Common Accounting Questions and Answers [2025]

The correct answer is D.

Accrued Interest is a current liability and cash is a current asset. Both Current Ratio (Current Assets / Current Liabilities) and Quick Ratio {(Current Assets – Inventory – Prepayments) / Current Liabilities} include the cash and accrued interest. By paying accrued interest with cash, you reduce the numerator and denominator of both the ratios by an equal amount. If you reduce the numerator and denominator by the same amount, it will increase a ratio that is greater than one and decrease a ratio that is less than one.

The correct answer is A.

Every organization keeps an additional set of subsidiary ledgers by the name of Debtors (Subsidiary) Ledger and Creditors (Subsidiary) Ledger. These ledgers contain separate accounts for each individual debtor and creditor, respectively. A General Ledger only contains summary accounts for all the debtors and creditors by the name of Debtors Control Account and Creditors Control Account, respectively. Additional details are provided in the Subsidiary Ledgers.

The correct answer is D.

An increase in days payable outstanding means that the business is not paying its bills quickly, and thus cash inflow from operating activities will increase.

The correct answer is D.

The face value of the bond = $10,000,000. Annual Interest Payment = $10,000,000 * 7% = $700,000
Present value of the bond Principal = $10,000,000 (1+0.0725) ^-4 = $7,558,068
Present value of Annual Interest payment using the annuity formula =
$700,000 {[1-(1+0.0725) ^-4] ÷ 0.0725} = 2,357,727
Bond present value = $7,558,068 (Principal) + $2,357,727 (Annual Interest) = $9,915,795
Interest expense = $9,915,795 * 0.0725 = $718,895
Year-end adjustment = $718,895 - $700,000 = $18,895
Year-end debt balance = $9,915,795 + $18,895 = $9,934,690

The correct answer is D.

Accounts Payable will be credited when the liability increases. This would happen when an entity makes a purchase on credit.
If the entity purchases merchandise on credit they would debit Merchandise, as it is an asset which is increasing, and credit Accounts Payable.

The correct answer is D.

Current assets will reasonably be converted into cash within one year. Inventory is, therefore, a current asset.

The correct answer is D.

Interest Payable is a liability account which represents the amount of money an entity owes in interest fees. Since liability accounts have normal credit balances, a credit to this account will increase its balance and a debit to this account will decrease its balance.
On November 1st we see the account is debited and the balance decreases. This can happen when a company pays back interest they owed on a loan.

In 2000, 15% of the sample (2500) suffered from Bipolar disorder= 2500 x 0.15 = 375 patients.
In 2005, 5% of the sample (2500) suffered from Bipolar disorder = 2500 x 0.05 = 125 patients.
• 375-125=250 fewer patients suffered from Bipolar disorder in 2005 than in 2000.
An additional way to do the math is simply look at the graph and note the difference in percentages between 2005 and 2000 which is 10% (15-5).
• 10% of the entire sample (2500) is 250 – and we can calculate this without making use of a calculator.

The answer is C

Answer A: Not correct since you can buy both kinds for $130 thousand.
Answer B: Not correct since you can buy both kinds for $70 thousand.
Answer C: The most expensive compact Japanese car costs $70 thousand and the least expensive American car costs $90 thousand, so there can be no overlap.
Answer D: Not correct since you can buy both kinds for any number between $140 - 170 thousand.

The correct answer is Product B

This question can be solved without any calculations, using the estimation technique.
The lower the numerator and the higher the denominator, the lower the ratio will be. In this case, the numerator is the number of defective units, and the denominator is the number of work hours. Therefore, you need to look for a product with a low number of defective units and a high number of work hours.
Product B has the highest number of work hours. Now look for the number of defective units:
The data in the table shows the percentage of defective units, not the absolute figures. Product B has one of the two lowest percentages, but a low percentage does not necessarily mean a low absolute number. However, we do have the absolute figures of the market-worthy units, and the smallest number does belong to Product B. Therefore, we can estimate that Product B has the lowest total number of units, which means we may assume that the low percentage of defective units also means a low absolute number.

The full calculation for Product B is as follows:
% of defective units: 24%
% of market-worthy units: 100%-24% = 76%
Number of market-worthy units: 2,380
If 2,380 are 76% of the units, the total number of units is:
2,380/0.76 = 3,131.58
Defective units are 24% of the total:
3,131.58*0.24 = 751.58

Finally, the total work hours per year is 5,736. Therefore, the ratio of defective units per total work hours is 751.58/5,736 = 0.131

The same can be done with other products. Eventually, you will see that Product B has the lowest number of defective units and the lowest ratio.

The correct answer is C.

Under the units-of-production method, the expected life of the asset is irrelevant because the depreciation expense is calculated based on the total units expected to be produced.

The formula used in calculating the depreciation is:

Depreciation = [(cost – residual value)/estimated total units to be produced] x actual units produced

The correct answer is B.

The Balance Sheet is the statement that reflects a business's financial health—its liquidity and financial stability.

Choice A is incorrect because the Income Statement presents the results of operations of the business.

Choice C is incorrect because the Statement of Cash Flows presents the sources and uses of cash.

Choice D is incorrect because the Statement of Retained Earnings shows the changes that occurred in the retained earnings balance.

The correct answer is B.

In this case, sales commission is an expense. Hence, Sales Commission Expense should be debited. Since the commissions will be paid the following month, the account to be credited should be a liability account.

Choice A is incorrect because the expense was credited instead of debited and sales were reduced by $36,000. Sales commission is an operating expense and not a direct deduction to sales.

Choice C is incorrect because it credited Accounts Receivable.

Choice D is incorrect because it treated the commission as an income instead of an expense.

The correct answer is B.

The entry to record purchases on account requires debiting Purchases or Inventory and crediting Accounts Payable. A credit to Accounts Payable increases the balance of the account.

Choices A, C, and D are incorrect because purchase returns, purchase discounts, and payments to suppliers require debit entries to Accounts Payable.

The correct answer is A

An alternative term for allowance for doubtful accounts is the provision for doubtful debts.

The correct answer is B.

The requirement is to calculate the impact of this change in policy on accounts receivable of Blueberry Corp. Under the existing policy, sales are equal to $32,000,000, 80% of which are on credit.

Therefore, the average accounts receivable balance is equal to $4,622,222 [($25,600,000 credit sales ÷ 360 days) × 65 days]. Under the new policy, credit sales are estimated to be $20,608,000 [($32,000,000 × 92%) × 70%]. Accordingly, the average accounts receivable balance under the new policy is estimated to be $2,576,000 [($20,608,000 credit sales ÷ 360) × 45 days].

Answer B is correct because the change in accounts receivable balance is estimated to be a decrease of $2,046,222 ($4,622,222 – $2,576,000).

Best response: C
Primary competency: delegation
Secondary competencies: supervising and monitoring staff performance, encouraging employees’ development, team building, resource management, planning and prioritization, decision making

Taking personal responsibility over crucial tasks (response A) may sound good, but in fact you are not using your employees. This is not a good use of resources.

In response B you involve your team – this is a good use of resources and a good chance for the team to develop. However, when you let your employees choose their own assignments, there might be a situation in which assignments are chosen based on less relevant factors, and undesirable tasks might be left unchosen.

In response C you balance personal involvement and independence of the team. You delegate tasks based on each individual’s competencies (employees’ development, use of resources) and you ask for your team’s ideas (decision making, team building) – these action increase team involvement, responsibility and independence. In addition, by scheduling weekly meetings to keep track on everyone’s progress you supervise staff performance and take supervisory responsibility over the project.

Response D demonstrates a stressful response to the situation. Your decision making is affected – you fail to meet the team, introduce the project personally and take their input. Since this project is of importance, it is important even more than usual that you follow up on your team's progress regularly and actively.

Core competency: openness to criticism, maintaining authority
Secondary competencies: influencing others, building and maintaining relationships

This item examines your ability to bring about change despite opposition. In other words, what is your approach to team management?
Let's consider each response individually:

Response A: This is a passive response that is inappropriate for a managerial role. You display a lack of important managerial skills, such as the ability to manage a team and motivate and influence them.

Response B: This is an active response: you tackle the problem head-on by approaching the problematic team member. However, the style of reaction to the situation might not result in an optimal outcome since it may cause further opposition to the upcoming changes.

Response C: This is another active response. Again, you approach the employee and address the issue of going behind your back. This response reflects your ability to be assertive while exhibiting your skills in managing a team by building good relationships. This is the best response.

Response D: Although this response offers a strong rationale (by emphasising the importance of trust), it shows a lack of managerial skills as you ignore the actions of the employee who went behind your back and "give-in" (so to speak) to the demands of some of the other employees.