Q: A company pays $12,000 for a one-year insurance policy on July 1. What amount should be reported as insurance expense on the income statement for the year ended December 31?

$$Insurance\ Expense = 12,000 \times \frac{6}{12} = 6,000$$

Question 1

Which of the following best describes the primary purpose of the balance sheet in financial accounting?

Accepted Answer

To present the financial position of a company at a specific point in time.

Question 2

A company purchased equipment for $50,000 cash. Which of the following journal entries correctly records this transaction?

Accepted Answer

Debit Equipment $$50,000; Credit Cash 50$$,000

Question 3

Which of the following equations correctly represents the fundamental accounting equation?

Accepted Answer

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

Question 4

If a company has total assets of $$120,000 and total liabilities of 80$$,000, what is the amount of stockholders' equity?

Accepted Answer

$$Stockholders'\ Equity = Assets - Liabilities = 120,000 - 80,000 = 40,000$$

Question 5

Which of the following is NOT a component of the statement of cash flows?

Accepted Answer

Retained earnings activities

Question 6

A company earned $$10,000 in revenue and incurred 7$$,000 in expenses during the year. What is the net income for the year?

Accepted Answer

$$Net\ Income = Revenue - Expenses = 10,000 - 7,000 = 3,000$$

Question 7

Which of the following best describes accrual accounting?

Accepted Answer

Revenues and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.

Question 8

Which of the following is an example of a financing activity on the statement of cash flows?

Accepted Answer

Issuing common stock to investors

Question 9

A company issues $100,000 of bonds at face value. How does this transaction affect the accounting equation?

Accepted Answer

Assets increase by $$100,000; Liabilities increase by 100$$,000

Question 10

Which of the following best describes the matching principle in financial accounting?

Accepted Answer

Expenses should be recorded in the same period as the revenues they help to generate.

Question 11

A company pays $12,000 for a one-year insurance policy on July 1. What amount should be reported as insurance expense on the income statement for the year ended December 31?

Accepted Answer

$$Insurance\ Expense = 12,000 	imes \frac{6}{12} = 6,000$$

Question 12

Which of the following is a limitation of financial statements prepared under generally accepted accounting principles (GAAP)?

Accepted Answer

They are based on historical cost and may not reflect current market values.

Question 13

Which of the following transactions would increase both assets and stockholders' equity?

Accepted Answer

Providing services to a customer on account

Question 14

A company has the following balances: Cash $$5,000; Accounts Receivable 10$$,000; Inventory $$15,000; Equipment 20$$,000; Accounts Payable $$8,000; Notes Payable 12$$,000. What is the total amount of assets?

Accepted Answer

$$Total\ Assets = 5,000 + 10,000 + 15,000 + 20,000 = 50,000$$

Question 15

Which of the following best describes the purpose of the statement of stockholders' equity?

Accepted Answer

To show changes in the components of equity during a period.

Question 16

A company receives $2,000 cash in advance for services to be performed next month. How should this transaction be recorded?

Accepted Answer

Debit Cash $$2,000; Credit Unearned Revenue 2$$,000

Question 17

Which of the following is an example of an investing activity?

Accepted Answer

Purchasing new machinery for the factory

Question 18

A company has beginning retained earnings of $$25,000, net income of 8$$,000, and pays dividends of $3,000. What is the ending retained earnings?

Accepted Answer

$$Ending\ Retained\ Earnings = 25,000 + 8,000 - 3,000 = 30,000$$

Question 19

Which of the following best describes the role of the CFA Institute Code of Ethics and Standards of Professional Conduct in financial accounting?

Accepted Answer

It provides ethical guidelines for financial professionals to ensure integrity and transparency in financial reporting.

Question 20

A company uses the direct method to prepare its statement of cash flows. Which of the following would be included in the operating activities section?

Accepted Answer

Cash received from customers

Financial Accounting Syllabus and Study Guide

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