replace the asset.

    • C.

      A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset.

    • D.

      A process for recognizing all of the cost associated with using an asset in a revenue generating activity.

    Correct Answer
    C. A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset.
    Explanation
    The process of accounting for depreciation involves recognizing the cost of an asset and matching it against the revenue earned from using that asset. Depreciation is a way to allocate the cost of an asset over its useful life, as it gradually loses value. By recognizing this cost and matching it with the revenue generated by the asset, businesses can accurately reflect the true financial impact of using the asset on their financial statements.

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  • 30. 

    Accounts receivable are reported at

    • A.

      Net realizable value.

    • B.

      Historical cost.

    • C.

      Weighted average cost.

    • D.

      Market value.

    Correct Answer
    A. Net realizable value.
    Explanation
    Accounts receivable are reported at net realizable value because this is the estimated amount that a company expects to collect from its customers. It is calculated by subtracting any allowances for doubtful accounts or discounts from the total accounts receivable balance. This value is considered more conservative and realistic than historical cost, weighted average cost, or market value, as it reflects the actual amount that the company is likely to receive.

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  • 31. 

    The entry to record depreciation expense:

    • A.

      Increases a contra long-term asset and decreases net income.

    • B.

      Decreases a contra long-term asset and decreases net income.

    • C.

      Decreases working capital and decreases net income.

    • D.

      Decreases a long-term asset and increases a contra long-term asset.

    Correct Answer
    A. Increases a contra long-term asset and decreases net income.
    Explanation
    The correct answer is "increases a contra long-term asset and decreases net income." This is because depreciation expense is recorded to decrease the value of a long-term asset (since it represents the allocation of the asset's cost over its useful life) and to increase the contra long-term asset account called accumulated depreciation. As a result, the net value of the long-term asset decreases. Additionally, since depreciation expense is an expense, it reduces net income.

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  • 32. 

    Your company purchased inventory for $470,000 and paid cash. The journal entry to record the transaction would be:Cash..$470,000 Inventory.............$470,000

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The journal entry to record the transaction of purchasing inventory for $470,000 and paying cash would be: Inventory..$470,000 Cash.............$470,000. This is because when inventory is purchased and cash is paid, the inventory account is debited to increase it, and the cash account is credited to decrease it. Therefore, the correct answer is False.

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  • 33. 

    Sometimes your balance sheet will not balance, and in those situations it is ok.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The statement "Sometimes your balance sheet will not balance, and in those situations it is ok" is false. A balance sheet is a financial statement that shows a company's assets, liabilities, and shareholders' equity at a specific point in time. It is crucial for a balance sheet to balance, meaning that the total assets should equal the total liabilities and shareholders' equity. If the balance sheet does not balance, it indicates errors in the financial records or calculations, which need to be identified and corrected. Therefore, it is not okay for a balance sheet to not balance.

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  • 34. 

    The journal entry to record employee wage expenses, which you will not pay yet, would be:Wage Expense.........$xx,xxxWages Payable.............$xx,xxx

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The journal entry to record employee wage expenses, which you will not pay yet, would be to debit the Wage Expense account and credit the Wages Payable account. This is because the Wage Expense account represents the expense incurred by the company for the wages earned by employees, while the Wages Payable account represents the amount owed by the company to its employees for their wages. By recording this journal entry, the company recognizes the expense in the current period and creates a liability for the unpaid wages.

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  • 35. 

    Sales for the year were $750,000. Half was paid to you on account, half in cash. These sales cost you $250,000. The journal entry would be:Cash................$350,000AR...................$350,000 Sales......................$750,000COGS...............$250,000 Inventory.................$250,000

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The given journal entry is incorrect. The correct journal entry would be: Cash................$375,000 AR...................$375,000 Sales......................$750,000 COGS...............$250,000 Inventory.................$250,000. This is because half of the sales, which is $375,000, was received in cash and the other half was recorded as accounts receivable. The cost of goods sold is recorded as $250,000, which is the cost of the sales. The inventory is reduced by the same amount. Therefore, the correct answer is False.

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  • 36. 

    A contra-asset will increase with a debit.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    A contra-asset account is used to offset the balance in a related asset account. It carries a credit balance, not a debit balance. Therefore, a contra-asset account will increase with a credit, not a debit. Hence, the given statement "A contra-asset will increase with a debit" is false.

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  • 37. 

    The purpose of reporting Current Maturities of Long-Term debt is to:

    • A.

      To report any portion of a long-term borrowing that is to be paid in the upcoming accounting period.

    • B.

      To reclassify a portion of debt from the noncurrent section of the balance sheet to the current section of the balance sheet.

    • C.

      To properly classify liabilities.

    • D.

      All of the above.

    Correct Answer
    D. All of the above.
    Explanation
    The correct answer is "all of the above." Reporting Current Maturities of Long-Term debt serves multiple purposes. Firstly, it allows the company to report any portion of a long-term borrowing that is to be paid in the upcoming accounting period. Secondly, it helps in reclassifying a portion of debt from the noncurrent section of the balance sheet to the current section, providing a more accurate representation of the company's current financial obligations. Lastly, it ensures that liabilities are properly classified, enhancing the overall accuracy and transparency of the financial statements.

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  • 38. 

    A contra asset will increase with a credit.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    A contra asset account is used to reduce the value of a related asset account on the balance sheet. Contra assets have a credit balance, which means they increase with a credit entry. Therefore, the statement "A contra asset will increase with a credit" is true.

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  • 39. 

    A customer of your company has filed for bankruptcy. He owed you $25,000. The journal entry to record the write-off would increase your bad debt allowance.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The journal entry to record the write-off of a customer's bankruptcy would actually decrease the bad debt allowance. When a customer files for bankruptcy, it means that they are unable to repay their debts, including the amount owed to your company. In this case, the company would write off the $25,000 as a bad debt expense, reducing the amount of the bad debt allowance. Therefore, the correct answer is False.

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  • 40. 

    A magazine publisher has an account called "unearned subscription revenue". The transaction that causes the balance of this account to decrease is:

    • A.

      Cash is received from new subscribers.

    • B.

      Magazines are printed for the publisher.

    • C.

      Magazines are mailed to subscribers.

    • D.

      Subscriptions are sold to new subscribers.

    Correct Answer
    C. Magazines are mailed to subscribers.
    Explanation
    When magazines are mailed to subscribers, it indicates that the service has been provided and the revenue can now be recognized as earned. Therefore, the balance of the "unearned subscription revenue" account, which represents revenue received in advance for subscriptions, will decrease as the revenue is now earned.

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  • 41. 

    Depreciation expense for the year on a given piece of equipment is $100,000. The journal entry to record this would be: Depreciation Expense.........$100,000 Accumulated Depreciation.............$100,000

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The given journal entry correctly records the depreciation expense for the year on a given piece of equipment. Depreciation expense is an expense that reflects the decrease in value of an asset over time. By debiting the Depreciation Expense account for $100,000, the entry recognizes the expense. On the other hand, by crediting the Accumulated Depreciation account for the same amount, the entry reflects the accumulated depreciation of the equipment. This entry follows the basic accounting principle of recording expenses and their corresponding offsetting accounts accurately. Therefore, the answer is true.

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  • 42. 

    You recently sold a piece of land for a gain of $250,000. This gain would be included on the income statement in the revenue section.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The gain of $250,000 from selling a piece of land would not be included in the revenue section of the income statement. Revenue refers to the income generated from the primary activities of a business, such as sales of goods or services. The gain from selling a piece of land is considered a non-operating income and is typically reported separately on the income statement, either as a separate line item or within the "Other Income" section. Therefore, the statement "False" is the correct answer.

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  • 43. 

    Retained earnings represents:

    • A.

      Cash that is available for dividends.

    • B.

      The total net income of the firm since the beginning of the year.

    • C.

      Net income (minus dividends) that has been reinvested in the company

    • D.

      Net income plus gains (or minus losses) on treasury stock transactions.

    Correct Answer
    C. Net income (minus dividends) that has been reinvested in the company
    Explanation
    Retained earnings represents the portion of a company's net income that has not been distributed to shareholders as dividends but has been reinvested back into the company. It is calculated by subtracting the dividends paid to shareholders from the net income. Retained earnings are an important indicator of a company's profitability and financial health, as they reflect the amount of earnings that have been retained and reinvested to support future growth and expansion.

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  • 44. 

    A transaction that is likely to cause an increase in a current liability is:

    • A.

      Payment of accrued wages.

    • B.

      Accrual of interest expense.

    • C.

      Depreciation of equipment.

    • D.

      Accrual of bad debts expense.

    Correct Answer
    B. Accrual of interest expense.
    Explanation
    Accrual of interest expense is likely to cause an increase in a current liability because it represents the amount of interest that has been incurred but not yet paid. When interest is accrued, it is recorded as an expense in the accounting records, which increases the company's liability for the interest owed. This liability is typically classified as a current liability because it is expected to be paid within one year. The other options, such as payment of accrued wages, depreciation of equipment, and accrual of bad debts expense, do not directly impact current liabilities.

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  • 45. 

    The declaration of a dividend by the company results in:

    • A.

      A decrease in cash and a decrease in retained earnings.

    • B.

      A decrease in retained earnings and an increase in current liabilities.

    • C.

      A decrease in net income and a decrease in cash.

    • D.

      A decrease in net income and an increase in current liabilities.

    Correct Answer
    B. A decrease in retained earnings and an increase in current liabilities.
    Explanation
    When a company declares a dividend, it means that it is distributing a portion of its profits to its shareholders. This distribution of profits leads to a decrease in retained earnings, as the company is no longer retaining those earnings. Additionally, the company needs to pay out the dividend in cash, resulting in a decrease in cash. However, the company may not have enough cash on hand to pay the dividend immediately, so it may create a current liability by recording the amount owed to shareholders as a current liability until the dividend is paid. Therefore, the correct answer is that the declaration of a dividend by the company results in a decrease in retained earnings and an increase in current liabilities.

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  • 46. 

    Which of the following is not an owner's equity account?

    • A.

      Common stock.

    • B.

      Preferred stock.

    • C.

      Retained earnings.

    • D.

      Minority interests.

    • E.

      Paid-in-capital in excess of par.

    Correct Answer
    D. Minority interests.
    Explanation
    Minority interests is not an owner's equity account because it represents the ownership stake in a company held by shareholders who do not have a controlling interest. It is a liability on the balance sheet, not an equity account. The other options listed - common stock, preferred stock, retained earnings, and paid-in-capital in excess of par - are all examples of owner's equity accounts.

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  • 47. 

    With regards to dividends, the declaration date pertains to:

    • A.

      The date used to determine who receives dividends.

    • B.

      The date on which the board of directors declares it's going to liquidate the firm.

    • C.

      The date on which the board of directors declares a dividend.

    • D.

      The date a dividend is paid.

    Correct Answer
    C. The date on which the board of directors declares a dividend.
    Explanation
    The correct answer is the date on which the board of directors declares a dividend. This means that the board of directors of a company announces their intention to distribute dividends to the shareholders. This declaration date is important because it signifies the company's commitment to paying out dividends and allows shareholders to anticipate and plan for the upcoming dividend payment.

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  • 48. 

    An Accounts Payable could result from which of the following transactions?

    • A.

      Purchasing supplies for cash.

    • B.

      Purchasing property, plant and equipment for cash.

    • C.

      Purchasing goods and services from suppliers on credit.

    • D.

      All of the above.

    Correct Answer
    C. Purchasing goods and services from suppliers on credit.
    Explanation
    An accounts payable is a liability that arises when a company purchases goods or services from suppliers on credit. This means that the company does not pay for the goods or services immediately but instead agrees to pay at a later date. The other options, purchasing supplies for cash and purchasing property, plant and equipment for cash, do not result in an accounts payable because they involve immediate payment rather than credit. Therefore, the correct answer is purchasing goods and services from suppliers on credit.

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  • 49. 

    Many current liabilities are affected by accrual accounting entries. This happens because:

    • A.

      Liabilities are usually paid when they are incurred.

    • B.

      Accrual accounting involves recognizing liabilities before they are paid.

    • C.

      The only way to reduce a liability account balance is with an adjusting entry.

    • D.

      Accrual accounting frequently involves recognizing liabilities before they are incurred.

    Correct Answer
    B. Accrual accounting involves recognizing liabilities before they are paid.
    Explanation
    Accrual accounting involves recognizing liabilities before they are paid. This is because accrual accounting follows the matching principle, which requires expenses (including liabilities) to be recognized in the same period as the related revenue. By recognizing liabilities before they are paid, accrual accounting ensures that expenses are properly matched with the revenue they generate, providing a more accurate representation of a company's financial position and performance.

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  • 50. 

    Which of the following accounts are not usually associated with owners equity?

    • A.

      Contributed capital

    • B.

      Retained earnings

    • C.

      Common stock

    • D.

      Unearned revenue

    Correct Answer
    D. Unearned revenue
    Explanation
    Unearned revenue is not usually associated with owners' equity because it represents advance payments made by customers for goods or services that have not yet been delivered. It is considered a liability because the company has an obligation to provide the goods or services in the future. Owners' equity, on the other hand, includes accounts such as contributed capital, retained earnings, and common stock, which represent the owners' investment in the business and the accumulated profits or losses.

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Quiz Review Timeline +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Apr 19, 2024
    Quiz Edited by
    ProProfs Editorial Team
  • Oct 07, 2009
    Quiz Created by
    Skijosh
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