ACC 501 Exam Practice 3 Questions with Complete
Solutions
What is the purpose of financial statement analysis?
To assess the financial health and performance of a company.
What are the three types of financial statement analysis?
Horizontal Analysis, Vertical Analysis, and Ratio Analysis.
What is the treatment of intangible assets with indefinite useful lives?
They are not amortized but are tested for impairment annually.
What is the formula for calculating net income from the sale of a natural resource?
Net Income = Revenue from Sale - Operating Expenses - Depletion Expense.
What is the effect of a loss on the sale of an asset?
It reduces the company's net income.
What is the treatment of cash proceeds from the sale of a long-term asset?
They are recorded as cash received in the transaction.
Accounting
An information system that reports on the economic activities and financial condition of a
business or other organization.
Stakeholder
Users of accounting information.
, Generally Accepted Accounting Principles (GAAP)
Established by the Financial Accounting Standards Board (FASB).
Accounting Equation
Assets = Liabilities + Equity; must always be balanced after any accounting transaction.
Double-Entry Bookkeeping
All transactions affect the accounting equation in a minimum of two places.
Equity
Common Stock + Retained Earnings (RE).
Dividend
Distribution of assets generated through earnings to shareholders.
Net Income
Revenue - Expenses.
Revenue
The economic benefit a company derives from providing goods and/or services to its customers.
Expense
An economic sacrifice a business incurs in the process of generating revenue.
Liquidity
Measures how fast an asset can be converted to cash.
Solutions
What is the purpose of financial statement analysis?
To assess the financial health and performance of a company.
What are the three types of financial statement analysis?
Horizontal Analysis, Vertical Analysis, and Ratio Analysis.
What is the treatment of intangible assets with indefinite useful lives?
They are not amortized but are tested for impairment annually.
What is the formula for calculating net income from the sale of a natural resource?
Net Income = Revenue from Sale - Operating Expenses - Depletion Expense.
What is the effect of a loss on the sale of an asset?
It reduces the company's net income.
What is the treatment of cash proceeds from the sale of a long-term asset?
They are recorded as cash received in the transaction.
Accounting
An information system that reports on the economic activities and financial condition of a
business or other organization.
Stakeholder
Users of accounting information.
, Generally Accepted Accounting Principles (GAAP)
Established by the Financial Accounting Standards Board (FASB).
Accounting Equation
Assets = Liabilities + Equity; must always be balanced after any accounting transaction.
Double-Entry Bookkeeping
All transactions affect the accounting equation in a minimum of two places.
Equity
Common Stock + Retained Earnings (RE).
Dividend
Distribution of assets generated through earnings to shareholders.
Net Income
Revenue - Expenses.
Revenue
The economic benefit a company derives from providing goods and/or services to its customers.
Expense
An economic sacrifice a business incurs in the process of generating revenue.
Liquidity
Measures how fast an asset can be converted to cash.
