MGT 8803 EXAM 1 EXAM SCRIPT TEST
BANK EXAM Q&A 2026 VIEW AHEAD
EXAM.
⫸ Cost Principle. Answer: Requires a company's balance sheet to
report its land at the amount the company paid to acquire the land,
even if the land could be sold today at a much higher amount
⫸ Conservatism. Answer: Accountants might recognize losses but not
gains in certain situations. For example the company might write
down the cost of inventory but will not write up the cost of inventory
⫸ Matching Principle. Answer: The matching principle is a
fundamental concept in accrual accounting that requires expenses to
be recorded in the same accounting period as the revenues they help
generate, regardless of when cash is paid.
Example: A corporation pays its annual property tax bill of
approximately $12,000 in one payment on December 28th. During the
year, the corporation's monthly income statements report property tax
expense of $1,000 /monthly
⫸ Revenue Recognition. Answer: The revenue recognition principle
states that revenue should be recorded in the accounting period when
it is earned and realizable, regardless of when cash is received.
,Example:
Near the end of the current year, a company required a customer to
pay $200,000 as a deposit for work that is to begin in t he following
year. At the end of the current year the company reported the
$200,000 as a liability on its balance sheet.
⫸ Marketable Securities. Answer: a type of highly liquid investment
that a company holds that is an asset on the balance sheet that is
shown at current market value
⫸ Assets that are NOT depreciated. Answer: Land
Goodwill
Accounts Receivable
Marketable Securities
⫸ FIFO as compared to LIFO produces.... Answer: A lower cost of
goods sold
⫸ Non-Capitalized Assets. Answer: Any non-software research and
development costs
⫸ Inventory Cost Flow Assumptions. Answer: A company may use
more than one costing method concurrently for financial reporting
purposes
,⫸ Contra Accounts.... Answer: Appear on both the balance sheet and
the income statement
Examples:
• Allowance for Uncollectible Accounts: This is a contra account that
reduces the amount of net accounts receivable. When a company sells
on credit, it estimates how much money it will not collect from
customers due to bad debts (uncollectible accounts receivable) and
sales returns13. This estimated amount is recorded in the allowance
for uncollectible accounts, which is then subtracted from the gross
accounts receivable to arrive at the net realizable value on the balance
sheet1. The purpose of this method is to match the bad debt expense
with the related revenues in the same period14.
• Treasury Stock: This is a contra equity account25. It represents the
reacquisition of a firm's own shares from shareholders. While
common stock and preferred stock represent money contributed by
owners, treasury stock signifies money that the company has given
back to shareholders by buying back its own shares2. Therefore, it has
the opposite effect of common and preferred stock on the equity
section of the balance sheet2.
In summary, contra accounts are used to provide a more accurate
representation of the net value of an asset or equity by reflecting
reductions or offsets to their gross amount
⫸ Capital Expenditures. Answer: Are treated as assets on the balance
sheet
⫸ Goodwill. Answer: Is an intangible asset that is tested annually for
impairment
, ⫸ Dividends in Arrears. Answer: Must be disclosed in the notes to
the financial statements
⫸ How does the purchase of treasury stock affect asset and equity
accounts? Assume the purchase is made with cash.. Answer: Assets
decrease and Equity Increases
⫸ The declaration of a stock dividend.... Answer: Effects retained
earnings
⫸ Working Capital Formula. Answer: Working Capital = Current
Assets - Current Liabilities
⫸ What makes information Useful for Financial Statements. Answer:
Relevance--capable of making a difference to a decision maker
Faithful representation--dependable and reliable
⫸ Decision Makers. Answer: Shareholders(owners)
Debt Holders
Managers
Investment Analysts and Information Intermediaries
Customers and strategic Partners
⫸ Required Financial Statements. Answer: Balance Sheet
BANK EXAM Q&A 2026 VIEW AHEAD
EXAM.
⫸ Cost Principle. Answer: Requires a company's balance sheet to
report its land at the amount the company paid to acquire the land,
even if the land could be sold today at a much higher amount
⫸ Conservatism. Answer: Accountants might recognize losses but not
gains in certain situations. For example the company might write
down the cost of inventory but will not write up the cost of inventory
⫸ Matching Principle. Answer: The matching principle is a
fundamental concept in accrual accounting that requires expenses to
be recorded in the same accounting period as the revenues they help
generate, regardless of when cash is paid.
Example: A corporation pays its annual property tax bill of
approximately $12,000 in one payment on December 28th. During the
year, the corporation's monthly income statements report property tax
expense of $1,000 /monthly
⫸ Revenue Recognition. Answer: The revenue recognition principle
states that revenue should be recorded in the accounting period when
it is earned and realizable, regardless of when cash is received.
,Example:
Near the end of the current year, a company required a customer to
pay $200,000 as a deposit for work that is to begin in t he following
year. At the end of the current year the company reported the
$200,000 as a liability on its balance sheet.
⫸ Marketable Securities. Answer: a type of highly liquid investment
that a company holds that is an asset on the balance sheet that is
shown at current market value
⫸ Assets that are NOT depreciated. Answer: Land
Goodwill
Accounts Receivable
Marketable Securities
⫸ FIFO as compared to LIFO produces.... Answer: A lower cost of
goods sold
⫸ Non-Capitalized Assets. Answer: Any non-software research and
development costs
⫸ Inventory Cost Flow Assumptions. Answer: A company may use
more than one costing method concurrently for financial reporting
purposes
,⫸ Contra Accounts.... Answer: Appear on both the balance sheet and
the income statement
Examples:
• Allowance for Uncollectible Accounts: This is a contra account that
reduces the amount of net accounts receivable. When a company sells
on credit, it estimates how much money it will not collect from
customers due to bad debts (uncollectible accounts receivable) and
sales returns13. This estimated amount is recorded in the allowance
for uncollectible accounts, which is then subtracted from the gross
accounts receivable to arrive at the net realizable value on the balance
sheet1. The purpose of this method is to match the bad debt expense
with the related revenues in the same period14.
• Treasury Stock: This is a contra equity account25. It represents the
reacquisition of a firm's own shares from shareholders. While
common stock and preferred stock represent money contributed by
owners, treasury stock signifies money that the company has given
back to shareholders by buying back its own shares2. Therefore, it has
the opposite effect of common and preferred stock on the equity
section of the balance sheet2.
In summary, contra accounts are used to provide a more accurate
representation of the net value of an asset or equity by reflecting
reductions or offsets to their gross amount
⫸ Capital Expenditures. Answer: Are treated as assets on the balance
sheet
⫸ Goodwill. Answer: Is an intangible asset that is tested annually for
impairment
, ⫸ Dividends in Arrears. Answer: Must be disclosed in the notes to
the financial statements
⫸ How does the purchase of treasury stock affect asset and equity
accounts? Assume the purchase is made with cash.. Answer: Assets
decrease and Equity Increases
⫸ The declaration of a stock dividend.... Answer: Effects retained
earnings
⫸ Working Capital Formula. Answer: Working Capital = Current
Assets - Current Liabilities
⫸ What makes information Useful for Financial Statements. Answer:
Relevance--capable of making a difference to a decision maker
Faithful representation--dependable and reliable
⫸ Decision Makers. Answer: Shareholders(owners)
Debt Holders
Managers
Investment Analysts and Information Intermediaries
Customers and strategic Partners
⫸ Required Financial Statements. Answer: Balance Sheet
