Wall Street Prep Premium Exam 2026 Questions
with 100% correct Answers
SECTION 1: ACCRUAL ACCOUNTING & REVENUE RECOGNITION
Question 1
Assume US GAAP to answer this question. In 2017, $2 million in wages were
earned and no cash wages were paid. In 2018, $8 million in wages were earned
and $7 million in cash wages were paid. Cash wages were used to first pay wages
earned in 2017 with the remainder used to pay wages earned in 2018. Any earned
but unpaid wages will be paid during the first quarter of 2019. Using only the
information provided, which of the following statements is most accurate?
A) Liabilities increased by $1.0 million in 2018
B) Liabilities increased by $3.0 million in 2018
C) Assets decreased by $5.0 million in 2018
D) Retained earnings decreased by $10.0 million in 2018
E) Retained earnings decreased by $7.0 million in 2018
**Answer: A) Liabilities increased by $1.0 million in 2018***
***Rationale:** Since wages were earned in 2017 but not yet paid, the opening
balance sheet in 2018 would have an accrued wages liability of $2.0 million. These
were paid in 2018, reversing the liability. However, since there is only $5.0 million
in cash ($7.0 million paid in 2018 less the $2.0 million used to pay 2017 wages)
available to pay wages earned in 2018, that leaves $3.0 million in earned wages
unpaid, raising the accrued wages liability to $3.0 million. The net impact to the
liability is $1.0 million (-$2.0 + $3.0 million). The only asset impacted is cash, which
decreases by $7.0 million, while retained earnings decreases by $8.0 million, since
wages are expensed when they are earned, not when they are paid .
,Question 2
A company reported gross profit of $22 million in 2018. In addition, it recorded
the following activities:
• Sales and marketing expenses were $6 million.
• Interest expense was $1 million.
• Sold equipment for $13 million that had a net book value of $9 million.
• $3 million in preferred stock issuance.
• Company's tax rate is 40%.
Calculate the company's net income.
A) $9.0 million
B) $9.6 million
C) $11.4 million
D) $12.6 million
E) $15.0 million
**Answer: C) $11.4 million***
***Rationale:** Gross Profit $22M – S&M $6M = EBIT before gain. Equipment
gain = $13M – $9M = $4M (included in operating/other income). EBIT = $22M –
$6M + $4M = $20M. EBT = $20M – $1M interest = $19M. Net Income = $19M × (1
– 40%) = $11.4M. Preferred stock issuance is a financing activity, NOT an income
statement item — excluded .
Question 3
TGX Global sells excavators, with an average sale price of $750,000 per excavator.
TGX received new orders for 100 excavators in 2018. TGX produced & delivered
130 excavators in 2018: 70 of these delivered excavators were ordered in 2017
and the rest (60 excavators) were part of the 100 ordered in 2018. TGX received
payment for 120 excavators. Of those payments, 50 were for excavators delivered
, in 2017 (but not yet paid for), and 70 were for excavators delivered in 2018. Using
only the information provided, what is TGX Global's 2018 revenue?
A) $52.5 million
B) $75.0 million
C) $90.0 million
D) $97.5 million
E) $105.0 million
**Answer: D) $97.5 million***
***Rationale:** Revenue recognized = excavators delivered in 2018 = 130 ×
$750,000 = $97.5 million. Under accrual accounting and ASC 606, revenue is
recognized when the performance obligation is satisfied (delivery), not when
ordered or when cash is received .
Question 4
A company spent $5,000 on office supplies in December 2024 but won't pay the
invoice until January 2025. Under accrual accounting, when should the expense
be recorded?
A) December 2024
B) January 2025
C) Split equally between December and January
D) Only when cash is paid
Answer: A) December 2024
Rationale: Accrual accounting recognizes expenses when incurred, not when cash
is paid. The company has received the benefit of the supplies in December, so the
expense must be recorded in December regardless of when payment occurs .
Question 5
The Matching Principle requires that:
with 100% correct Answers
SECTION 1: ACCRUAL ACCOUNTING & REVENUE RECOGNITION
Question 1
Assume US GAAP to answer this question. In 2017, $2 million in wages were
earned and no cash wages were paid. In 2018, $8 million in wages were earned
and $7 million in cash wages were paid. Cash wages were used to first pay wages
earned in 2017 with the remainder used to pay wages earned in 2018. Any earned
but unpaid wages will be paid during the first quarter of 2019. Using only the
information provided, which of the following statements is most accurate?
A) Liabilities increased by $1.0 million in 2018
B) Liabilities increased by $3.0 million in 2018
C) Assets decreased by $5.0 million in 2018
D) Retained earnings decreased by $10.0 million in 2018
E) Retained earnings decreased by $7.0 million in 2018
**Answer: A) Liabilities increased by $1.0 million in 2018***
***Rationale:** Since wages were earned in 2017 but not yet paid, the opening
balance sheet in 2018 would have an accrued wages liability of $2.0 million. These
were paid in 2018, reversing the liability. However, since there is only $5.0 million
in cash ($7.0 million paid in 2018 less the $2.0 million used to pay 2017 wages)
available to pay wages earned in 2018, that leaves $3.0 million in earned wages
unpaid, raising the accrued wages liability to $3.0 million. The net impact to the
liability is $1.0 million (-$2.0 + $3.0 million). The only asset impacted is cash, which
decreases by $7.0 million, while retained earnings decreases by $8.0 million, since
wages are expensed when they are earned, not when they are paid .
,Question 2
A company reported gross profit of $22 million in 2018. In addition, it recorded
the following activities:
• Sales and marketing expenses were $6 million.
• Interest expense was $1 million.
• Sold equipment for $13 million that had a net book value of $9 million.
• $3 million in preferred stock issuance.
• Company's tax rate is 40%.
Calculate the company's net income.
A) $9.0 million
B) $9.6 million
C) $11.4 million
D) $12.6 million
E) $15.0 million
**Answer: C) $11.4 million***
***Rationale:** Gross Profit $22M – S&M $6M = EBIT before gain. Equipment
gain = $13M – $9M = $4M (included in operating/other income). EBIT = $22M –
$6M + $4M = $20M. EBT = $20M – $1M interest = $19M. Net Income = $19M × (1
– 40%) = $11.4M. Preferred stock issuance is a financing activity, NOT an income
statement item — excluded .
Question 3
TGX Global sells excavators, with an average sale price of $750,000 per excavator.
TGX received new orders for 100 excavators in 2018. TGX produced & delivered
130 excavators in 2018: 70 of these delivered excavators were ordered in 2017
and the rest (60 excavators) were part of the 100 ordered in 2018. TGX received
payment for 120 excavators. Of those payments, 50 were for excavators delivered
, in 2017 (but not yet paid for), and 70 were for excavators delivered in 2018. Using
only the information provided, what is TGX Global's 2018 revenue?
A) $52.5 million
B) $75.0 million
C) $90.0 million
D) $97.5 million
E) $105.0 million
**Answer: D) $97.5 million***
***Rationale:** Revenue recognized = excavators delivered in 2018 = 130 ×
$750,000 = $97.5 million. Under accrual accounting and ASC 606, revenue is
recognized when the performance obligation is satisfied (delivery), not when
ordered or when cash is received .
Question 4
A company spent $5,000 on office supplies in December 2024 but won't pay the
invoice until January 2025. Under accrual accounting, when should the expense
be recorded?
A) December 2024
B) January 2025
C) Split equally between December and January
D) Only when cash is paid
Answer: A) December 2024
Rationale: Accrual accounting recognizes expenses when incurred, not when cash
is paid. The company has received the benefit of the supplies in December, so the
expense must be recorded in December regardless of when payment occurs .
Question 5
The Matching Principle requires that:
