Financial accounting - Aleksandre Mikeladze Flashcards
(118 cards)
Which of the following is an example of an accrued expense?
C) Interest payable: Accrued expenses are those that have been incurred but
not yet paid, such as interest payable.
If a company buys machinery for $50,000 with a useful life of 10 years and a salvage value of $5,000, what is the annual depreciation expense using the straight-line method?
A) $4,500 Explanation: ($50,000 - $5,000) ÷ 10 years = $4,500 per year.
($50,000 - $5,000) ÷ 10 years = $4,500 per year.
Which of the following best describes the purpose of the allowance for doubtful accounts?
B) To estimate uncollectible accounts The allowance for doubtful accounts is a contra-asset
account used to estimate future bad debts.
Under the allowance method, how is bad debt expense recorded?
B) As an estimate based on credit sales or aging of accounts receivable Explanation: The allowance method estimates bad debts to match
expenses with revenue in the correct period.
A loan payment generally consists of which two components?
B) Principal and interest Loan payments consist of principal (amount borrowed) and
interest (cost of borrowing).
Which of the following is a liquidity ratio?
C) Current ratio
Explanation: The current ratio measures a company’s ability to pay
short-term obligations (Current Assets / Current Liabilities).
Which inventory valuation method results in the lowest ending inventory value during inflation?
B) LIFO
Explanation: LIFO (Last In, First Out) assumes the latest inventory costs
are expensed first, leaving older, lower-cost items in inventory.
Which of the following activities is classified under investing activities in the statement of cash flows?
C) Purchasing new equipment Explanation: Investing activities include the purchase and sale of long-
term assets such as equipment.
Which of the following is not part of the statement of financial position (balance sheet)?
C) Revenue
Revenue is part of the income statement, not the statement
of financial position.
Under the accrual basis of accounting, revenues should be recognized when:
B) Goods are delivered or services are performed The accrual basis recognizes revenue when earned, not
when cash is received.
What is the formula to calculate the cost of goods sold (COGS)?
A) Beginning Inventory + Purchases - Ending Inventory Explanation: This formula accounts for all inventory used during a
period.
This formula accounts for all inventory used during a period.
Which inventory valuation method results in the lowest taxable income during inflation?
B) LIFO LIFO uses recent higher-cost inventory, leading to
higher expenses and lower taxable income.
Cash flow from operating activities includes:
C) Accounts receivable collections
Explanation: Operating cash flows include cash collected from
customers.
In the indirect cash flow method, depreciation is:
A) Added back to net income
Explanation: Depreciation is a non-cash expense and must be
added back to net income.
Which ratio measures a company’s profitability?
C) Return on assets Explanation: Return on assets (ROA) measures how efficiently a
company uses its assets to generate profit.
The acid-test ratio is also known as:
B) Quick ratio Explanation: The quick ratio measures a company’s ability to meet
short-term obligations excluding inventory.
Under which depreciation method does an asset’s value decline faster in earlier years?
B) Double declining balance Explanation: This method accelerates depreciation expenses
earlier in the asset’s life.
Accumulated depreciation is reported in which section of the balance sheet?
B) Fixed assets Explanation: Accumulated depreciation reduces the book value of
fixed assets.
Loan amortization schedules show:
A) Outstanding loan balance over time Explanation: Amortization schedules show principal and interest
payments over the loan term.
A balloon payment refers to:
B) A large payment due at the end of a loan term
* Explanation: A balloon payment is a large, lump-sum payment due
at the end of a loan’s term.
The statement of retained earnings connects:
B) Income statement and balance sheet Explanation: It shows how net income impacts retained earnings in
the equity section.
In which statement are dividends declared reported?
B) Statement of retained earnings Explanation: Dividends declared are deducted from retained
earnings.
The direct write-off method records bad debts when:
C) The account is deemed uncollectible this method recognizes bad debts only when accounts are actually written off
An increase in the allowance for doubtful accounts results in:
A) Lower net income increasing the allowance for doubtful accounts increases expenses, reducing net income