Question 1

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

Accepted Answer

To provide useful information for making financial decisions.

Question 2

Which of the following is NOT a characteristic of useful financial information according to accounting standards?

Accepted Answer

It must be biased toward management.

Question 3

A company purchases equipment for $$50,000 with an expected useful life of 10 years and no salvage value. Using straight-line depreciation, what is the annual depreciation expense?

$$Depreciation	ext{ Expense} = \frac{	ext{Original Cost} - 	ext{Salvage Value}}{	ext{Estimated Useful Life}}$

Accepted Answer

$$5,000$$

Question 4

Which financial statement shows a company's financial position at a specific point in time?

Accepted Answer

Balance Sheet

Question 5

Under accrual accounting, when is revenue recognized according to the revenue recognition principle?

Accepted Answer

When goods or services are delivered to the customer and the amount is expected to be received.

Question 6

Which of the following journal entries correctly records the accrual of wages expense at period end, before payment is made?

Accepted Answer

Dr. Wages Expense; Cr. Wages Payable

Question 7

A company receives $10,000 cash from a customer for services to be performed next month. What is the correct initial journal entry?

Accepted Answer

Dr. Cash $$10,000; Cr. Unearned Revenue 10$$,000

Question 8

Which of the following is a contra-asset account that reduces the net value of property, plant, and equipment (PP&E) on the balance sheet?

Accepted Answer

Accumulated Depreciation

Question 9

If a company uses accrual accounting and provides services worth $5,000 in December but receives payment in January, how is this transaction recorded at year-end?

Accepted Answer

Dr. Accounts Receivable $$5,000; Cr. Revenue 5$$,000

Question 10

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

Accepted Answer

Expenses are recognized in the same period as the related revenues.

Question 11

A company pays $12,000 for a one-year insurance policy on January 1. What adjusting entry is needed at March 31 to recognize the insurance expense for the first quarter?

Accepted Answer

Dr. Insurance Expense $$3,000; Cr. Prepaid Insurance 3$$,000

Question 12

Which of the following is the correct order of current assets on a classified balance sheet?

Accepted Answer

Cash and Cash Equivalents, Accounts Receivable, Inventory, Prepaid Expenses

Question 13

Which of the following transactions would require an adjusting entry at the end of the period under accrual accounting?

Accepted Answer

A company has earned interest revenue but has not yet received the cash.

Question 14

Which of the following is NOT considered a current liability?

Accepted Answer

Bonds Payable (due in 5 years)

Question 15

If a company capitalizes the cost of a new machine, how is this cost initially reported?

Accepted Answer

As an asset on the balance sheet

Question 16

Which of the following best describes the duality of effects in double-entry accounting?

Accepted Answer

Every transaction affects at least two accounts and keeps the accounting equation in balance.

Question 17

A company receives a utility bill for $2,000 in December but pays it in January. What is the correct adjusting entry at December 31?

Accepted Answer

Dr. Utilities Expense $$2,000; Cr. Utilities Payable 2$$,000

Question 18

Which of the following is an example of a deferral?

Accepted Answer

A company pays for a one-year insurance policy in advance.

Question 19

Which equation represents the fundamental accounting equation?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Equity}$$

Financial Accounting Review: Key Concepts and Principles (Chapters 1-3)

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