University of Wisconsin–Madison
Wisconsin School of Business
ACCT I S 100 — Introductory Financial
Accounting Final Exam With Questions And
Answers With Rationales
TOPIC 1: THE ACCOUNTING EQUATION &
TRANSACTION ANALYSIS
(15 questions)
1. The accounting equation is:
A) Assets = Liabilities + Revenues
B) Assets = Liabilities + Stockholders' Equity
C) Assets + Liabilities = Stockholders' Equity
D) Revenues − Expenses = Net Income
E) Assets = Liabilities − Stockholders' Equity
,Answer: B
Rationale: The fundamental accounting equation
is Assets = Liabilities + Stockholders' Equity. This
equation must always balance and forms the
foundation of double-entry accounting.
2. Which of the following is NOT considered a
liability?
A) Accounts Payable
B) Unearned Revenue
C) Interest Payable
D) Accounts Receivable
E) Notes Payable
Answer: D
Rationale: Accounts Receivable is an asset, not a
liability. It represents amounts owed to the
company by customers. Unearned Revenue is a
liability because it represents an obligation to
provide goods or services in the future.
,3. Which of the following is an asset?
A) Unearned Revenue
B) Interest Payable
C) Accounts Receivable
D) Notes Payable
E) Common Stock
Answer: C
Rationale: Accounts Receivable is an asset—it
represents amounts owed to the company by
customers. Unearned Revenue and Interest Payable
are liabilities. Notes Payable is a liability. Common
Stock is stockholders' equity.
4. If total assets increased by $25,000 and total
liabilities decreased by $10,000 during a period,
stockholders' equity must have:
A) Increased by $15,000
B) Decreased by $15,000
, C) Increased by $35,000
D) Decreased by $35,000
E) Remained unchanged
Answer: C
Rationale: Assets = Liabilities + Stockholders' Equity.
Rearranging: ΔEquity = ΔAssets − ΔLiabilities =
(+$25,000) − (−$10,000) = +$35,000.
5. A business purchases equipment for $150,000 by
paying $10,000 in cash and signing a note payable
for the balance. How does this transaction impact
the accounting equation?
A) Increase both assets and liabilities by $140,000
B) Increase both assets and liabilities by $150,000
C) Decrease both assets and liabilities by $10,000
D) Increase assets by $150,000, increase liabilities
by $140,000, and increase stockholders' equity by
$10,000
E) There is not enough information to answer
Wisconsin School of Business
ACCT I S 100 — Introductory Financial
Accounting Final Exam With Questions And
Answers With Rationales
TOPIC 1: THE ACCOUNTING EQUATION &
TRANSACTION ANALYSIS
(15 questions)
1. The accounting equation is:
A) Assets = Liabilities + Revenues
B) Assets = Liabilities + Stockholders' Equity
C) Assets + Liabilities = Stockholders' Equity
D) Revenues − Expenses = Net Income
E) Assets = Liabilities − Stockholders' Equity
,Answer: B
Rationale: The fundamental accounting equation
is Assets = Liabilities + Stockholders' Equity. This
equation must always balance and forms the
foundation of double-entry accounting.
2. Which of the following is NOT considered a
liability?
A) Accounts Payable
B) Unearned Revenue
C) Interest Payable
D) Accounts Receivable
E) Notes Payable
Answer: D
Rationale: Accounts Receivable is an asset, not a
liability. It represents amounts owed to the
company by customers. Unearned Revenue is a
liability because it represents an obligation to
provide goods or services in the future.
,3. Which of the following is an asset?
A) Unearned Revenue
B) Interest Payable
C) Accounts Receivable
D) Notes Payable
E) Common Stock
Answer: C
Rationale: Accounts Receivable is an asset—it
represents amounts owed to the company by
customers. Unearned Revenue and Interest Payable
are liabilities. Notes Payable is a liability. Common
Stock is stockholders' equity.
4. If total assets increased by $25,000 and total
liabilities decreased by $10,000 during a period,
stockholders' equity must have:
A) Increased by $15,000
B) Decreased by $15,000
, C) Increased by $35,000
D) Decreased by $35,000
E) Remained unchanged
Answer: C
Rationale: Assets = Liabilities + Stockholders' Equity.
Rearranging: ΔEquity = ΔAssets − ΔLiabilities =
(+$25,000) − (−$10,000) = +$35,000.
5. A business purchases equipment for $150,000 by
paying $10,000 in cash and signing a note payable
for the balance. How does this transaction impact
the accounting equation?
A) Increase both assets and liabilities by $140,000
B) Increase both assets and liabilities by $150,000
C) Decrease both assets and liabilities by $10,000
D) Increase assets by $150,000, increase liabilities
by $140,000, and increase stockholders' equity by
$10,000
E) There is not enough information to answer
