Question 1

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

Accepted Answer

To measure business activities, process data into financial statements, and communicate results to external decision makers

Question 2

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

Accepted Answer

Timeliness

Question 3

A company has assets of $$1,000 and liabilities of 600. $$What is the amount of equity, according to the accounting equation?

Accepted Answer

$400

Question 4

Which of the following best describes the historical cost principle?

Accepted Answer

Assets should be recorded at their actual cost on the date of purchase

Question 5

Which business organization form exposes its owners to unlimited liability for business debts?

Accepted Answer

Proprietorship

Question 6

Which of the following statements about the income statement is TRUE?

Accepted Answer

It reports revenues and expenses for a period, resulting in net income or net loss

Question 7

If a company has beginning retained earnings of $$500,000, net income of 120$$,000, and dividends declared of $30,000, what is the ending retained earnings?

Accepted Answer

$590,000

Question 8

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

Accepted Answer

Inventories

Question 9

Which of the following is a key difference between financial accounting and managerial accounting?

Accepted Answer

Managerial accounting focuses on budgets and forecasts, while financial accounting focuses on financial statements for external users

Question 10

A corporation issues common stock for $50,000 cash. Which part of the accounting equation is affected and how?

Accepted Answer

Assets increase by $$50,000; Equity increases by 50$$,000

Question 11

Which of the following is a constraint in the conceptual framework for financial reporting?

Accepted Answer

Cost

Question 12

Which of the following transactions would increase retained earnings?

Accepted Answer

Earning revenue from sales

Question 13

Which assumption states that an entity will continue to operate for the foreseeable future?

Accepted Answer

Continuity (going-concern) assumption

Question 14

A company reports the following: Sales revenue $$3,547,000; Cost of goods sold 1$$,247,000; General and administrative expenses $$900,000; Interest expense 80$$,000. What is the company's gross margin?

Accepted Answer

$2,300,000

Question 15

Which of the following best describes the stable-monetary-unit assumption?

Accepted Answer

The dollar’s purchasing power is assumed to be stable over time

Question 16

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

Accepted Answer

Accounts payable

Question 17

If a company’s assets are $$2,000,000 and its equity is 1$$,200,000, what are its liabilities?

Accepted Answer

$800,000

Question 18

Which of the following is an ethical consideration in financial accounting?

Accepted Answer

Ensuring financial statements are accurate and truthful

Question 19

Which of the following best describes the flow of information among financial statements?

Accepted Answer

Net income from the income statement flows to the statement of retained earnings, which then flows to the balance sheet

Question 20

Which of the following is a real-world example of how the accounting equation is used?

Accepted Answer

A company borrows $$100,000 from a bank, increasing both its assets and liabilities by 100$$,000

Chapter 1: Financial Statements – Structured Study Notes for Financial Accounting

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