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Questions and Answers
Which business organization type has owners with limited liability?
Which business organization type has owners with limited liability?
If a company purchases an asset for $100,000 with a useful life of 5 years, what is the depreciation expense for the first 6 months?
If a company purchases an asset for $100,000 with a useful life of 5 years, what is the depreciation expense for the first 6 months?
In which type of business organization are the profits taxed as part of the owner's personal income?
In which type of business organization are the profits taxed as part of the owner's personal income?
Which of the following statements is correct regarding closing entries?
Which of the following statements is correct regarding closing entries?
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A company takes out a loan with a face value of $50,000 at an annual interest rate of 6%. What is the interest for a 3-month period?
A company takes out a loan with a face value of $50,000 at an annual interest rate of 6%. What is the interest for a 3-month period?
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Which of the following financial statements is typically prepared first?
Which of the following financial statements is typically prepared first?
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An adjustment for accrued expenses will usually involve which of the following?
An adjustment for accrued expenses will usually involve which of the following?
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Which account is never included in adjusting entries?
Which account is never included in adjusting entries?
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What is the purpose of adjusting entries?
What is the purpose of adjusting entries?
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Adjusting entries typically affect one account from which financial statement, and one account from which statement?
Adjusting entries typically affect one account from which financial statement, and one account from which statement?
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When preparing financial statements, what is the consequence of omitting adjusting entries?
When preparing financial statements, what is the consequence of omitting adjusting entries?
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What is the typical order of preparation for the trial balance, adjusted trial balance, and financial statements?
What is the typical order of preparation for the trial balance, adjusted trial balance, and financial statements?
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Under international financial reporting standards, which is not an acceptable way to order items on the balance sheet?
Under international financial reporting standards, which is not an acceptable way to order items on the balance sheet?
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What does the working capital ratio measure?
What does the working capital ratio measure?
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Which of the following is a component of the acid-test ratio?
Which of the following is a component of the acid-test ratio?
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Which liquidity ratio is considered more stringent than the current ratio?
Which liquidity ratio is considered more stringent than the current ratio?
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What does a higher inventory turnover indicate?
What does a higher inventory turnover indicate?
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Which of the following represents an intangible asset with an indefinite life?
Which of the following represents an intangible asset with an indefinite life?
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Which method is NOT typically used for recording depreciation?
Which method is NOT typically used for recording depreciation?
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What does the current ratio primarily assess?
What does the current ratio primarily assess?
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Which type of asset has finite lives and is subject to depreciation?
Which type of asset has finite lives and is subject to depreciation?
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What does the asset turnover ratio measure?
What does the asset turnover ratio measure?
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What is the formula for calculating the asset turnover ratio?
What is the formula for calculating the asset turnover ratio?
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In the journal entry, when sufficiently cash is invested in a partnership, which accounts are credited?
In the journal entry, when sufficiently cash is invested in a partnership, which accounts are credited?
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What would indicate a higher return on assets ratio?
What would indicate a higher return on assets ratio?
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Which of the following is NOT a result of new partner C's investment?
Which of the following is NOT a result of new partner C's investment?
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When old partners receive a bonus due to a new partner's investment, which account is debited?
When old partners receive a bonus due to a new partner's investment, which account is debited?
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What is the purpose of measuring the return on assets?
What is the purpose of measuring the return on assets?
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What does an investment of cash in the partnership result in for the new partner?
What does an investment of cash in the partnership result in for the new partner?
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What method is used for the journal entry when recording the purchase of goods in a perpetual inventory system?
What method is used for the journal entry when recording the purchase of goods in a perpetual inventory system?
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When are freight costs recorded by the buyer in the perpetual system?
When are freight costs recorded by the buyer in the perpetual system?
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Which of the following will not appear as an operating expense on the income statement?
Which of the following will not appear as an operating expense on the income statement?
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In the context of revenue recognition, which statement is true regarding sales returns?
In the context of revenue recognition, which statement is true regarding sales returns?
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What does the term 'freight out' refer to in an income statement?
What does the term 'freight out' refer to in an income statement?
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In which scenario would the seller record the freight costs in the periodic inventory system?
In which scenario would the seller record the freight costs in the periodic inventory system?
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Which statement best describes the effect of sales discounts on the income statement?
Which statement best describes the effect of sales discounts on the income statement?
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What is the primary difference in recognizing purchased goods between perpetual and periodic inventory systems?
What is the primary difference in recognizing purchased goods between perpetual and periodic inventory systems?
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Which of the following is considered a limited life intangible asset?
Which of the following is considered a limited life intangible asset?
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What type of inventory cost determination method is likely to result in lower taxes when prices are rising?
What type of inventory cost determination method is likely to result in lower taxes when prices are rising?
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Which of the following is a non-current liability?
Which of the following is a non-current liability?
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What is accumulated depreciation classified as in the context of assets?
What is accumulated depreciation classified as in the context of assets?
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Which of the following accounts represents current liabilities?
Which of the following accounts represents current liabilities?
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What is the formula for determining the weighted average unit cost?
What is the formula for determining the weighted average unit cost?
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Which of the following represents indefinite life intangible assets?
Which of the following represents indefinite life intangible assets?
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Which statement regarding the effects of cost determination methods in a rising price environment is true?
Which statement regarding the effects of cost determination methods in a rising price environment is true?
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What must total assets equal according to the accounting equation?
What must total assets equal according to the accounting equation?
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Study Notes
Forms of Business Organization
- Proprietorship: Owned by one person, unlimited liability, profits taxed as personal income.
- Partnership: Owned by two or more people, unlimited liability (general partners) or limited liability (limited partners), profits taxed as personal income.
- Corporation: Owned by multiple shareholders, limited liability, profits taxed as corporate income.
Calculations
- Depreciation: Calculates the decrease in value of assets over time. Formula: Cost + Useful Life (in years) × Time (Number of months / 12).
- Interest: Calculates interest on a loan over time. Formula: Face Value × Annual Interest rate × Time (Number of months / 12).
Closing Entries
- Purpose: Transfers temporary account balances (revenues, expenses, owner's drawings) to the owner's capital account, setting temporary accounts to zero.
- Process: Close revenue accounts (debit individual revenue accounts, credit Income Summary). Close expense accounts (debit Income Summary, credit individual expense accounts). Close Income Summary (debit if loss, credit if profit for the owner's capital account). Close drawings account (debit owner's capital account, credit drawings).
Accounting Equation
- Assets = Liabilities + Owner's Equity
- Assets: Resources owned by a business.
- Liabilities: Debts owed by the business.
- Owner's Equity: Owner's investment in the business.
Adjusting Entries
- Purpose: Ensures financial statements accurately reflect the financial position at the end of the accounting period.
- Types: Prepaid Expenses (dr. expense, cr. asset), Unearned Revenues (dr. asset, cr. revenue), Accrued Revenues (dr. asset, cr. revenue), Accrued Expenses (dr. expense, cr. liability).
- Note: Adjusting entries never involve the Cash account.
Accounting Cycle (Chapters 2-4)
- Steps:
- Analyze business transactions: Recording financial transactions.
- Journalize transactions: Recording transactions in the journal.
- Post to ledger accounts: Transferring journal entries to ledger accounts.
- Prepare a trial balance: Listing all accounts and their balances.
- Prepare adjusting entries: Adjusting accounts for the accruals and deferrals.
- Prepare an adjusted trial balance: Listing all adjusted accounts.
- Prepare financial statements: Preparing the income statement, statement of owner's equity, and balance sheet.
- Journalize and post closing entries: Transferring balances to the owner's capital account.
- Prepare a post-closing trial balance: Verifying the equality of debits and credits after closing entries.
Inventory (Chapters 5 and 6)
- Perpetual Inventory System: Continuously updates inventory records.
- Periodic Inventory System: Updates inventory records periodically.
- Cost Determination Methods: Specific identification, FIFO, Average.
- Formulas: Beginning inventory + Purchases = Cost of Goods Available for Sale - Ending inventory = Cost of Goods Sold.
Cash (Chapter 7)
- Physical and IT Control Activities: Establish responsibilities, segregation of duties, and documentation procedures.
- Liquidity Ratios: Working capital, current ratio, acid-test ratio, inventory turnover, days sales in inventory.
Receivables (Chapter 8)
- Balance Sheet Approach: Estimating bad debts based on a percentage of total receivables OR aging of receivables.
- Recording Bad Debts: Recognizing uncollectible accounts.
- Recording Notes Receivable: Issuing notes receivable, recognizing interest, valuing notes receivable.
Current Liabilities (Chapter 10)
- Accounts payable, notes payable, unearned revenue, and others.
Long-Lived Assets (Chapter 9)
- Tangible (property, plant, equipment, and natural resources).
- Intangible (patents, copyrights, trademarks, goodwill).
- Depreciation/Amortization methods: Straight-line, diminishing-balance, units-of-production.
Corporations (Chapters 13 and 14)
- Additional topics: Reacquisition of common or preferred shares, dividend declaration and payment, stock dividends.
- IFRS (International Financial Reporting Standards): Comparison of accounting rules between IFRS and ASPE.
Financial Statement Analysis (Chapter 17)
- Horizontal Analysis: Comparing financial data of the current period versus past periods, using percentages.
- Vertical Analysis: Comparing each item on a financial statement versus another item to produce a percentage.
Investments (Appendix B)
- Short-term and long-term investments (debt or equity)
- Recording dividends, interest, gain or loss on sale.
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Description
Test your knowledge on the three main forms of business organization: proprietorships, partnerships, and corporations. Additionally, evaluate your understanding of key financial calculations such as depreciation and interest. This quiz will also cover the essential process of closing entries in accounting.
