Q: Which equation correctly represents the basic accounting equation?

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

Q: Which of the following is the correct formula for calculating net income?

$$\text{Net Income} = \text{Total Revenues} - \text{Total Expenses}$$

Q: Which of the following is a correct formula for calculating total assets?

$$\text{Total Assets} = \text{Current Assets} + \text{Long-term Assets}$$

Q: A company’s statement of retained earnings shows a beginning balance of $$1,372,120$$, net income of $$660,400$$, and dividends of $$62,000. $$What is the correct formula to calculate the ending retained earnings?

$$\text{Ending Retained Earnings} = \text{Beginning Retained Earnings} + \text{Net Income} - \text{Dividends}$$

Question 1

Which of the following best describes the primary purpose of financial accounting?

Accepted Answer

To generate accurate and reliable information for external users to make economic decisions.

Question 2

Which equation correctly represents the basic accounting equation?

Accepted Answer

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

Question 3

A company purchases equipment for $$50,000 cash. Which principle requires that this transaction be recorded at 50$$,000?

Accepted Answer

Historical cost principle

Question 4

Which of the following is NOT a fundamental qualitative characteristic of useful financial information according to accounting standards?

Accepted Answer

Profitability

Question 5

If a corporation issues new shares of stock, which section of the balance sheet is directly affected?

Accepted Answer

Stockholders' Equity

Question 6

Which of the following best describes the difference between financial accounting and managerial accounting?

Accepted Answer

Managerial accounting focuses on future projections and budgets, while financial accounting reports past performance to external users.

Question 7

A company has total assets of $$6,740,250 and total liabilities of 2$$,406,150. What is the company’s total stockholders’ equity?

Accepted Answer

$$4,334,100$$

Question 8

Which of the following is the correct formula for calculating net income?

Accepted Answer

$$	ext{Net Income} = 	ext{Total Revenues} - 	ext{Total Expenses}$$

Question 9

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

Accepted Answer

FASB (Financial Accounting Standards Board)

Question 10

A company reports the following: Beginning retained earnings $$1,372,120$$, Net income $$660,400$$, Dividends $$-62,000. $$What is the ending retained earnings?

Accepted Answer

$$1,970,520$$

Question 11

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

Accepted Answer

Accounts payable

Question 12

Which assumption allows accountants to ignore the effects of inflation when preparing financial statements?

Accepted Answer

Stable-monetary unit assumption

Question 13

A company’s income statement shows sales revenue of $$7,547,800$$ and cost of goods sold of $$4,930,500. $$What is the gross profit?

Accepted Answer

$$2,617,300$$

Question 14

Which of the following best describes the role of dividends in the statement of retained earnings?

Accepted Answer

Dividends are subtracted from net income to calculate ending retained earnings.

Question 15

Which of the following is NOT considered an asset on the balance sheet?

Accepted Answer

Accounts payable

Question 16

Which financial statement reports a company’s financial position at a specific point in time?

Accepted Answer

Balance Sheet

Question 17

If a company has current assets of $$1,213,000$$ and current liabilities of $$843,200$$, what is its net working capital?

Accepted Answer

$$369,800$$

Question 18

Which of the following is a qualitative characteristic that enhances the usefulness of financial information?

Accepted Answer

Comparability

Question 19

Which of the following is a correct formula for calculating total assets?

Accepted Answer

$$	ext{Total Assets} = 	ext{Current Assets} + 	ext{Long-term Assets}$$

Question 20

A company’s statement of retained earnings shows a beginning balance of $$1,372,120$$, net income of $$660,400$$, and dividends of $$62,000. $$What is the correct formula to calculate the ending retained earnings?

Accepted Answer

$$	ext{Ending Retained Earnings} = 	ext{Beginning Retained Earnings} + 	ext{Net Income} - 	ext{Dividends}$$

Fundamentals of Financial Accounting: Concepts, Principles, and Financial Statements

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