New Jersey Chartered Financial Analyst
Examination Questions And Correct
Answers (Verified Answers) Plus
Rationales 2026 Q&A | Instant Download
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1. Which financial statement primarily reports a company's revenues and
expenses over a specified period?
A. Balance sheet
B. Statement of cash flows
C. Income statement
D. Statement of shareholders' equity
Answer: C. Income statement
Rationale: The income statement summarizes revenues, expenses, gains, and losses
for a particular reporting period and ultimately determines net income. The balance
sheet reports assets, liabilities, and equity at a point in time, while the cash flow
statement explains changes in cash.
2. Which accounting principle requires expenses to be recognized in the same
period as the revenues they help generate?
A. Conservatism principle
B. Going-concern principle
C. Historical-cost principle
D. Matching principle
Answer: D. Matching principle
,Rationale: The matching principle associates expenses with the revenues generated
by those expenses during the same reporting period. This improves the usefulness
of reported profitability by preventing costs from being recognized substantially
before or after the related revenue.
3. A company purchases equipment for $500,000 and records annual
depreciation of $50,000. What is the equipment's carrying amount after
three years, assuming straight-line depreciation and no residual value?
A. $300,000
B. $350,000
C. $350,000
D. $450,000
Answer: C. $350,000
Rationale: Annual depreciation is $50,000. After three years, accumulated
depreciation is $150,000. The carrying amount is therefore $500,000 − $150,000 =
$350,000. Depreciation reduces the carrying value of the asset without directly
representing a cash outflow in the period recorded.
4. Which ratio is most directly used to assess a company's ability to meet short-
term obligations using current assets?
A. Debt-to-equity ratio
B. Gross margin
C. Current ratio
D. Return on equity
Answer: C. Current ratio
Rationale: The current ratio is calculated as current assets divided by current
liabilities. It measures short-term liquidity. A higher ratio generally indicates greater
coverage of short-term obligations, although excessively high liquidity may also
suggest inefficient use of assets.
5. If a company's current assets are $900,000 and current liabilities are
$600,000, what is its current ratio?
,A. 0.67
B. 1.0
C. 1.50
D. 2.50
Answer: C. 1.50
Rationale: Current ratio = current assets ÷ current liabilities. Thus, $900,000 ÷
$600,000 = 1.50. This means the company has $1.50 of current assets for every
$1.00 of current liabilities.
6. Which financial statement provides information about operating, investing,
and financing cash flows?
A. Income statement
B. Balance sheet
C. Statement of cash flows
D. Statement of retained earnings
Answer: C. Statement of cash flows
Rationale: The statement of cash flows classifies cash movements into operating,
investing, and financing activities. It helps analysts understand how a company
generates and uses cash and is especially useful when assessing the quality and
sustainability of reported earnings.
7. Under the indirect method of preparing operating cash flows, depreciation
expense is generally:
A. Deducted from net income
B. Classified as a financing cash flow
C. Classified as an investing cash flow
D. Added back to net income
Answer: D. Added back to net income
, Rationale: Depreciation reduces accounting income but does not require a current-
period cash payment. Under the indirect method, it is therefore added back to net
income to reconcile accounting profit to operating cash flow.
8. Which measure best represents the profitability generated from
shareholders' invested capital?
A. Current ratio
B. Asset turnover
C. Return on equity
D. Inventory turnover
Answer: C. Return on equity
Rationale: Return on equity, or ROE, measures net income relative to average
shareholders' equity. It indicates how effectively management uses shareholders'
capital to generate profits and can be decomposed using the DuPont framework.
9. A company has net income of $120,000 and average shareholders' equity of
$800,000. What is its ROE?
A. 10%
B. 12%
C. 15%
D. 20%
Answer: C. 15%
Rationale: ROE = net income ÷ average shareholders' equity. Therefore, $120,000 ÷
$800,000 = 0.15, or 15%. ROE should generally be evaluated against historical
performance, competitors, and the company's financial leverage.
10.Which inventory valuation method generally assigns the oldest inventory
costs to cost of goods sold?
A. LIFO
B. Weighted average
Examination Questions And Correct
Answers (Verified Answers) Plus
Rationales 2026 Q&A | Instant Download
1. Which financial statement primarily reports a company's revenues and
expenses over a specified period?
A. Balance sheet
B. Statement of cash flows
C. Income statement
D. Statement of shareholders' equity
Answer: C. Income statement
Rationale: The income statement summarizes revenues, expenses, gains, and losses
for a particular reporting period and ultimately determines net income. The balance
sheet reports assets, liabilities, and equity at a point in time, while the cash flow
statement explains changes in cash.
2. Which accounting principle requires expenses to be recognized in the same
period as the revenues they help generate?
A. Conservatism principle
B. Going-concern principle
C. Historical-cost principle
D. Matching principle
Answer: D. Matching principle
,Rationale: The matching principle associates expenses with the revenues generated
by those expenses during the same reporting period. This improves the usefulness
of reported profitability by preventing costs from being recognized substantially
before or after the related revenue.
3. A company purchases equipment for $500,000 and records annual
depreciation of $50,000. What is the equipment's carrying amount after
three years, assuming straight-line depreciation and no residual value?
A. $300,000
B. $350,000
C. $350,000
D. $450,000
Answer: C. $350,000
Rationale: Annual depreciation is $50,000. After three years, accumulated
depreciation is $150,000. The carrying amount is therefore $500,000 − $150,000 =
$350,000. Depreciation reduces the carrying value of the asset without directly
representing a cash outflow in the period recorded.
4. Which ratio is most directly used to assess a company's ability to meet short-
term obligations using current assets?
A. Debt-to-equity ratio
B. Gross margin
C. Current ratio
D. Return on equity
Answer: C. Current ratio
Rationale: The current ratio is calculated as current assets divided by current
liabilities. It measures short-term liquidity. A higher ratio generally indicates greater
coverage of short-term obligations, although excessively high liquidity may also
suggest inefficient use of assets.
5. If a company's current assets are $900,000 and current liabilities are
$600,000, what is its current ratio?
,A. 0.67
B. 1.0
C. 1.50
D. 2.50
Answer: C. 1.50
Rationale: Current ratio = current assets ÷ current liabilities. Thus, $900,000 ÷
$600,000 = 1.50. This means the company has $1.50 of current assets for every
$1.00 of current liabilities.
6. Which financial statement provides information about operating, investing,
and financing cash flows?
A. Income statement
B. Balance sheet
C. Statement of cash flows
D. Statement of retained earnings
Answer: C. Statement of cash flows
Rationale: The statement of cash flows classifies cash movements into operating,
investing, and financing activities. It helps analysts understand how a company
generates and uses cash and is especially useful when assessing the quality and
sustainability of reported earnings.
7. Under the indirect method of preparing operating cash flows, depreciation
expense is generally:
A. Deducted from net income
B. Classified as a financing cash flow
C. Classified as an investing cash flow
D. Added back to net income
Answer: D. Added back to net income
, Rationale: Depreciation reduces accounting income but does not require a current-
period cash payment. Under the indirect method, it is therefore added back to net
income to reconcile accounting profit to operating cash flow.
8. Which measure best represents the profitability generated from
shareholders' invested capital?
A. Current ratio
B. Asset turnover
C. Return on equity
D. Inventory turnover
Answer: C. Return on equity
Rationale: Return on equity, or ROE, measures net income relative to average
shareholders' equity. It indicates how effectively management uses shareholders'
capital to generate profits and can be decomposed using the DuPont framework.
9. A company has net income of $120,000 and average shareholders' equity of
$800,000. What is its ROE?
A. 10%
B. 12%
C. 15%
D. 20%
Answer: C. 15%
Rationale: ROE = net income ÷ average shareholders' equity. Therefore, $120,000 ÷
$800,000 = 0.15, or 15%. ROE should generally be evaluated against historical
performance, competitors, and the company's financial leverage.
10.Which inventory valuation method generally assigns the oldest inventory
costs to cost of goods sold?
A. LIFO
B. Weighted average
