[ACCT 526 FINAL EXAM] – QUESTIONS AND
ANSWERS | VERIFIED AND WELL DETAILED
ANSWERS | PLUS RATIONALES | GUARANTEED
PASS | LATEST EXAM UPDATE | STUVIA VERIFIED |
EXAM PREP | STUDY GUIDE | PRACTICE TEST
1. Which financial statement reports a company’s assets, liabilities, and shareholders’
equity at a specific date?
A. Income statement
B. Statement of cash flows
C. Balance sheet
D. Statement of retained earnings
Correct Answer: C. Balance sheet
Rationale:
The balance sheet presents a company’s financial position by listing assets, liabilities, and equity
at a specific point in time.
2. A company purchases equipment for cash. Which statement is correct?
A. Assets increase and liabilities decrease
B. One asset increases while another asset decreases
C. Liabilities increase and equity decreases
D. Revenues increase and assets decrease
Correct Answer: B. One asset increases while another asset decreases
Rationale:
Cash decreases while equipment increases, resulting in a change within assets only.
3. Under accrual accounting, revenue is recognized when:
A. Cash is received
B. The invoice is mailed
C. Expenses are paid
D. Performance obligations are satisfied
Correct Answer: D. Performance obligations are satisfied
,Rationale:
Accrual accounting recognizes revenue when goods or services are delivered and earned,
regardless of cash receipt.
4. Which inventory valuation method typically results in the highest ending inventory
during periods of rising prices?
A. FIFO
B. LIFO
C. Weighted average
D. Specific identification
Correct Answer: A. FIFO
Rationale:
FIFO assigns older lower costs to cost of goods sold, leaving newer higher-cost inventory in
ending inventory.
5. What is the primary purpose of an audit?
A. To guarantee profitability
B. To detect all fraud
C. To provide reasonable assurance regarding financial statements
D. To prepare tax returns
Correct Answer: C. To provide reasonable assurance regarding financial statements
Rationale:
Audits provide reasonable assurance that financial statements are free from material
misstatement.
6. Which ratio measures a company’s ability to pay short-term obligations?
A. Debt-to-equity ratio
B. Gross profit margin
C. Return on assets
D. Current ratio
Correct Answer: D. Current ratio
Rationale:
The current ratio compares current assets to current liabilities to assess short-term liquidity.
7. A fixed cost:
A. Changes directly with production volume
B. Remains constant in total within a relevant range
, C. Is always higher than variable cost
D. Cannot be controlled by management
Correct Answer: B. Remains constant in total within a relevant range
Rationale:
Fixed costs remain unchanged in total despite activity fluctuations within the relevant range.
8. Which internal control procedure helps reduce fraud risk?
A. Combining accounting and custody duties
B. Eliminating supervisory reviews
C. Segregation of duties
D. Allowing unrestricted access to assets
Correct Answer: C. Segregation of duties
Rationale:
Separating authorization, custody, and recordkeeping duties reduces opportunities for fraud and
error.
9. What is depreciation primarily intended to accomplish?
A. Increase cash flow
B. Reduce liabilities
C. Allocate asset cost over useful life
D. Estimate market value annually
Correct Answer: C. Allocate asset cost over useful life
Rationale:
Depreciation systematically allocates the cost of a long-term asset over its useful life.
10. A company’s gross profit equals:
A. Net income minus taxes
B. Sales revenue minus operating expenses
C. Sales revenue minus cost of goods sold
D. Assets minus liabilities
Correct Answer: C. Sales revenue minus cost of goods sold
Rationale:
Gross profit measures the profitability of core sales activities before operating expenses.
11. Which document authorizes the purchase of goods from a supplier?
A. Sales invoice
, B. Purchase order
C. Receiving report
D. Credit memorandum
Correct Answer: B. Purchase order
Rationale:
Purchase orders formally authorize procurement transactions with vendors.
12. An adjusting entry is required:
A. Only when errors occur
B. To close temporary accounts
C. At the end of an accounting period
D. Before issuing stock
Correct Answer: C. At the end of an accounting period
Rationale:
Adjusting entries ensure revenues and expenses are recorded in the correct accounting period.
13. Which principle requires accountants to record expenses in the same period as related
revenues?
A. Conservatism principle
B. Matching principle
C. Revenue recognition principle
D. Cost principle
Correct Answer: B. Matching principle
Rationale:
The matching principle aligns expenses with the revenues they help generate.
14. What is the effect of declaring cash dividends?
A. Increase liabilities and decrease retained earnings
B. Increase assets and liabilities
C. Increase revenues and expenses
D. Decrease liabilities and increase equity
Correct Answer: A. Increase liabilities and decrease retained earnings
Rationale:
Declaring dividends creates a liability and reduces retained earnings.
ANSWERS | VERIFIED AND WELL DETAILED
ANSWERS | PLUS RATIONALES | GUARANTEED
PASS | LATEST EXAM UPDATE | STUVIA VERIFIED |
EXAM PREP | STUDY GUIDE | PRACTICE TEST
1. Which financial statement reports a company’s assets, liabilities, and shareholders’
equity at a specific date?
A. Income statement
B. Statement of cash flows
C. Balance sheet
D. Statement of retained earnings
Correct Answer: C. Balance sheet
Rationale:
The balance sheet presents a company’s financial position by listing assets, liabilities, and equity
at a specific point in time.
2. A company purchases equipment for cash. Which statement is correct?
A. Assets increase and liabilities decrease
B. One asset increases while another asset decreases
C. Liabilities increase and equity decreases
D. Revenues increase and assets decrease
Correct Answer: B. One asset increases while another asset decreases
Rationale:
Cash decreases while equipment increases, resulting in a change within assets only.
3. Under accrual accounting, revenue is recognized when:
A. Cash is received
B. The invoice is mailed
C. Expenses are paid
D. Performance obligations are satisfied
Correct Answer: D. Performance obligations are satisfied
,Rationale:
Accrual accounting recognizes revenue when goods or services are delivered and earned,
regardless of cash receipt.
4. Which inventory valuation method typically results in the highest ending inventory
during periods of rising prices?
A. FIFO
B. LIFO
C. Weighted average
D. Specific identification
Correct Answer: A. FIFO
Rationale:
FIFO assigns older lower costs to cost of goods sold, leaving newer higher-cost inventory in
ending inventory.
5. What is the primary purpose of an audit?
A. To guarantee profitability
B. To detect all fraud
C. To provide reasonable assurance regarding financial statements
D. To prepare tax returns
Correct Answer: C. To provide reasonable assurance regarding financial statements
Rationale:
Audits provide reasonable assurance that financial statements are free from material
misstatement.
6. Which ratio measures a company’s ability to pay short-term obligations?
A. Debt-to-equity ratio
B. Gross profit margin
C. Return on assets
D. Current ratio
Correct Answer: D. Current ratio
Rationale:
The current ratio compares current assets to current liabilities to assess short-term liquidity.
7. A fixed cost:
A. Changes directly with production volume
B. Remains constant in total within a relevant range
, C. Is always higher than variable cost
D. Cannot be controlled by management
Correct Answer: B. Remains constant in total within a relevant range
Rationale:
Fixed costs remain unchanged in total despite activity fluctuations within the relevant range.
8. Which internal control procedure helps reduce fraud risk?
A. Combining accounting and custody duties
B. Eliminating supervisory reviews
C. Segregation of duties
D. Allowing unrestricted access to assets
Correct Answer: C. Segregation of duties
Rationale:
Separating authorization, custody, and recordkeeping duties reduces opportunities for fraud and
error.
9. What is depreciation primarily intended to accomplish?
A. Increase cash flow
B. Reduce liabilities
C. Allocate asset cost over useful life
D. Estimate market value annually
Correct Answer: C. Allocate asset cost over useful life
Rationale:
Depreciation systematically allocates the cost of a long-term asset over its useful life.
10. A company’s gross profit equals:
A. Net income minus taxes
B. Sales revenue minus operating expenses
C. Sales revenue minus cost of goods sold
D. Assets minus liabilities
Correct Answer: C. Sales revenue minus cost of goods sold
Rationale:
Gross profit measures the profitability of core sales activities before operating expenses.
11. Which document authorizes the purchase of goods from a supplier?
A. Sales invoice
, B. Purchase order
C. Receiving report
D. Credit memorandum
Correct Answer: B. Purchase order
Rationale:
Purchase orders formally authorize procurement transactions with vendors.
12. An adjusting entry is required:
A. Only when errors occur
B. To close temporary accounts
C. At the end of an accounting period
D. Before issuing stock
Correct Answer: C. At the end of an accounting period
Rationale:
Adjusting entries ensure revenues and expenses are recorded in the correct accounting period.
13. Which principle requires accountants to record expenses in the same period as related
revenues?
A. Conservatism principle
B. Matching principle
C. Revenue recognition principle
D. Cost principle
Correct Answer: B. Matching principle
Rationale:
The matching principle aligns expenses with the revenues they help generate.
14. What is the effect of declaring cash dividends?
A. Increase liabilities and decrease retained earnings
B. Increase assets and liabilities
C. Increase revenues and expenses
D. Decrease liabilities and increase equity
Correct Answer: A. Increase liabilities and decrease retained earnings
Rationale:
Declaring dividends creates a liability and reduces retained earnings.
