Accounting Crash Course questions with verified
answers
10-K vs. 10-Q Ans✓✓✓ -10-K's are more detailed
-10-K reports are audited by an independent firm while 10-Q filings are reviewed
by a CPA but are unaudited
2014 ending inventory was overstated by $25,000, but it was too late to correct
the financial statements. Which of the following describes the effect of the
inventory error on the 2014 financial statements? Ans✓✓✓ Current assets were
overstated and net income was overstated.
An overstatement of ending inventory overstates current assets and understates
cost of goods sold and therefore overstates net income.
A company provided the following data:
-Sales - $500,000
-Beginning inventory - $40,000
-Ending inventory - $45,000
-Gross profit - $150,000
What was the amount of inventory purchased during the year? Ans✓✓✓
$355,000
Sales - Cost of goods sold = Gross profit. $500,000 - Cost of goods sold = $150,000.
Cost of goods sold = $350,000. Beginning inventory + Purchases - Ending
inventory = Cost of goods sold. $40,000 + Purchases - $45,000 = $350,000.
Purchases = $355,000.
,A company reports $100 million total asset balance on December 31, 2019 and
net income of $10 million for the year ending December 31, 2019. Which of the
following transactions during 2020 would most directly result in a decrease in
return on assets (ROA)? Assume end of year balances for calculating ROA and
ignore the impact of taxes and evaluate each transaction independently.
Ans✓✓✓ The company purchases a $5 million non-depreciable fixed asset on
January 1, 2020, financed with a $5 million note at 10% annual interest. The asset
produces $0.5 million in incremental operating income during 2020.
Since we're using end of period balances, return on assets = net income during
the period divided by ending total assets.
Company lowers prices - the direct impact on ROA is unclear. Revenue may rise or
fall depending on the resulting change in demand and the impact on overall
margins and net income is unclear.
The company repays loan - this will raise ROA because assets decline by $5m
(cash used for repayment), while interest expense is $0.25 in annual interest
expense is no longer due.
The company purchases fixed asset financed with note - this will lower ROA: End
of period assets rise to $105m (beginning assets + the fixed asset), while net
income rise in incremental operating income exactly offset by increase in interest
expense. As a result ROA declines $10m/$105m.
Company pays a vendor - ROA rises as cash reduction offset by decline in
liabilities.
A company that sells smartphones and other computer devices has collected
$500,000 in cash and an additional $100,000 is due within the next 30 days for
sales that it has made. It has already shipped all the merchandise. Which of the
following show the correct journal entries for these activities? Ans✓✓✓ Debit
cash for $500,000, Debit Accounts Receivable for $100,000, Credit Retained
Earnings for $600,000.
,A company that sells smartphones prepays $20,000 to cover the next 12 months'
worth of utilities. Which of the following shows the correct journal entries for
these activities? Ans✓✓✓ Debit prepaid expenses for $20,000 and credit cash for
$20,000.
A company's June 1, 2014 balance sheet reported total assets of $120,000 and
total liabilities of $40,000. During June 2014, the following transactions occurred:
1. The company issued stock and collected cash totaling $30,000.
2. The company paid an account payable of $6,000.
3. The company purchased supplies for $1,000 with cash.
4. The company purchased land for $60,000 by paying $10,000 with cash and
signing a note payable for the balance.
What is total stockholders' equity after the transactions above? Ans✓✓✓
$110,000
Beginning equity = $120,000 - $40,000 = $80,000.
Only Transaction 1 affects stockholders' equity.
Therefore, stockholders' equity = $80,000 + $30,000 = $110,000.
A customer purchased and received $5,000 of goods on credit from Discount
Paper Supply on September 1. The customer received the bill on September 13
and mailed a $5,000 check on September 30. Discount Paper Supply received the
check on October 4. On which of the following dates should Discount Paper
Supply record sales revenue? Ans✓✓✓ September 1
A machine, acquired for a cash cost of $15,000, is being depreciated on a straight-
line basis of $2,700 per year. The residual value was estimated to be 10% of cost.
The estimated useful life is: Ans✓✓✓ 5 years
, Annual depreciation expense $2,700 = ($15,000 - $1,500) ÷ N; N = 5.
A/P turnover Ans✓✓✓ cost of goods sold / average accounts payable
ABC Company's total stockholders' equity at the beginning of the year was
$200,000. During the year ABC reported the following:
-Net loss of $30,000.
-Stock issued in exchange for land totaling $80,000.
-Collections of accounts receivable $40,000.
-Dividends paid totaling $2000.
What is ABC's total stockholders' equity at the end of the year? Ans✓✓✓
$248,000
$200,000 - $30,000 + $80,000 - $2,000 = $248,000 total stockholders' equity at
the end of the year; collections of accounts receivable only affect cash and
accounts receivable, but not equity.
Accelerated Depreciation Method Ans✓✓✓ calculate a greater amount of
depreciation in earlier years than later years
-declining balance
-sum of years digits
-units of production
Accounting is important for Ans✓✓✓ firm's officers, investors, lenders, and the
general public
answers
10-K vs. 10-Q Ans✓✓✓ -10-K's are more detailed
-10-K reports are audited by an independent firm while 10-Q filings are reviewed
by a CPA but are unaudited
2014 ending inventory was overstated by $25,000, but it was too late to correct
the financial statements. Which of the following describes the effect of the
inventory error on the 2014 financial statements? Ans✓✓✓ Current assets were
overstated and net income was overstated.
An overstatement of ending inventory overstates current assets and understates
cost of goods sold and therefore overstates net income.
A company provided the following data:
-Sales - $500,000
-Beginning inventory - $40,000
-Ending inventory - $45,000
-Gross profit - $150,000
What was the amount of inventory purchased during the year? Ans✓✓✓
$355,000
Sales - Cost of goods sold = Gross profit. $500,000 - Cost of goods sold = $150,000.
Cost of goods sold = $350,000. Beginning inventory + Purchases - Ending
inventory = Cost of goods sold. $40,000 + Purchases - $45,000 = $350,000.
Purchases = $355,000.
,A company reports $100 million total asset balance on December 31, 2019 and
net income of $10 million for the year ending December 31, 2019. Which of the
following transactions during 2020 would most directly result in a decrease in
return on assets (ROA)? Assume end of year balances for calculating ROA and
ignore the impact of taxes and evaluate each transaction independently.
Ans✓✓✓ The company purchases a $5 million non-depreciable fixed asset on
January 1, 2020, financed with a $5 million note at 10% annual interest. The asset
produces $0.5 million in incremental operating income during 2020.
Since we're using end of period balances, return on assets = net income during
the period divided by ending total assets.
Company lowers prices - the direct impact on ROA is unclear. Revenue may rise or
fall depending on the resulting change in demand and the impact on overall
margins and net income is unclear.
The company repays loan - this will raise ROA because assets decline by $5m
(cash used for repayment), while interest expense is $0.25 in annual interest
expense is no longer due.
The company purchases fixed asset financed with note - this will lower ROA: End
of period assets rise to $105m (beginning assets + the fixed asset), while net
income rise in incremental operating income exactly offset by increase in interest
expense. As a result ROA declines $10m/$105m.
Company pays a vendor - ROA rises as cash reduction offset by decline in
liabilities.
A company that sells smartphones and other computer devices has collected
$500,000 in cash and an additional $100,000 is due within the next 30 days for
sales that it has made. It has already shipped all the merchandise. Which of the
following show the correct journal entries for these activities? Ans✓✓✓ Debit
cash for $500,000, Debit Accounts Receivable for $100,000, Credit Retained
Earnings for $600,000.
,A company that sells smartphones prepays $20,000 to cover the next 12 months'
worth of utilities. Which of the following shows the correct journal entries for
these activities? Ans✓✓✓ Debit prepaid expenses for $20,000 and credit cash for
$20,000.
A company's June 1, 2014 balance sheet reported total assets of $120,000 and
total liabilities of $40,000. During June 2014, the following transactions occurred:
1. The company issued stock and collected cash totaling $30,000.
2. The company paid an account payable of $6,000.
3. The company purchased supplies for $1,000 with cash.
4. The company purchased land for $60,000 by paying $10,000 with cash and
signing a note payable for the balance.
What is total stockholders' equity after the transactions above? Ans✓✓✓
$110,000
Beginning equity = $120,000 - $40,000 = $80,000.
Only Transaction 1 affects stockholders' equity.
Therefore, stockholders' equity = $80,000 + $30,000 = $110,000.
A customer purchased and received $5,000 of goods on credit from Discount
Paper Supply on September 1. The customer received the bill on September 13
and mailed a $5,000 check on September 30. Discount Paper Supply received the
check on October 4. On which of the following dates should Discount Paper
Supply record sales revenue? Ans✓✓✓ September 1
A machine, acquired for a cash cost of $15,000, is being depreciated on a straight-
line basis of $2,700 per year. The residual value was estimated to be 10% of cost.
The estimated useful life is: Ans✓✓✓ 5 years
, Annual depreciation expense $2,700 = ($15,000 - $1,500) ÷ N; N = 5.
A/P turnover Ans✓✓✓ cost of goods sold / average accounts payable
ABC Company's total stockholders' equity at the beginning of the year was
$200,000. During the year ABC reported the following:
-Net loss of $30,000.
-Stock issued in exchange for land totaling $80,000.
-Collections of accounts receivable $40,000.
-Dividends paid totaling $2000.
What is ABC's total stockholders' equity at the end of the year? Ans✓✓✓
$248,000
$200,000 - $30,000 + $80,000 - $2,000 = $248,000 total stockholders' equity at
the end of the year; collections of accounts receivable only affect cash and
accounts receivable, but not equity.
Accelerated Depreciation Method Ans✓✓✓ calculate a greater amount of
depreciation in earlier years than later years
-declining balance
-sum of years digits
-units of production
Accounting is important for Ans✓✓✓ firm's officers, investors, lenders, and the
general public
