MGT 8803 Full Exam Package – Georgia
Tech – 2025/2026 Edition – Exams 1–5 –
Questions and Answers
Section 1: Financial Accounting (Exam 1) (Q1–Q30)
1. What is the primary purpose of financial accounting?
A. To assist management in decision-making
B. To provide financial information to external stakeholders
C. To analyze operational efficiency
D. To prepare budgets for the organization
Answer: B
Rationale: Financial accounting is designed to provide financial information to
external stakeholders such as investors, creditors, and regulators. Managerial
accounting serves internal decision-making.
2. Which of the following is NOT one of the four primary financial statements?
A. Balance Sheet
B. Income Statement
C. Statement of Cash Flows
D. Statement of Budgeted Earnings
Answer: D
Rationale: The four primary financial statements are the Balance Sheet, Income
Statement, Statement of Cash Flows, and Statement of Stockholders' Equity. A
budgeted earnings statement is a managerial tool, not a required financial
statement.
3. A company has total assets of $850,000 and total liabilities of $320,000. What
is total stockholders' equity?
A. $530,000
B. $1,170,000
C. $320,000
D. $850,000
,Answer: A
Rationale: Using the accounting equation: Assets = Liabilities + Equity. Equity =
$850,000 − $320,000 = $530,000.
4. Which financial statement is prepared first in the accounting cycle?
A. Balance Sheet
B. Income Statement
C. Statement of Cash Flows
D. Statement of Stockholders' Equity
Answer: B
Rationale: The Income Statement is prepared first because net income flows into
the Statement of Stockholders' Equity and the Balance Sheet.
5. What is the purpose of the Balance Sheet?
A. To show revenues and expenses over a period
B. To provide a snapshot of assets, liabilities, and equity at a point in time
C. To show cash inflows and outflows
D. To detail changes in retained earnings
Answer: B
Rationale: The Balance Sheet provides a snapshot of a company's financial
position at a specific point in time, showing what it owns (assets) and owes
(liabilities), and the residual equity.
6. Which of the following is a contra account?
A. Accounts Payable
B. Accumulated Depreciation
C. Cash
D. Retained Earnings
Answer: B
Rationale: Accumulated Depreciation is a contra-asset account that reduces the
book value of the related asset on the Balance Sheet.
7. What does the matching principle require?
A. Expenses are recorded when cash is paid
B. Expenses are matched with the revenues they help generate
,C. Revenue is recorded when cash is received
D. Assets are matched with liabilities
Answer: B
Rationale: The matching principle requires that expenses be recognized in the
same period as the revenues they help generate, regardless of when cash is paid.
8. A company receives $12,000 cash for services to be performed next month.
Under accrual accounting, this is recorded as:
A. Revenue
B. Unearned Revenue
C. Accounts Receivable
D. Prepaid Expense
Answer: B
Rationale: Cash received before services are performed creates a liability
(unearned revenue), not revenue, because the obligation to perform remains.
9. What is the purpose of depreciation?
A. To increase the value of an asset
B. To allocate the cost of a tangible asset over its useful life
C. To record the market value of an asset
D. To reduce liabilities
Answer: B
Rationale: Depreciation systematically allocates the cost of a tangible asset over
its estimated useful life to match the expense with the revenue it helps generate.
10. Which of the following is a current asset?
A. Equipment
B. Inventory
C. Land
D. Bonds Payable
Answer: B
Rationale: Inventory is expected to be converted to cash within one year, making
it a current asset. Equipment and land are long-term assets.
, 11. A corporation has total assets of $500,000 and total equity of $200,000.
What are total liabilities?
A. $700,000
B. $300,000
C. $200,000
D. $500,000
Answer: B
Rationale: Liabilities = Assets − Equity = $500,000 − $200,000 = $300,000.
12. What is the accounting equation?
A. Assets = Liabilities + Equity
B. Revenue = Expenses + Net Income
C. Cash = Debt + Equity
D. EBIT = Revenue − COGS
Answer: A
Rationale: The fundamental accounting equation is Assets = Liabilities + Equity. It
must always balance.
13. Which statement reports a company's revenues and expenses over a period
of time?
A. Balance Sheet
B. Income Statement
C. Statement of Cash Flows
D. Statement of Retained Earnings
Answer: B
Rationale: The Income Statement reports revenues and expenses over a period,
resulting in net income or net loss.
14. What are dividends?
A. A distribution of earnings to shareholders
B. An expense on the Income Statement
C. A liability on the Balance Sheet
D. A type of revenue
Tech – 2025/2026 Edition – Exams 1–5 –
Questions and Answers
Section 1: Financial Accounting (Exam 1) (Q1–Q30)
1. What is the primary purpose of financial accounting?
A. To assist management in decision-making
B. To provide financial information to external stakeholders
C. To analyze operational efficiency
D. To prepare budgets for the organization
Answer: B
Rationale: Financial accounting is designed to provide financial information to
external stakeholders such as investors, creditors, and regulators. Managerial
accounting serves internal decision-making.
2. Which of the following is NOT one of the four primary financial statements?
A. Balance Sheet
B. Income Statement
C. Statement of Cash Flows
D. Statement of Budgeted Earnings
Answer: D
Rationale: The four primary financial statements are the Balance Sheet, Income
Statement, Statement of Cash Flows, and Statement of Stockholders' Equity. A
budgeted earnings statement is a managerial tool, not a required financial
statement.
3. A company has total assets of $850,000 and total liabilities of $320,000. What
is total stockholders' equity?
A. $530,000
B. $1,170,000
C. $320,000
D. $850,000
,Answer: A
Rationale: Using the accounting equation: Assets = Liabilities + Equity. Equity =
$850,000 − $320,000 = $530,000.
4. Which financial statement is prepared first in the accounting cycle?
A. Balance Sheet
B. Income Statement
C. Statement of Cash Flows
D. Statement of Stockholders' Equity
Answer: B
Rationale: The Income Statement is prepared first because net income flows into
the Statement of Stockholders' Equity and the Balance Sheet.
5. What is the purpose of the Balance Sheet?
A. To show revenues and expenses over a period
B. To provide a snapshot of assets, liabilities, and equity at a point in time
C. To show cash inflows and outflows
D. To detail changes in retained earnings
Answer: B
Rationale: The Balance Sheet provides a snapshot of a company's financial
position at a specific point in time, showing what it owns (assets) and owes
(liabilities), and the residual equity.
6. Which of the following is a contra account?
A. Accounts Payable
B. Accumulated Depreciation
C. Cash
D. Retained Earnings
Answer: B
Rationale: Accumulated Depreciation is a contra-asset account that reduces the
book value of the related asset on the Balance Sheet.
7. What does the matching principle require?
A. Expenses are recorded when cash is paid
B. Expenses are matched with the revenues they help generate
,C. Revenue is recorded when cash is received
D. Assets are matched with liabilities
Answer: B
Rationale: The matching principle requires that expenses be recognized in the
same period as the revenues they help generate, regardless of when cash is paid.
8. A company receives $12,000 cash for services to be performed next month.
Under accrual accounting, this is recorded as:
A. Revenue
B. Unearned Revenue
C. Accounts Receivable
D. Prepaid Expense
Answer: B
Rationale: Cash received before services are performed creates a liability
(unearned revenue), not revenue, because the obligation to perform remains.
9. What is the purpose of depreciation?
A. To increase the value of an asset
B. To allocate the cost of a tangible asset over its useful life
C. To record the market value of an asset
D. To reduce liabilities
Answer: B
Rationale: Depreciation systematically allocates the cost of a tangible asset over
its estimated useful life to match the expense with the revenue it helps generate.
10. Which of the following is a current asset?
A. Equipment
B. Inventory
C. Land
D. Bonds Payable
Answer: B
Rationale: Inventory is expected to be converted to cash within one year, making
it a current asset. Equipment and land are long-term assets.
, 11. A corporation has total assets of $500,000 and total equity of $200,000.
What are total liabilities?
A. $700,000
B. $300,000
C. $200,000
D. $500,000
Answer: B
Rationale: Liabilities = Assets − Equity = $500,000 − $200,000 = $300,000.
12. What is the accounting equation?
A. Assets = Liabilities + Equity
B. Revenue = Expenses + Net Income
C. Cash = Debt + Equity
D. EBIT = Revenue − COGS
Answer: A
Rationale: The fundamental accounting equation is Assets = Liabilities + Equity. It
must always balance.
13. Which statement reports a company's revenues and expenses over a period
of time?
A. Balance Sheet
B. Income Statement
C. Statement of Cash Flows
D. Statement of Retained Earnings
Answer: B
Rationale: The Income Statement reports revenues and expenses over a period,
resulting in net income or net loss.
14. What are dividends?
A. A distribution of earnings to shareholders
B. An expense on the Income Statement
C. A liability on the Balance Sheet
D. A type of revenue
