Question 1

Which of the following best describes the primary objective of financial accounting, as illustrated in the conceptual framework diagram?

Accepted Answer

To provide financial information about the reporting entity that is useful to current and future investors and creditors when making investing and lending decisions.

Question 2

Which of the following is NOT a fundamental qualitative characteristic of useful financial information according to the conceptual framework?

Accepted Answer

Comparability

Question 3

A company’s income statement for the year shows revenues of $$120,000 and expenses of 90$$,000. What is the net income for the period?

$$Net\ Income = Revenues - Expenses$$

Accepted Answer

$$30,000$$

Question 4

Which of the following statements about the balance sheet is correct?

Accepted Answer

It reports the financial position of the company at a specific point in time.

Question 5

Under the historical cost assumption, how should assets be recorded?

Accepted Answer

At their actual cost when acquired.

Question 6

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

Accepted Answer

Cash paid to suppliers for inventory.

Question 7

A company’s shareholders’ equity increased from $$50,000 to 65$$,000 during the year. The company earned net income of $$20,000. How much in dividends were declared during the year?

$$Dividends = Beginning\ Equity + Net\ Income - Ending\ Equity$

Accepted Answer

$$5,000$$

Question 8

Which of the following best describes the separate entity assumption?

Accepted Answer

The business is a separate economic unit from its owners.

Question 9

Which financial statement would you examine to determine if a company can pay its bills due within the next year?

Accepted Answer

Balance sheet, focusing on current assets and current liabilities.

Question 10

Which of the following is NOT a component of shareholders’ equity?

Accepted Answer

Accounts payable

Question 11

Which of the following is a reason why ESG (environmental, social, and governance) reporting is important for organizations?

Accepted Answer

It helps organizations discover new business opportunities and mitigate risks.

Question 12

Which of the following is an example of a governance measure in ESG reporting?

Accepted Answer

Percentage of board members who have completed anti-corruption training.

Question 13

Which of the following is a constraint on financial reporting according to the conceptual framework diagram?

Accepted Answer

Cost

Question 14

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

Accepted Answer

To gather evidence and decide whether the information reported in the financial statements complies with the applicable GAAP.

Question 15

Which of the following is NOT a tool or technology commonly used in accounting?

Accepted Answer

Blockchain mining

Question 16

A company has total assets of $$100,000 and total liabilities of 60$$,000. What is the amount of shareholders’ equity?

$$Shareholders'\ Equity = Total\ Assets - Total\ Liabilities$$

Accepted Answer

$$40,000$$

Question 17

Which of the following is an example of an ethical dilemma an accountant might face?

Accepted Answer

Discovering errors that overstate net income and deciding whether to report them.

Question 18

Which of the following is NOT a user group of accounting information?

Accepted Answer

Competitors

Question 19

Which of the following best describes the relationship between the income statement and the statement of retained earnings?

Accepted Answer

Net income from the income statement flows into the statement of retained earnings.

Question 20

Which of the following is a real-world example of a liability?

Accepted Answer

A company’s obligation to pay suppliers for inventory purchased on credit.

Introduction to Financial Accounting: Key Concepts and Financial Statements

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