Fundamentals of Financial Accounting Flashcards

Which financial statement shows the financial position of a business at a specific point in time?

Answer: Statement of financial position

The statement of financial position (balance sheet) is a snapshot at a given date showing assets, liabilities, and equity.

A company issued 100,000 shares at $2 par value for $3.50 each. The share premium account will be credited with:

Answer: $150,000

Share premium = (Issue price − Par value) × Shares = ($3.50 − $2.00) × 100,000 = $150,000.

Which of the following costs would NOT be included in the valuation of finished goods inventory?

Answer: Selling and distribution expenses

IAS 2 requires inventory to include costs of conversion (direct labor, factory overhead) and direct materials, but selling costs are period expenses excluded from inventory.

The accounting equation is best expressed as:

Answer: Assets = Liabilities + Equity

The fundamental accounting equation is Assets = Liabilities + Equity, reflecting that all assets are funded by either debt (liabilities) or owners' contributions (equity).

An entity revalues its property upward by $50,000. The correct accounting treatment is to:

Answer: Credit the revaluation surplus in other comprehensive income by $50,000

Under IAS 16, an upward revaluation is credited to the revaluation surplus (equity) and recognized in other comprehensive income, not in profit or loss.

A company has a current ratio of 2.4 and current liabilities of $50,000. If inventory is $40,000, what is the quick ratio?

Answer: 1.6

Current assets = 2.4 × $50,000 = $120,000; Quick assets = $120,000 − $40,000 = $80,000; Quick ratio = $80,000 ÷ $50,000 = 1.6.

An accrued expense at year-end requires which journal entry?

Answer: Debit Expense, Credit Accrued Liability

An accrued expense is recognized by debiting the expense account and crediting the accrued liability (a current liability) on the balance sheet.