Question 1

Which of the following best describes the purpose of the Statement of Cash Flows?

Accepted Answer

To measure cash receipts and cash payments, showing how cash increased or decreased during the year

Question 2

According to the historical cost principle, how should assets be reported on the balance sheet?

Accepted Answer

At their original purchase price

Question 3

Which of the following is NOT a required characteristic of financial accounting information?

Accepted Answer

It must be based on future projections only

Question 4

A company has the following balances at year-end: Assets = $$\120$$,000$$, Liabilities = $$\$$45,000. $$What is the amount of Owners' Equity?

Accepted Answer

$$\75$$,000$

Question 5

Which of the following best illustrates the separate entity assumption?

Accepted Answer

A business owner does not include personal expenses in the company’s financial statements

Question 6

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

Accepted Answer

Inventory

Question 7

If a company reports net income of $$\20$$,000$$, pays dividends of $$\$$5,000$$, and has beginning retained earnings of $$\10$$,000$, what is the ending retained earnings balance?

Accepted Answer

$$\25$$,000$

Question 8

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

Accepted Answer

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

Question 9

Which user group is primarily interested in knowing when they will be paid back by a company?

Accepted Answer

Creditors

Question 10

A company’s income statement shows revenues of $$\100$$,000$$ and expenses of $$\$$85,000. $$What is the net income (or loss) for the period?

Accepted Answer

$$\15$$,000$ net income

Question 11

Which of the following is NOT a responsibility of company management regarding financial statements?

Accepted Answer

Auditing the financial statements

Question 12

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

Accepted Answer

Management accounting provides information for internal users, while financial accounting provides information for both internal and external users

Question 13

Which of the following best describes the going concern assumption?

Accepted Answer

A business will continue operating normally for the foreseeable future

Question 14

Which of the following is NOT typically included in the operating activities section of the statement of cash flows?

Accepted Answer

Cash paid to purchase equipment

Question 15

A company issues shares to raise funds for expansion. Under which section of the statement of cash flows would this transaction be reported?

Accepted Answer

Financing activities

Question 16

Which of the following is a correct formula for the accounting equation?

Accepted Answer

$$Assets = Liabilities + Owners' Equity$$

Question 17

Which of the following is an example of a non-current liability?

Accepted Answer

Bank loan due in 5 years

Question 18

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

Accepted Answer

The value of the currency is assumed to be stable over time

Question 19

Which of the following is a key purpose of the statement of retained earnings?

Accepted Answer

To report the portion of net income a company keeps over the years

Question 20

If a company’s ending cash balance on the balance sheet does not match the ending cash balance on the statement of cash flows, what is the most likely explanation?

Accepted Answer

The company has made an error in its financial statements

Fundamentals of Financial Accounting: Principles, Statements, and Reporting

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