Question 1

Which of the following best describes the primary purpose of financial accounting?

Accepted Answer

To measure business performance and efficiently allocate capital in the economy.

Question 2

Which of the following is NOT one of the four main financial statements prepared by companies?

Accepted Answer

Statement of Budgeted Expenses

Question 3

A company recognizes revenue when it delivers goods to a customer, even if payment is received later. This is an example of which accounting principle?

Accepted Answer

Accrual Accounting

Question 4

Which equation correctly represents the fundamental accounting equation?

Accepted Answer

$$Assets = Liabilities + Equity$$

Question 5

A company purchases equipment for $50,000 cash. Which of the following best describes the effect on the accounting equation?

Accepted Answer

One asset increases by $$50,000; another asset decreases by 50$$,000

Question 6

Which of the following transactions would NOT affect the total assets of a company?

Accepted Answer

Paying off a liability with cash

Question 7

A company made a sale on account for $$10,000. Later, it collected 8$$,000 from the customer. What is the effect on accounts receivable after the collection?

Accepted Answer

Accounts receivable decreases by $8,000

Question 8

Which of the following best describes the matching principle in accrual accounting?

Accepted Answer

Expenses are recorded in the same period as the revenues they help generate.

Question 9

A company has the following balances: Cash $$5,000; Accounts Receivable 3$$,000; Inventory $$2,000; Accounts Payable 4$$,000; Common Stock $2,000. What is the amount of retained earnings?

Accepted Answer

$$Retained\ Earnings = (Cash + Accounts\ Receivable + Inventory) - Accounts\ Payable - Common\ Stock = (5,000 + 3,000 + 2,000) - 4,000 - 2,000 = 4,000$$

Question 10

Which of the following is a real-world example of an accrual adjustment?

Accepted Answer

Recording interest earned but not yet received at year-end

Question 11

A company uses the periodic inventory system. At the end of the year, it has beginning inventory of $$10,000, purchases of 25$$,000, and ending inventory of $8,000. What is the cost of goods sold (COGS)?

Accepted Answer

$$COGS = Beginning\ Inventory + Purchases - Ending\ Inventory = 10,000 + 25,000 - 8,000 = 27,000$$

Question 12

Which of the following best describes the purpose of the statement of cash flows?

Accepted Answer

To report the sources and uses of cash during a period

Question 13

A company issues common stock for $20,000 cash. How does this transaction affect the financial statements?

Accepted Answer

Assets increase by $$20,000; Equity increases by 20$$,000

Question 14

Which of the following is an example of a financing activity on the statement of cash flows?

Accepted Answer

Issuing bonds to raise capital

Question 15

A company has net income of $$15,000, depreciation expense of 2$$,000, and an increase in accounts receivable of $1,000. What is the net cash provided by operating activities using the indirect method?

Accepted Answer

$$Net\ Cash = Net\ Income + Depreciation\ Expense - Increase\ in\ Accounts\ Receivable = 15,000 + 2,000 - 1,000 = 16,000$$

Question 16

Which of the following best describes the role of an audit in financial reporting?

Accepted Answer

To add credibility to the financial statements by providing reasonable assurance they are free of material misstatement

Question 17

A company has the following data: Total assets $$100,000; Total liabilities 60$$,000; Total equity $40,000. What is the debt-to-equity ratio?

Accepted Answer

$$Debt	ext{-}to	ext{-}Equity\ Ratio = \frac{Total\ Liabilities}{Total\ Equity} = \frac{60,000}{40,000} = 1.5$$

Question 18

Which of the following is a key difference between U.S. GAAP and IFRS (International Financial Reporting Standards)?

Accepted Answer

IFRS allows the revaluation of certain non-current assets, while U.S. GAAP generally does not.

Question 19

A company discovers that an employee has been falsifying expense reports to steal money. According to the course materials, which financial statement is most directly affected by this type of fraud?

Accepted Answer

Income Statement

AC221 Financial Accounting Syllabus and Course Structure: Study Guide

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