Q: Which equation represents the Balance Sheet?

$$\text{Assets} = \text{Liabilities} + \text{Stockholders' Equity}$$

Q: What is the formula for the Debt Ratio?

$$\text{Debt Ratio} = \frac{\text{Total Liabilities}}{\text{Total Assets}}$$

Q: Oz Corp. pays rent for their office in one annual payment of $$24,000 on $$September 1st for the period 9/1/25-8/31/26. What is the balance of Prepaid Rent at 12/31/25?

$$24,000 - (4/12 \times 24,000) = 16,000$$

Q: What is the formula for the Income Statement?

$$\text{Net Income} = \text{Revenue} - \text{Expenses}$$

Question 1

Which financial statement provides information about a company's financial position at a specific point in time?

Accepted Answer

Balance Sheet

Question 2

According to U.S. GAAP, when should revenue be recognized?

Accepted Answer

When the service is performed or the goods have been delivered to the customer.

Question 3

Which equation represents the Balance Sheet?

Accepted Answer

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

Question 4

Oz Corp had a retained earnings balance of $$20$$ million on January 1st. During the year, sales revenue was $$70$$ million, expenses totaled $$25$$ million, and dividends paid were $$6$$ million. What was the balance of retained earnings at year-end?

Accepted Answer

$$20 + 70 - 25 - 6 = 59$$ million

Question 5

Which account type increases with a debit and decreases with a credit?

Accepted Answer

Assets

Question 6

Oz Corp. purchased supplies on account for $$5,000 and later paid 3$$,500 on account. What is the balance in Accounts Payable after both transactions?

Accepted Answer

$$5,000 - 3,500 = 1,500$$

Question 7

Which company has the strongest financial position based on the following data?
Company 1: Assets $$79$$, Liabilities $$46$$
Company 2: Assets $$28$$, Liabilities $$16$$
Company 3: Assets $$15$$, Liabilities $$15$$

Accepted Answer

Company 1

Question 8

What is the formula for the Debt Ratio?

Accepted Answer

$$	ext{Debt Ratio} = \frac{	ext{Total Liabilities}}{	ext{Total Assets}}$$

Question 9

Which ratio measures the ability to pay current liabilities with current assets?

Accepted Answer

Current Ratio

Question 10

Under accrual accounting, Oz Corp. earned revenue of $$740,000$$ and expenses totaled $$600,000. Oz $$collected all but $$25,000 of $$the revenue and paid $$620,000 on $$its expenses. What amount of revenue should be reported for 2024?

Accepted Answer

$$740,000$$

Question 11

Which item flows from the income statement to the statement of retained earnings?

Accepted Answer

Net Income

Question 12

What is the correct order of the accounting cycle tasks?

Accepted Answer

Record journal entries, Post to Ledger, Prepare trial balance, Prepare Financial Statements

Question 13

Oz Corp. pays rent for their office in one annual payment of $$24,000 on $$September 1st for the period 9/1/25-8/31/26. What is the balance of Prepaid Rent at 12/31/25?

Accepted Answer

$$24,000 - (4/12 	imes 24,000) = 16,000$$

Question 14

Which account is NOT a temporary account?

Accepted Answer

Retained Earnings

Question 15

What is the formula for the Income Statement?

Accepted Answer

$$	ext{Net Income} = 	ext{Revenue} - 	ext{Expenses}$$

Question 16

If a company issues common stock for cash, how does this affect the accounting equation?

Accepted Answer

Increase assets and increase stockholders’ equity

Question 17

Which financial statement reports cash receipts and cash payments?

Accepted Answer

Statement of Cash Flows

Question 18

What is the Expense Recognition & Matching Principle?

Accepted Answer

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

Question 19

Which of the following is a type of adjusting entry?

Accepted Answer

Accruals

Question 20

Is a bigger or smaller debt ratio preferred for a company’s financial position?

Accepted Answer

A smaller debt ratio is preferred

Financial Accounting Exam Study Guide – Step-by-Step Guidance

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