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examino

General Concepts

  1. How is Net Income calculated?
    a) Revenues – Expenses – Cash Dividends
    b) Revenues – Expenses
    c) Revenues + Expenses + Cash Dividends
    d) Revenues – Expenses + Cash Dividends
    (Correct Answer: b)

  2. What is the primary difference between Current Liabilities and Long-Term Liabilities?
    a) Current Liabilities are due within 1 year; Long-Term Liabilities are due after 1 year.
    b) Current Liabilities involve interest payments, Long-Term Liabilities do not.
    c) Current Liabilities relate to assets, Long-Term Liabilities do not.
    d) Current Liabilities are related to cash, while Long-Term Liabilities involve inventory.
    (Correct Answer: a)

  3. Which of the following is NOT included in accrued liabilities?
    a) Wages payable
    b) Taxes payable
    c) Prepaid expenses
    d) Interest payable
    (Correct Answer: c)

  4. What is a contra asset account?
    a) An account that increases total liabilities
    b) An account that reduces total assets
    c) An account that increases stockholders' equity
    d) An account that decreases total liabilities
    (Correct Answer: b)

  5. Which of the following is a disadvantage of corporations?
    a) Limited liability for owners
    b) Ability to raise capital easily
    c) Double taxation
    d) Separate legal entity
    (Correct Answer: c)

Recording and Entries

  1. At what value is the purchase of land recorded?
    a) List Price
    b) Fair Value Price
    c) Purchase Price
    d) None of the above
    (Correct Answer: c)

  2. Where do the dollar amounts on the Trial Balance come from?
    a) Journal entries
    b) Ending balances in ledger accounts
    c) Beginning balances in ledger accounts
    d) Adjusted balances after the statement of cash flows
    (Correct Answer: b)

  3. If you record a debit but not a corresponding credit, what happens?
    a) The financial statement will be unaffected.
    b) The trial balance will not balance.
    c) Total liabilities will increase.
    d) Net income will increase.
    (Correct Answer: b)

  4. If you purchase supplies on account, how does it affect the accounting equation?
    a) Decreases assets and liabilities
    b) Increases assets and liabilities
    c) Increases assets and decreases liabilities
    d) Decreases liabilities and increases equity
    (Correct Answer: b)

Fraud and Ratios

  1. What is included in the misappropriation of assets?
    a) Misstating financial statements
    b) Theft of cash or inventory
    c) Errors in accounting processes
    d) Falsifying liability accounts
    (Correct Answer: b)

  2. Which of the following accounts are included in the Quick Ratio?
    a) Cash, Accounts Receivable, and Inventory
    b) Cash, Marketable Securities, and Prepaid Expenses
    c) Cash, Marketable Securities, and Accounts Receivable
    d) Cash, Accounts Payable, and Retained Earnings
    (Correct Answer: c)

Inventory and Stockholders' Equity

  1. Which inventory costing method provides the most realistic measure of net income?
    a) FIFO
    b) LIFO
    c) Average Cost
    d) Specific Identification
    (Correct Answer: b)

  2. How do expenses affect Stockholders' Equity?
    a) Expenses increase equity.
    b) Expenses decrease equity.
    c) Expenses have no effect on equity.
    d) Expenses decrease assets but increase equity.
    (Correct Answer: b)

  3. What effect does paying dividends have on cash and expenses?
    a) Decreases cash and increases expenses
    b) Decreases cash but does not affect expenses
    c) Does not affect cash or expenses
    d) Increases cash but decreases expenses
    (Correct Answer: b)

  4. Is Treasury Stock reported in the Stockholders’ Equity section of the balance sheet?
    a) Yes, as a reduction to equity.
    b) No, it is a liability.
    c) Yes, as an addition to equity.
    d) No, it is recorded as an asset.
    (Correct Answer: a)

Cash Flow and Depreciation

  1. Are acquisitions of long-term assets reported as investing activities on the statement of cash flows?
    a) Yes, always.
    b) No, they are operating activities.
    c) Only if financed by debt.
    d) Only if the company has no liabilities.
    (Correct Answer: a)

  2. How does depreciation affect an asset's original cost?
    a) Depreciation reduces the original cost.
    b) Depreciation does not affect the original cost.
    c) Depreciation increases the original cost over time.
    d) Depreciation affects the asset’s fair value, not its cost.
    (Correct Answer: b)