Question 1

Which of the following is NOT an advantage of the corporate form of business organization?

Accepted Answer

Double taxation of earnings

Question 2

Which organization is responsible for establishing accounting standards in the United States?

Accepted Answer

Financial Accounting Standards Board (FASB)

Question 3

Which transaction would increase retained earnings?

Accepted Answer

Net income for the period

Question 4

Which of the following best describes the purpose of an Income Statement?

Accepted Answer

To summarize revenues and expenses for a period and determine net income

Question 5

If a company issues stock for cash, what is the effect on the accounting equation?

Accepted Answer

Assets increase; Stockholders' Equity increases

Question 6

A company purchases a building by signing a long-term bond. What is the effect on the accounting equation?

Accepted Answer

Assets increase; Liabilities increase

Question 7

Which of the following is the correct formula for calculating Earnings Per Share (EPS)?

Accepted Answer

$$ EPS = \frac{Net\ Income - Preferred\ Dividends}{Weighted\ Average\ Common\ Shares\ Outstanding} $$

Question 8

Which of the following is NOT a component of stockholders' equity?

Accepted Answer

Accounts payable

Question 9

What is the effect on stockholders' equity when a company purchases its own stock as treasury stock?

Accepted Answer

Stockholders' equity decreases

Question 10

Which of the following best describes the matching (expense recognition) principle?

Accepted Answer

Expenses are recognized in the same period as the related revenues

Question 11

A company declares a cash dividend on June 1, with a date of record on June 15 and payment date on June 30. On which date does the company record the liability for the dividend?

Accepted Answer

June 1

Question 12

Which section of the statement of cash flows would the purchase of equipment for cash appear?

Accepted Answer

Investing activities

Question 13

Which of the following is the correct formula for calculating Return on Assets (ROA)?

Accepted Answer

$$ ROA = \frac{Net\ Income}{Average\ Total\ Assets} $$

Question 14

Which of the following is a reason a company might purchase treasury stock?

Accepted Answer

To reissue shares to employees as part of compensation plans

Question 15

Which of the following best describes the role of the SEC in financial reporting?

Accepted Answer

The SEC enforces financial reporting requirements for publicly traded companies

Question 16

Which of the following is the correct journal entry to record the payment of cash dividends previously declared?

Accepted Answer

Debit Dividends Payable; Credit Cash

Question 17

Which of the following is the correct formula for calculating the Price Earnings Ratio (P/E)?

Accepted Answer

$$ P/E = \frac{Market\ Price\ per\ Share}{Earnings\ per\ Share} $$

Question 18

Which of the following is NOT a reason why the operating section of the statement of cash flows should be positive?

Accepted Answer

It means the company is profitable on an accrual basis

Question 19

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

Accepted Answer

$$ Assets = Liabilities + Stockholders'\ Equity $$

Question 20

Which of the following best describes double taxation as it relates to corporations?

Accepted Answer

Corporations pay taxes on income, and shareholders pay taxes on dividends received

ACCT 210 Final Exam Review: Financial Accounting Study Guide

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