Question 1

Which of the following best describes the primary purpose of accounting in a business context?

Accepted Answer

To measure, process, and communicate financial information about business activities to decision makers.

Question 2

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

Accepted Answer

Profitability

Question 3

A company purchases equipment for $50,000. According to the historical cost principle, at what value should the equipment be recorded on the balance sheet?

Accepted Answer

$50,000

Question 4

Which of the following business organizations provides its owners with limited liability and allows income to 'flow through' to members for tax purposes?

Accepted Answer

Limited-liability company (LLC)

Question 5

Which of the following best represents the expanded accounting equation for a corporation?

Accepted Answer

$$Assets = Liabilities + (Common\ Stock + Retained\ Earnings)$$

Question 6

If a company has assets of $$500,000, liabilities of 200$$,000, and common stock of $100,000, what is the amount of retained earnings?

Accepted Answer

$$Retained\ Earnings = Assets - Liabilities - Common\ Stock = 500,000 - 200,000 - 100,000 = 200,000$$

Question 7

Which financial statement would you consult to determine a company's financial position at a specific point in time?

Accepted Answer

Balance Sheet

Question 8

A company had beginning retained earnings of $$10,000, net income of 5$$,000, and declared dividends of $2,000 during the year. What is the ending retained earnings balance?

Accepted Answer

$$Ending\ Retained\ Earnings = Beginning\ Retained\ Earnings + Net\ Income - Dividends = 10,000 + 5,000 - 2,000 = 13,000$$

Question 9

Which of the following is an example of a current asset?

Accepted Answer

Accounts receivable

Question 10

Which of the following transactions would increase a company's retained earnings?

Accepted Answer

Earning revenue from sales

Question 11

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 is added to beginning retained earnings on the statement of retained earnings.

Question 12

Which of the following is NOT a component of stockholders’ equity on the balance sheet?

Accepted Answer

Accounts payable

Question 13

A company reports the following: cash receipts from customers $$120,000; cash paid for equipment 30$$,000; cash paid to suppliers $$50,000; cash received from issuing stock 40$$,000. What is the net cash provided by operating activities?

Accepted Answer

$$Net\ cash\ from\ operating\ activities = Cash\ receipts\ from\ customers - Cash\ paid\ to\ suppliers = 120,000 - 50,000 = 70,000$$

Question 14

Which of the following best describes the ethical principle of 'objectivity and independence' in accounting?

Accepted Answer

Accountants should avoid bias and not allow personal relationships to influence their professional judgment.

Question 15

Which of the following is a primary risk associated with the improper use of technology in accounting?

Accepted Answer

Catastrophic decision-making errors

Question 16

Which of the following is NOT a typical use of data analytics in accounting?

Accepted Answer

Recording journal entries manually

Question 17

A company has the following balances: Cash $$10,000; Accounts Receivable 5$$,000; Equipment $$20,000; Accounts Payable 8$$,000; Long-term Debt $$7,000; Common Stock 10$$,000. What is the amount of retained earnings?

Accepted Answer

$$Retained\ Earnings = Assets - Liabilities - Common\ Stock = (10,000 + 5,000 + 20,000) - (8,000 + 7,000) - 10,000 = 35,000 - 15,000 - 10,000 = 10,000$$

Question 18

Which of the following best describes the 'entity assumption' in accounting?

Accepted Answer

The business is a separate economic unit from its owners and other businesses.

Question 19

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

Accepted Answer

Issuing common stock to investors

Introduction to Financial Accounting: Concepts, Organizations, and Financial Statements

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