Question 1

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

Accepted Answer

To measure, process, and communicate business activities to external decision makers.

Question 2

Which assumption states that a business will continue to operate for the foreseeable future?

Accepted Answer

Continuity (Going-Concern) Assumption

Question 3

A corporation issues common stock to investors. Which component of stockholders’ equity does this transaction affect?

Accepted Answer

Paid-in capital

Question 4

Which of the following is NOT a current asset?

Accepted Answer

Property, plant, and equipment

Question 5

The accounting equation is fundamental to financial accounting. Which of the following correctly expresses the accounting equation?

Accepted Answer

$$Assets = Liabilities + Stockholders' Equity$$

Question 6

Jovita Corporation reported total revenues of $$7,547,800 and cost of goods sold of 5$$,840,100. What is the gross margin for the period?

Accepted Answer

$$1,707,700$$

Question 7

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

Accepted Answer

Balance Sheet

Question 8

Which of the following transactions would decrease retained earnings?

Accepted Answer

Paying dividends to shareholders

Question 9

A company has assets of $$500,000 and liabilities of 350$$,000. What is the amount of stockholders’ equity?

Accepted Answer

$$150,000$$

Question 10

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

Accepted Answer

Historical Cost Principle

Question 11

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

Accepted Answer

Borrowing funds from a bank

Question 12

If a partnership has net income of $$120,000 and declares dividends of 30$$,000, what is the increase in retained earnings for the period?

Accepted Answer

$$90,000$$

Question 13

Which of the following is a key difference between financial accounting and managerial accounting?

Accepted Answer

Managerial accounting focuses on budgets and forecasts, while financial accounting focuses on financial statements for external users.

Question 14

Which of the following is NOT a component of retained earnings?

Accepted Answer

Common stock

Question 15

A company’s statement of cash flows reports net operating cash flows of $$200,000, net investing cash flows of -50$$,000, and net financing cash flows of $100,000. What is the net increase in cash for the period?

Accepted Answer

$$150,000$$

Question 16

Which regulatory body formulates Generally Accepted Accounting Principles (GAAP) in the United States?

Accepted Answer

Financial Accounting Standards Board (FASB)

Question 17

Which of the following best describes the entity assumption?

Accepted Answer

A business stands apart from other organizations and individuals as a separate economic unit.

Question 18

A corporation pays income tax on its earnings and shareholders are taxed on dividends received. This is an example of:

Accepted Answer

Double taxation

Question 19

Which of the following is a long-term liability?

Accepted Answer

Long-term bonds payable

Question 20

If a company’s beginning retained earnings are $$400,000, net income for the period is 80$$,000, and dividends declared are $20,000, what are the ending retained earnings?

Accepted Answer

$$460,000$$

Introduction to Financial Accounting and Financial Statements

Study Guide - Practice Questions

Study Guide - Flashcards