Q. In a case study, if a company's current ratio is 2:1, what does this indicate?
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A.
The company has twice as many current assets as current liabilities
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B.
The company is in financial trouble
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C.
The company has no current liabilities
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D.
The company is highly leveraged
Solution
A current ratio of 2:1 indicates that the company has twice as many current assets as current liabilities, suggesting good liquidity.
Correct Answer:
A
— The company has twice as many current assets as current liabilities
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Q. In a final account, which of the following is included in the income statement?
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A.
Assets
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B.
Liabilities
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C.
Revenue
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D.
Equity
Solution
The income statement includes revenues and expenses to determine net income.
Correct Answer:
C
— Revenue
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Q. What does a debt-to-equity ratio of 1 indicate?
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A.
Equal financing from debt and equity
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B.
More equity than debt
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C.
More debt than equity
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D.
No debt
Solution
A debt-to-equity ratio of 1 indicates that a company has equal financing from debt and equity.
Correct Answer:
A
— Equal financing from debt and equity
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Q. What is the effect of using the LIFO method during a period of inflation?
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A.
Higher net income
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B.
Lower net income
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C.
No effect on net income
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D.
Higher ending inventory
Solution
Using LIFO (Last-In, First-Out) during inflation results in lower net income due to higher cost of goods sold.
Correct Answer:
B
— Lower net income
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Q. What is the journal entry to record accrued expenses?
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A.
Debit Expense, Credit Cash
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B.
Debit Cash, Credit Expense
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C.
Debit Expense, Credit Accounts Payable
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D.
Debit Accounts Payable, Credit Expense
Solution
Accrued expenses are recorded by debiting the expense account and crediting Accounts Payable.
Correct Answer:
C
— Debit Expense, Credit Accounts Payable
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Q. What is the journal entry to record the purchase of inventory on credit?
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A.
Debit Inventory, Credit Accounts Payable
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B.
Debit Accounts Payable, Credit Inventory
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C.
Debit Cash, Credit Inventory
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D.
Debit Inventory, Credit Cash
Solution
The correct entry is to debit Inventory to increase it and credit Accounts Payable to reflect the liability.
Correct Answer:
A
— Debit Inventory, Credit Accounts Payable
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Q. What is the primary purpose of accounting standards?
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A.
To ensure consistency in financial reporting
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B.
To increase profits
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C.
To reduce tax liabilities
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D.
To enhance employee satisfaction
Solution
Accounting standards are designed to ensure consistency and comparability in financial reporting.
Correct Answer:
A
— To ensure consistency in financial reporting
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Q. What is the purpose of preparing final accounts?
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A.
To determine the financial position of a business
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B.
To calculate tax liabilities
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C.
To assess employee performance
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D.
To prepare for audits
Solution
Final accounts are prepared to provide a clear picture of the financial position of a business.
Correct Answer:
A
— To determine the financial position of a business
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Q. Which of the following accounts would be included in a trial balance?
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A.
Revenue
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B.
Expenses
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C.
Assets
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D.
All of the above
Solution
A trial balance includes all accounts, including revenues, expenses, and assets.
Correct Answer:
D
— All of the above
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Q. Which of the following is NOT a component of the income statement?
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A.
Revenue
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B.
Expenses
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C.
Assets
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D.
Net Income
Solution
Assets are reported on the balance sheet, not the income statement.
Correct Answer:
C
— Assets
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