Question 1

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

Accepted Answer

To provide useful information for decision makers outside the entity

Question 2

Which of the following is NOT a characteristic of a corporation?

Accepted Answer

Stockholders have unlimited liability for the corporation's debts

Question 3

According to the accounting equation, which of the following is always true?

Accepted Answer

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

Question 4

A company purchases equipment for $10,000 cash. Which of the following best describes the effect on the accounting equation?

Accepted Answer

No net effect on total assets

Question 5

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

Accepted Answer

Accounts Receivable

Question 6

Which principle requires that assets be recorded at their actual cost on the date of purchase?

Accepted Answer

Historical Cost Principle

Question 7

Which of the following statements about accrual accounting is TRUE?

Accepted Answer

It records revenues when earned and expenses when incurred

Question 8

A company pays $2,400 for a one-year insurance policy on October 1. What is the monthly insurance expense recognized under accrual accounting?

Accepted Answer

$$200$$

Question 9

Which of the following is a purpose of internal controls?

Accepted Answer

To safeguard assets and ensure reliable accounting records

Question 10

Which of the following is an example of a deferral adjusting entry?

Accepted Answer

Recording depreciation expense at year-end

Question 11

If a company has total current assets of $$50,000 and total current liabilities of 25$$,000, what is its current ratio?

Accepted Answer

$$2.0$$

Question 12

Which of the following is NOT a step in the accounting cycle?

Accepted Answer

Calculating income taxes owed

Question 13

Which of the following best describes the effect of declaring and paying a cash dividend?

Accepted Answer

Decreases assets and decreases stockholders' equity

Question 14

Which of the following is a limitation of the single-step income statement?

Accepted Answer

It does not report gross profit

Question 15

A company has beginning retained earnings of $$10,000, net income of 5$$,000, and dividends declared of $2,000. What is the ending retained earnings?

Accepted Answer

$$13,000$$

Question 16

Which of the following is an example of a contra asset account?

Accepted Answer

Accumulated Depreciation

Question 17

Which of the following is a key component of the fraud triangle?

Accepted Answer

Opportunity

Question 18

Which of the following transactions would NOT require an adjusting entry at the end of the period?

Accepted Answer

Payment of a utility bill as soon as it is received

Question 19

Which of the following best describes the purpose of a trial balance?

Accepted Answer

To ensure that debits equal credits after posting

Question 20

Which of the following is considered a cash equivalent?

Accepted Answer

A certificate of deposit maturing in 2 months

Fundamentals of Financial Accounting: Key Concepts and Principles

Study Guide - Practice Questions