Final Review Combined F

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  • 1/127 Questions

    During the month of May, $400 of services were performed by Belk & Rich, Inc. If Belk & Rich received $100 during May and $300 during June and uses the cash basis of accounting, when and how much revenue should be recognized?

    • $100 in May; $300 in June
    • $300 in May; $100 in June
    • $0 in May; $400 in June
    • $400 in May; $0 in June
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About This Quiz

Final Review Combined F assesses key financial concepts through questions on bond redemption, debt to equity ratios, income statement analysis, and gross margin relevance. It's designed to test understanding of fundamental accounting principles and financial performance over time.

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  • 2. 

    The balance sheet element identified as the residual interest in the assets of an entity that remains after deducting its liabilities is called:

    • Equity

    • Liabilities

    • Cash flows

    • Assets

    Correct Answer
    A. Equity
    Explanation
    Equity refers to the residual interest in the assets of an entity after deducting its liabilities. It represents the ownership interest of the shareholders in the company. In other words, equity is the value that belongs to the owners of the business. It is calculated by subtracting the total liabilities from the total assets. Therefore, equity is the correct answer in this case.

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  • 3. 

    Mondragon's Pet Store has purchased a cash register for $2,500. Charlie Mondragon plans to use the cash register for five years at which time he thinks he will be able to sell it for $400. How much is the depreciable base of the cash register?

    • $ 400

    • $2,100

    • $ 500

    • $2,500

    Correct Answer
    A. $2,100
    Explanation
    The depreciable base of the cash register is $2,100. This is calculated by subtracting the estimated residual value ($400) from the original cost of the cash register ($2,500). The depreciable base represents the amount that will be depreciated over the five-year period of use.

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  • 4. 

    Jason pays $180 for insurance coverage on his motorcycle for a three-month policy starting June 1. If Jason makes this payment on June 1, what is the amount that should be shown as an expense as of the end of June?

    • $60

    • $ 0

    • $40

    • $90

    Correct Answer
    A. $60
    Explanation
    The amount that should be shown as an expense as of the end of June is $60. This is because Jason made the payment on June 1, and the policy covers a three-month period starting from June 1. Therefore, at the end of June, one month of the policy has been used up, which represents a cost of $60.

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  • 5. 

    The first step in the accrual matching process is:

    • To determine in which income statement period a company should recognize a particular revenue

    • To determine which expenses helped to generate specific revenue

    • To match those expenses paid in the same period with the revenues received in cash during the same period

    • To recognize only those expenses actually paid in the same period as the revenue they helped to generate

    Correct Answer
    A. To determine in which income statement period a company should recognize a particular revenue
    Explanation
    The first step in the accrual matching process is to determine in which income statement period a company should recognize a particular revenue. This means that the company needs to identify the specific period in which the revenue was earned, regardless of when the cash was received. This is important for accurately matching the revenue with the corresponding expenses incurred in generating that revenue. By recognizing the revenue in the correct period, the company can provide a more accurate representation of its financial performance for that period.

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  • 6. 

    There are several reports prepared from financial information. The report that presents the past performance of a business for a time period by showing the amount the company charged to its customers (revenue) and the costs incurred to produce the revenue (expenses) is called the:

    • Income statement

    • Balance sheet

    • Statement of financial position

    • Statement of owners' equity

    Correct Answer
    A. Income statement
    Explanation
    The income statement presents the past performance of a business by showing the revenue generated from customers and the expenses incurred to produce that revenue. It provides a summary of the company's financial activities during a specific time period, typically a year. The income statement helps stakeholders understand the profitability of the business by calculating the net income or loss after deducting expenses from revenue. This statement is also known as the profit and loss statement or statement of earnings.

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  • 7. 

    Juanita has just paid $500 to purchase 25 shares of Active Company stock. If the par value on each share is $10, then the amount that Active Company records as "Common stock" is:

    • $250

    • $10

    • $500

    • $20

    Correct Answer
    A. $250
  • 8. 

    Karen has a boat that she purchased for $10,000. If the current book value of the boat is $3,000 and Karen sells the boat for $4,500, she will have a:

    • $1,500 gain

    • $1,500 loss

    • $2,500 loss

    • $2,500 gain

    Correct Answer
    A. $1,500 gain
    Explanation
    Karen purchased the boat for $10,000 and the current book value is $3,000. If Karen sells the boat for $4,500, she will have a gain of $1,500. This is calculated by subtracting the selling price from the purchase price, which gives us $4,500 - $3,000 = $1,500. Therefore, the correct answer is $1,500 gain.

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  • 9. 

    For the month of January, the Cold Storage Company had sales of $125,000 to customers. It received $55,000 in cash for the sales in January, extended credit to its customers for $70,000 in January sales, and received $12,500 in cash for credit sales made in December. Using accrual accounting, total sales for January are:

    • $125,000

    • $55,000

    • $70,000

    • $67,500

    Correct Answer
    A. $125,000
  • 10. 

    Which cost below is not part of the cost of a depreciable asset?

    • Repairs and maintenance

    • Installation costs

    • Applicable sales tax

    • Invoice price

    Correct Answer
    A. Repairs and maintenance
    Explanation
    Repairs and maintenance costs are not part of the initial cost of a depreciable asset. Depreciable assets are tangible assets that have a limited useful life and are expected to decline in value over time. The initial cost of a depreciable asset includes the invoice price, installation costs, and applicable sales tax. However, repairs and maintenance costs are considered ongoing expenses that are incurred to keep the asset in good working condition and do not contribute to its initial cost.

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  • 11. 

    While the balance sheet is a "snapshot" of the business, the income statement has been compared to a "home video" because it

    • Shows the company's performance for a particular date in time

    • Shows the company's performance for a period of time

    • Depicts the operations of the company on a precise date

    • None of these answers is correct

    Correct Answer
    A. Shows the company's performance for a period of time
    Explanation
    The income statement is compared to a "home video" because it shows the company's performance for a period of time, similar to how a home video captures a sequence of events over a period of time. It provides a summary of the company's revenues, expenses, and net income over a specific time frame, such as a month, quarter, or year. This allows stakeholders to assess the company's financial performance and profitability over a specific period.

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  • 12. 

    The basic formula used by a company to compute its income tax is:

    • Taxable income × tax rate

    • Sales × tax rate

    • Cost of goods sold × tax rate

    • Total assets × tax rate

    Correct Answer
    A. Taxable income × tax rate
    Explanation
    The correct answer is taxable income × tax rate. This is the basic formula used by a company to compute its income tax. The taxable income is the amount of income that is subject to tax after deducting allowable expenses and exemptions. The tax rate is the percentage of the taxable income that the company is required to pay as tax. By multiplying the taxable income by the tax rate, the company can calculate the amount of income tax it owes to the government.

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  • 13. 

    Jason pays $180 for insurance coverage on his motorcycle for a three-month policy starting June 1. If Jason makes this payment on June 1, what is the amount of deferred revenue the insurance company will have remaining at the end of July?

    • $ 60

    • $ 0

    • $ 90

    • $120

    Correct Answer
    A. $ 60
    Explanation
    The amount of deferred revenue the insurance company will have remaining at the end of July is $60. This is because Jason pays $180 for a three-month policy starting June 1, so each month of coverage is worth $60. Since July is the second month of the policy, the insurance company will still have $60 of deferred revenue remaining at the end of July.

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  • 14. 

    Adam's Chili Bowl and Space Burgers purchases a grill for $5,000. The company expects to use it for four years. If the company thinks that it can sell the grill at the end of the fourth year for $500, how much is the depreciable base of the grill?

    • $4,500

    • $1,250

    • $ 500

    • $1,125

    Correct Answer
    A. $4,500
    Explanation
    The depreciable base of an asset is the cost of the asset minus its expected salvage value. In this case, the cost of the grill is $5,000 and the expected salvage value is $500. Therefore, the depreciable base of the grill is $5,000 - $500 = $4,500.

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  • 15. 

    Cash is what type of account on the balance sheet?

    • Net worth

    • Asset

    • Liability

    • Equity

    Correct Answer
    A. Asset
    Explanation
    Cash is classified as an asset on the balance sheet because it represents the amount of money that a company has on hand or in its bank accounts. Assets are resources that a company owns or controls, and cash is considered a valuable resource because it can be used to pay off debts, invest in new projects, or cover day-to-day expenses. Therefore, cash is categorized as an asset because it has economic value and contributes to the overall financial position of a company.

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  • 16. 

    Li Pe wishes to purchase $5 par value stock from Star Industries Corporation. Li Pe is willing to pay $12 for each of the shares if Star Industries will sell her 100 of them. The amount that Star will record as "Additional paid-in capital" on this sale is:

    • $1,200

    • $700

    • $0

    • $500

    Correct Answer
    A. $700
    Explanation
    The "Additional paid-in capital" is the amount that a company receives from investors in excess of the par value of its stock. In this case, Li Pe is willing to pay $12 per share for 100 shares, which amounts to $1,200. Since the par value of each share is $5, the excess amount that Star Industries will receive is $12 - $5 = $7. Therefore, the total "Additional paid-in capital" on this sale will be $7 x 100 = $700.

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  • 17. 

    The double-declining-balance method calculates depreciation expense:

    • At twice (or double) the straight-line rate

    • At twice (or double) the straight-line dollar amount each year

    • Without using book value in its calculation

    • Without considering the asset's residual value at any point in its calculations

    Correct Answer
    A. At twice (or double) the straight-line rate
    Explanation
    The double-declining-balance method calculates depreciation expense at twice (or double) the straight-line rate. This means that the depreciation expense each year will be a higher percentage of the asset's initial cost compared to the straight-line method. It allows for a faster recognition of depreciation expense in the earlier years of an asset's life, reflecting the concept that assets tend to lose their value more rapidly in the early years. This method does not consider the asset's residual value or book value in its calculation, focusing solely on the straight-line rate.

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  • 18. 

    Tamisha buys calculators for $10 each. She sells them for $55 each. Tamisha pays commissions to her employee of $5 and pays advertising costs that average $1 per calculator. What is Tamisha's gross profit on five calculators?

    • $225

    • $ 40

    • $165

    • $ 33

    Correct Answer
    A. $225
    Explanation
    Tamisha buys calculators for $10 each and sells them for $55 each. The gross profit on each calculator is the selling price minus the cost price, which is $55 - $10 = $45. Since Tamisha sells five calculators, her total gross profit would be $45 * 5 = $225.

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  • 19. 

    A company can adopt a policy in which it resolves to pay a set amount as a dividend each year as long as it has:

    • Both sufficient retained earnings and sufficient cash each year to pay the amount

    • Sufficient net income for the current year to cover the amount of the dividend payment

    • The approval of the stockholders

    • None of these answers is correct

    Correct Answer
    A. Both sufficient retained earnings and sufficient cash each year to pay the amount
    Explanation
    A company can adopt a policy to pay a set amount as a dividend each year if it has both sufficient retained earnings and sufficient cash. This means that the company should have enough profits from previous years (retained earnings) and enough cash on hand to cover the dividend payment. This ensures that the company can fulfill its commitment to pay dividends without jeopardizing its financial stability. The other options mentioned, such as sufficient net income for the current year and approval of stockholders, are not sufficient on their own to guarantee the payment of dividends.

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  • 20. 

    The report, prepared from the company's financial information, which is organized around the principal business activities of operating, investing, and financing is called the:

    • Statement of cash flows

    • Statement of financial position

    • Income statement

    • Statement of owners' equity

    Correct Answer
    A. Statement of cash flows
    Explanation
    The statement of cash flows is a financial report that summarizes the company's cash inflows and outflows during a specific period. It provides information about the company's operating, investing, and financing activities, which are the principal business activities. This statement helps stakeholders understand how the company generates and uses cash, providing insights into its liquidity and cash flow management. Therefore, the statement of cash flows is the correct answer in this case.

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  • 21. 

    Mondragon's Pet Store has purchased a cash register for $2,500. Charlie Mondragon plans to use the cash register for five years at which time he thinks he will be able to sell it for $400. How much is the depreciation expense each year under straight-line method?

    • $420

    • $410

    • $500

    • $400

    Correct Answer
    A. $420
    Explanation
    The depreciation expense each year under the straight-line method can be calculated by subtracting the estimated salvage value ($400) from the initial cost ($2,500) and dividing it by the useful life (5 years). In this case, the calculation would be: ($2,500 - $400) / 5 = $420. Therefore, the depreciation expense each year is $420.

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  • 22. 

    When the auditor states an exception to the audit report, he/she issues a(n):

    • Qualified opinion

    • Disclaimer

    • Unqualified opinion

    • Adverse opinion

    Correct Answer
    A. Qualified opinion
    Explanation
    A qualified opinion is issued by an auditor when they have identified certain limitations or exceptions in the financial statements of an organization. This means that while the auditor believes the financial statements are fairly presented, there are certain areas where they were unable to obtain sufficient evidence or there are departures from generally accepted accounting principles. In other words, the auditor has reservations about certain aspects of the financial statements, but overall, they believe the statements are reliable and accurate.

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  • 23. 

    The statement that provides a "bridge" between the information the income statement provides and the information the balance sheet provides is the:

    • Statement of owners' equity

    • Statement of cash flows

    • Statement of financial position

    • None of these answers is correct.

    Correct Answer
    A. Statement of owners' equity
    Explanation
    The statement of owners' equity provides a "bridge" between the income statement and the balance sheet because it shows how the net income or loss from the income statement affects the owners' equity section of the balance sheet. It includes information about changes in the owners' capital, additional investments, withdrawals, and net income or loss. By analyzing the statement of owners' equity, one can understand how the income statement impacts the overall financial position of the company as reflected in the balance sheet.

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  • 24. 

    A company invests in a new building and equipment to manufacture a new product. In the statement of cash flows, this activity would be considered a(n):

    • Financing activity

    • Investing activity

    • Expansion activity

    • Operating activity

    Correct Answer
    A. Investing activity
    Explanation
    The company's investment in a new building and equipment to manufacture a new product falls under the category of investing activity in the statement of cash flows. This is because the company is using its cash to acquire assets that will generate future income and contribute to the growth of the business. Investing activities include the purchase or sale of long-term assets, such as property, plant, and equipment, as well as investments in other companies.

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  • 25. 

    The rate of interest printed on a bond that is used to calculate the bond's interest payments is called the:

    • Nominal interest rate

    • Debenture value

    • Par value

    • Effective interest rate

    Correct Answer
    A. Nominal interest rate
    Explanation
    The rate of interest printed on a bond that is used to calculate the bond's interest payments is called the nominal interest rate. This rate represents the stated or advertised interest rate that the bond issuer promises to pay to the bondholder. It is important to note that the nominal interest rate does not take into account factors such as inflation or compounding, and therefore may not reflect the actual return on investment for the bondholder.

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  • 26. 

    If a $1,000 bond sells for 95, this bond has sold at a:

    • Premium

    • Discount

    • Gain

    • Loss

    Correct Answer
    A. Discount
    Explanation
    A bond selling at a discount means that it is being sold for less than its face value. In this case, the $1,000 bond is being sold for $950 (95% of its face value), indicating a discount. This could be due to factors such as lower interest rates or a higher perceived risk associated with the bond.

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  • 27. 

    If Ruby's Video Store purchases a new cash register for $2,500 and plans to use it for three years before disposing of it for an estimated $400, how much depreciation will Ruby's recognize each year under the straight-line method?

    • $700

    • $967

    • $400

    • $833

    Correct Answer
    A. $700
    Explanation
    The depreciation expense is calculated by subtracting the salvage value from the initial cost and dividing it by the useful life of the asset. In this case, the initial cost is $2,500 and the salvage value is $400. The useful life is three years. Therefore, the depreciation expense per year is ($2,500 - $400) / 3 = $700.

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  • 28. 

    All companies must obtain capital (money) to support their operations. A company that finances its operations with the profits it generates is using:

    • External financing

    • Internal financing

    • Debt financing

    • Compound financing

    Correct Answer
    A. Internal financing
    Explanation
    Internal financing refers to a company using its own generated profits to support its operations. This means that the company does not rely on external sources such as loans or investments to fund its activities. Instead, it uses the money it earns from its business activities to sustain and grow its operations. Internal financing is often seen as a sign of financial stability and independence, as the company is able to rely on its own resources rather than seeking external funding.

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  • 29. 

    Adam's Chili Bowl and Space Burgers purchases a grill for $5,000. The company expects to use it for four years. If the company thinks that it can sell the grill at the end of the fourth year for $500, how much is the residual value of the grill?

    • $4,500

    • $ 500

    • $1,250

    • $1,125

    Correct Answer
    A. $ 500
    Explanation
    The residual value of an asset is the estimated amount that the asset will be worth at the end of its useful life. In this case, the company expects to sell the grill for $500 at the end of the fourth year. Therefore, the residual value of the grill is $500.

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  • 30. 

    The financial information report that uses the company's net income as one amount in an equation to arrive at an ending amount is known as:

    • Statement of owners' equity

    • Statement of cash flows

    • Balance sheet

    • Income statement

    Correct Answer
    A. Statement of owners' equity
    Explanation
    The statement of owners' equity is a financial report that shows the changes in a company's equity over a specific period of time. It includes information about the company's net income, as well as any additional investments made by the owners and any dividends paid out. By using the company's net income as one amount in an equation, the statement of owners' equity calculates the ending amount of equity. This report is important for shareholders and investors to understand how the company's net income affects the overall equity of the business.

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  • 31. 

    Jasmine sells flowers for $25 per bunch. The flowers cost Jasmine $14 per bunch. The delivery driver charges $5 per delivery and the clerk is paid $2 for each order processed. If Jasmine sells 8 bunches of flowers, what is the net income that she'll receive?

    • $28

    • $32

    • $11

    • $ 4

    Correct Answer
    A. $32
    Explanation
    Jasmine sells 8 bunches of flowers for $25 each, resulting in a total revenue of $200. The cost of the flowers is $14 per bunch, so the total cost for 8 bunches is $112. The delivery driver charges $5 per delivery, and since there is only one delivery for the 8 bunches, the delivery cost is $5. The clerk is paid $2 for each order processed, so the cost for processing 1 order is $2. Therefore, the total cost for the delivery driver and clerk is $5 + $2 = $7. Subtracting the total cost of $112 + $7 = $119 from the total revenue of $200 gives a net income of $200 - $119 = $81. However, the question asks for the net income that Jasmine will receive, so we need to subtract the $7 cost for the delivery driver and clerk from the net income, resulting in $81 - $7 = $74. Therefore, the correct answer is $32, which is not listed as an option.

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  • 32. 

    The following information is available for Snowstorm Transit Company:· A machine is purchased on January 1, 2005, for $40,000· The machine's residual value on January 1, 2005, is estimated to be $5,000· The machine's estimated useful life is five yearsIf Snowstorm Transit has been using the straight-line depreciation method and sells the asset for $22,000 on January 1, 2008, it would have a __________, but if it had used double-declining-balance method it would have a __________.

    • $3,000 gain, $ 9,440 gain

    • $3,000 gain, $13,360 gain

    • $6,000 gain, $13,360 gain

    • $6,000 gain, $ 9,440 gain

    Correct Answer
    A. $3,000 gain, $13,360 gain
    Explanation
    If Snowstorm Transit Company has been using the straight-line depreciation method and sells the asset for $22,000 on January 1, 2008, it would have a $3,000 gain. This is because the machine's book value at the time of sale would be $22,000 - ($40,000 - $5,000) = $22,000 - $35,000 = -$13,000. Since the machine was sold for $22,000, there is a gain of $3,000.

    If Snowstorm Transit Company had used the double-declining-balance method, it would have a $13,360 gain. This is because the double-declining-balance method depreciates the asset at a faster rate, resulting in a higher accumulated depreciation. By January 1, 2008, the accumulated depreciation using this method would be $40,000 x (2/5) x 3 = $24,000. The book value of the machine would be $40,000 - $24,000 = $16,000. Since the machine was sold for $22,000, there is a gain of $22,000 - $16,000 = $6,000.

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  • 33. 

    If the JJ Company performs services for a client in the amount of $770 during June and collects the money from the client during July under a cash basis accounting system, when and how much revenue should JJ Company recognize in June and July?

    • $385 during June; $385 during July

    • $0 during June; $770 during July

    • $770 during June; $770 during July

    • $770 during June; $0 during July

    Correct Answer
    A. $0 during June; $770 during July
    Explanation
    Under a cash basis accounting system, revenue is recognized when cash is received. Since the JJ Company collected the money from the client during July, they should recognize the revenue of $770 in July. Therefore, the correct answer is $0 during June; $770 during July.

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  • 34. 

    The Corner Dress shop buys $200 of dresses during May. Corner Dress pays $150 of that amount during May and the remainder in June. During June, Corner Dress buys $300 of dresses paying for $100 during June and the remainder in July. If the Corner Dress Shop uses a cash basis accounting system, how much should the shop recognize as an expense during May?

    • $ 50

    • $150

    • $200

    • $250

    Correct Answer
    A. $150
    Explanation
    The shop should recognize $150 as an expense during May because that is the amount they paid for the dresses during that month. The remaining amount that they paid in June and July would be recognized as expenses in those respective months.

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  • 35. 

    What is the relationship between a company receiving cash and recognizing revenue?

    • All of these answers are correct.

    • Cash is received after the revenue has been earned.

    • Cash is received before the revenue has been earned.

    • Cash is received at the time revenue is earned.

    Correct Answer
    A. All of these answers are correct.
    Explanation
    The relationship between a company receiving cash and recognizing revenue can vary depending on the specific circumstances. In some cases, cash may be received after the revenue has been earned, indicating that the company has already provided goods or services and is now receiving payment. In other cases, cash may be received before the revenue has been earned, suggesting that the company has received an advance payment or deposit for future goods or services. Lastly, cash may be received at the time revenue is earned, indicating that the company is receiving payment simultaneously with providing goods or services. Therefore, all of these answers are correct as they represent different scenarios in which cash and revenue recognition are related.

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  • 36. 

    When compared to partnerships and sole proprietorships, corporations are at a disadvantage as a form of business because they have:

    • No separate income taxes

    • More government regulations with which to comply

    • Greater capital access

    • An unlimited life

    Correct Answer
    A. More government regulations with which to comply
    Explanation
    Corporations are at a disadvantage as a form of business because they have more government regulations with which to comply. Unlike partnerships and sole proprietorships, corporations are subject to stricter regulations and oversight from government authorities. This can include requirements related to financial reporting, corporate governance, compliance with labor and environmental laws, and more. These regulations can be time-consuming and costly for corporations to adhere to, creating a disadvantage compared to other forms of business.

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  • 37. 

    For the month of January, the Cold Storage Company paid $95,750 for inventory for sale to customers. As of January 1, Cold Storage had $42,000 of inventory on hand. During the month of January, Cold Storage had sales of $125,000. The cost of the goods Cold Storage sold during January was $68,750. Using accrual accounting, the cost of goods sold for January is:

    • $125,000

    • $68,750

    • $137,750

    • $95,750

    Correct Answer
    A. $68,750
    Explanation
    The cost of goods sold for January is $68,750. This is calculated by subtracting the beginning inventory ($42,000) from the total cost of inventory purchased during the month ($95,750) and then subtracting the remaining inventory at the end of the month. Since the ending inventory is not given in the question, it is assumed to be zero. Therefore, the cost of goods sold is $95,750 - $42,000 = $68,750.

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  • 38. 

    When the financial statements depart so pervasively from GAAP that they cannot reasonably be relied upon, an auditor will issue a(n):

    • Disclaimer

    • Adverse opinion

    • Qualified opinion

    • Unqualified opinion

    Correct Answer
    A. Adverse opinion
    Explanation
    An adverse opinion is issued by an auditor when the financial statements deviate significantly from Generally Accepted Accounting Principles (GAAP) to the extent that they cannot be reasonably relied upon. This means that the auditor has found material misstatements or departures from GAAP that are pervasive throughout the financial statements, making them unreliable for users. An adverse opinion is the most severe type of audit opinion and indicates that the financial statements do not present a true and fair view of the company's financial position and performance.

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  • 39. 

    In accounting, an asset's depreciable base is calculated as:

    • Asset cost - residual value

    • Asset cost + residual value

    • Asset cost × residual value

    • Asset cost ÷ residual value

    Correct Answer
    A. Asset cost - residual value
    Explanation
    The correct answer is asset cost - residual value. The depreciable base of an asset is calculated by subtracting the residual value from the asset cost. The residual value represents the estimated value of the asset at the end of its useful life, and subtracting it from the asset cost gives us the amount that can be depreciated over the asset's useful life.

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  • 40. 

    A weakness of the accrual basis accounting system is that it takes the focus off of:

    • Stock

    • Inventory

    • Cash

    • Notes payable

    Correct Answer
    A. Cash
    Explanation
    The accrual basis accounting system focuses on recording transactions when they occur, regardless of when the cash is received or paid. This means that the system does not prioritize tracking cash flows. Instead, it emphasizes recording revenues and expenses as they are earned or incurred, even if the cash has not yet been received or paid. Therefore, cash is not the primary focus in the accrual basis accounting system.

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  • 41. 

    To be truly useful to decision makers, financial statements must be analyzed. Many financial statement users consider the relationship between assets and liabilities on the balance sheet to be extremely important. This relationship is known as the:

    • Financial position ratio

    • Debt ratio

    • Asset-to-liability ratio

    • None of these answers are correct.

    Correct Answer
    A. Debt ratio
    Explanation
    The correct answer is "debt ratio." The debt ratio is a financial ratio that measures the proportion of a company's total debt to its total assets. It is used to assess a company's leverage and its ability to meet its debt obligations. By analyzing the debt ratio, decision makers can evaluate the financial position of a company and make informed decisions regarding its financial health and risk level.

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  • 42. 

    The ratio that is computed by taking total liabilities and dividing them by total equity is called the:

    • Quick ratio

    • Debt to equity ratio

    • Reinvested assets ratio

    • Debt ratio

    Correct Answer
    A. Debt to equity ratio
    Explanation
    The debt to equity ratio is computed by dividing total liabilities by total equity. This ratio is used to assess a company's financial leverage and risk. It indicates the proportion of a company's financing that comes from debt compared to equity. A higher ratio suggests that the company relies more on debt to finance its operations, which may indicate higher financial risk. Conversely, a lower ratio indicates a lower level of debt and a stronger equity position.

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  • 43. 

    The Ladybug Dress shop uses $200 in advertising during May. Ladybug pays $150 of that amount during May and the remainder in June. During June, Ladybug uses $300 in advertising paying for $200 during June and the remainder in July. If Ladybug uses an accrual basis accounting system, how much should the shop recognize as an advertising expense during June?

    • $150

    • $300

    • $250

    • $ 50

    Correct Answer
    A. $300
    Explanation
    In accrual basis accounting, expenses are recognized when they are incurred, regardless of when the payment is made. Since Ladybug used $300 in advertising during June, the shop should recognize $300 as an advertising expense during that month.

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  • 44. 

    An agreement between a lender and a borrower that sets forth the terms of the loan and repayment arrangement is called a:

    • Commercial borrowing

    • Promissory note

    • Consumer borrowing

    • Note payable

    Correct Answer
    A. Promissory note
    Explanation
    A promissory note is a legal document that outlines the terms and conditions of a loan agreement between a lender and a borrower. It includes details such as the amount borrowed, interest rate, repayment schedule, and any other relevant terms. The borrower promises to repay the loan according to the agreed-upon terms, and failure to do so can result in legal consequences. Therefore, a promissory note is the correct answer as it accurately describes the agreement between a lender and a borrower for a loan.

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  • 45. 

    You buy a used pickup truck for $10,000. You pay $3,500 in cash and borrow the rest of the money from a bank. Using the accounting equation, how much do you still owe for the truck?

    • $10,000

    • $6,500

    • $0

    • $3,500

    Correct Answer
    A. $6,500
    Explanation
    Based on the information provided, you bought a used pickup truck for $10,000. You paid $3,500 in cash, which means you still owe the remaining amount. Therefore, you still owe $6,500 for the truck.

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  • 46. 

    The section of the statement of cash flows that shows the company's cash flows associated with obtaining and repaying the funds it needs to conduct business is called:

    • Financing activities

    • Operating activities

    • Investing activities

    • None of these answers are correct.

    Correct Answer
    A. Financing activities
    Explanation
    The correct answer is financing activities. This section of the statement of cash flows focuses on the cash flows related to obtaining and repaying funds necessary for the company's operations. It includes activities such as issuing and repurchasing stocks or bonds, obtaining loans, and making repayments on debts. This section provides insight into how the company finances its operations and investments.

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  • 47. 

    A company has a truck that it purchased for $16,000. The truck has an estimated useful life of four years and an estimated residual value of $4,000. What is the depreciable base of the truck?

    • None of these answers is correct.

    • $12,000

    • $16,000

    • $ 4,000

    Correct Answer
    A. $12,000
    Explanation
    The depreciable base of an asset is the cost of the asset minus its estimated residual value. In this case, the truck was purchased for $16,000 and has an estimated residual value of $4,000. Therefore, the depreciable base of the truck is $16,000 - $4,000 = $12,000.

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  • 48. 

    Which one of the following items is an example of equity as found on the balance sheet?

    • Land

    • Common stock

    • Cash

    • Note payable

    Correct Answer
    A. Common stock
    Explanation
    Common stock is an example of equity as found on the balance sheet because it represents the ownership interest in a company. When individuals purchase common stock, they become shareholders and have a claim on the company's assets and earnings. The value of common stock is based on the company's performance and can fluctuate. It is categorized as equity on the balance sheet because it represents the residual interest in the company's assets after deducting liabilities.

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  • 49. 

    The two basic classes of stock are:

    • Preferred and treasury stock

    • Common and preferred stock

    • Common and treasury stock

    • There is only one class of stock in a corporation.

    Correct Answer
    A. Common and preferred stock
    Explanation
    The correct answer is common and preferred stock. In a corporation, there are two basic classes of stock: common stock and preferred stock. Common stock represents ownership in the company and gives shareholders voting rights and the potential for dividends. Preferred stock, on the other hand, usually does not have voting rights but has a higher claim on the company's assets and earnings. It typically pays fixed dividends and has priority over common stock in the event of liquidation. Treasury stock refers to shares that a company has repurchased from the open market and is not considered a class of stock.

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Quiz Review Timeline (Updated): Jun 3, 2024 +

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  • Jun 03, 2024
    Quiz Edited by
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  • Feb 25, 2011
    Quiz Created by
    Amphib2007
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