Bcom Bachelor of Commerce Bachelor of Commerce: Financial Accounting 4 — Questions and Answers
Question 1: The cost of goods sold formula is:
- Beginning Inventory + Net Purchases − Ending Inventory (Correct answer)
- Ending Inventory + Net Purchases − Beginning Inventory
- Net Sales − Gross Profit
- Operating Expenses + Net Purchases
Correct answer: Beginning Inventory + Net Purchases − Ending Inventory
COGS = Beginning Inventory + Net Purchases − Ending Inventory; this measures the cost of goods actually sold during the period.
Question 2: Unearned revenue is classified as:
- An asset because cash has been received
- A liability because goods or services are still owed to the customer (Correct answer)
- Revenue because cash has already been collected
- An equity account representing deferred profits
Correct answer: A liability because goods or services are still owed to the customer
Unearned revenue represents a future obligation to deliver goods or services, making it a liability until the performance obligation is satisfied.
Question 3: Which inventory costing method is NOT permitted under IFRS?
- FIFO
- Weighted average cost
- LIFO (Correct answer)
- Specific identification
Correct answer: LIFO
IFRS prohibits the use of LIFO (Last-In, First-Out) because it can produce balance sheet inventory values that do not reflect current costs.
Question 4: Accumulated depreciation on the balance sheet represents:
- The annual depreciation expense for the current year
- The total depreciation recorded on an asset since it was placed in service (Correct answer)
- Cash set aside to replace aging assets
- The current market value reduction of fixed assets
Correct answer: The total depreciation recorded on an asset since it was placed in service
Accumulated depreciation is the cumulative total of all depreciation expense recognized on an asset since its acquisition date.
Question 5: The debt-to-equity ratio is calculated as:
- Total Assets ÷ Total Equity
- Total Liabilities ÷ Total Equity (Correct answer)
- Net Income ÷ Total Equity
- Total Liabilities ÷ Total Assets
Correct answer: Total Liabilities ÷ Total Equity
The debt-to-equity ratio compares total liabilities to shareholders' equity, measuring how much debt is used relative to equity financing.
Question 6: An adjusting entry to record accrued salaries would include:
- Debit Cash; Credit Salaries Expense
- Debit Salaries Expense; Credit Salaries Payable (Correct answer)
- Debit Salaries Payable; Credit Cash
- Debit Prepaid Salaries; Credit Salaries Expense
Correct answer: Debit Salaries Expense; Credit Salaries Payable
Accrued salaries are earned by employees but not yet paid; the entry debits the expense and credits the liability Salaries Payable.
Question 7: What is the effect of a stock split on total stockholders' equity?
- It increases total stockholders' equity
- It decreases total stockholders' equity
- It has no effect on total stockholders' equity (Correct answer)
- It transfers amounts between retained earnings and common stock
Correct answer: It has no effect on total stockholders' equity
A stock split increases the number of shares and reduces par value per share proportionally, leaving total stockholders' equity unchanged.
Bcom Bachelor of Commerce Bachelor of Commerce: Financial Accounting 4
The cost of goods sold formula is: