ACC 406 FINANCIAL ACCOUNTING -
ADVANCED COMPREHENSIVE TEST 1 |
QUESTIONS AND ANSWERS |2026/2027
UPDATE | JUST RELEASED
1. Which of the following qualitative characteristics of financial information is considered a
fundamental characteristic rather than an enhancing one under the IFRS Conceptual
Framework?
A. Faithful Representation
B. Timeliness
C. Comparability
D. Verifiability
Answer: A
Conceptual Explanation: Fundamental qualitative characteristics are Relevance and
Faithful Representation. Comparability, Timeliness, and Verifiability are enhancing
characteristics.
,2. A company mistakenly recorded a $5,000 payment for an insurance policy as a debit to
Insurance Expense instead of Prepaid Insurance. At the end of the fiscal year, no adjusting
entry was made. What is the impact on the financial statements?
A. Assets are understated; Net Income is understated
B. Assets are overstated; Net Income is understated
C. Liabilities are overstated; Net Income is understated
D. Assets are understated; Net Income is overstated
Answer: A
Conceptual Explanation: Expensing the entire amount immediately understates assets
(Prepaid Insurance) and overstates expenses, which leads to an understatement of Net
Income.
3. During the year, Alpha Corp. had total assets increase by $60,000 and total liabilities
decrease by $20,000. If the company issued $15,000 of new shares and paid $5,000 in
dividends, what was the Net Income for the year?
A. $65,000
B. $80,000
C. $70,000
D. $75,000
Answer: C
, Conceptual Explanation: Change in Equity = Assets Increase - Liabilities Decrease =
60,000 - (-20,000) = 80,000. Equity = Common Shares + Retained Earnings (Net Income -
Dividends). 80,000 = 15,000 + (Net Income - 5,000). Net Income = 70,000.
4. Under the accrual basis of accounting, when should revenue be recognized?
A. When the performance obligation is satisfied
B. When cash is received from the customer
C. When the invoice is issued to the customer
D. At the end of the accounting period
Answer: A
Conceptual Explanation: The revenue recognition principle dictates that revenue is
recognized in the period in which the performance obligation is satisfied, regardless of cash
timing.
5. Which of the following accounts would not appear on a post-closing trial balance?
A. Accumulated Depreciation
B. Dividends
C. Unearned Revenue
D. Retained Earnings
Answer: B
ADVANCED COMPREHENSIVE TEST 1 |
QUESTIONS AND ANSWERS |2026/2027
UPDATE | JUST RELEASED
1. Which of the following qualitative characteristics of financial information is considered a
fundamental characteristic rather than an enhancing one under the IFRS Conceptual
Framework?
A. Faithful Representation
B. Timeliness
C. Comparability
D. Verifiability
Answer: A
Conceptual Explanation: Fundamental qualitative characteristics are Relevance and
Faithful Representation. Comparability, Timeliness, and Verifiability are enhancing
characteristics.
,2. A company mistakenly recorded a $5,000 payment for an insurance policy as a debit to
Insurance Expense instead of Prepaid Insurance. At the end of the fiscal year, no adjusting
entry was made. What is the impact on the financial statements?
A. Assets are understated; Net Income is understated
B. Assets are overstated; Net Income is understated
C. Liabilities are overstated; Net Income is understated
D. Assets are understated; Net Income is overstated
Answer: A
Conceptual Explanation: Expensing the entire amount immediately understates assets
(Prepaid Insurance) and overstates expenses, which leads to an understatement of Net
Income.
3. During the year, Alpha Corp. had total assets increase by $60,000 and total liabilities
decrease by $20,000. If the company issued $15,000 of new shares and paid $5,000 in
dividends, what was the Net Income for the year?
A. $65,000
B. $80,000
C. $70,000
D. $75,000
Answer: C
, Conceptual Explanation: Change in Equity = Assets Increase - Liabilities Decrease =
60,000 - (-20,000) = 80,000. Equity = Common Shares + Retained Earnings (Net Income -
Dividends). 80,000 = 15,000 + (Net Income - 5,000). Net Income = 70,000.
4. Under the accrual basis of accounting, when should revenue be recognized?
A. When the performance obligation is satisfied
B. When cash is received from the customer
C. When the invoice is issued to the customer
D. At the end of the accounting period
Answer: A
Conceptual Explanation: The revenue recognition principle dictates that revenue is
recognized in the period in which the performance obligation is satisfied, regardless of cash
timing.
5. Which of the following accounts would not appear on a post-closing trial balance?
A. Accumulated Depreciation
B. Dividends
C. Unearned Revenue
D. Retained Earnings
Answer: B
