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A100 Final Exam Indiana University With Complete
250 Questions And Answers Latest Update
2025/2026
1. Which of the following is primarily responsible for the information provided in the financial
statements?
A. Board of Directors
B. Internal Accounting Staff
C. Company Top Management
D. External Auditors
Answer: C. Company Top Management
Rationale: Management is ultimately responsible for the preparation and integrity of financial
statements. While the accounting staff prepares them and auditors review them, management has the
final responsibility for the information presented.
2. Which of the following describes the primary objective of financial accounting?
A. To provide information about a business' future business strategies.
B. To provide useful financial information only to stockholders.
C. To provide useful financial information about a business to help external parties make informed
decisions.
D. To provide useful financial information about a business to help internal parties make informed
decisions.
Answer: C. To provide useful financial information about a business to help external parties make
informed decisions.
Rationale: Financial accounting focuses on providing information to external users such as investors,
creditors, and regulators. Managerial accounting serves internal users.
3. Financial accounting standards are known collectively as GAAP. What does that acronym stand for?
A. Generally Authorized Auditing Principles
B. Generally Applied Accounting Procedures
C. Governmentally Approved Accounting Practices
D. Generally Accepted Accounting Principles
Answer: D. Generally Accepted Accounting Principles
Rationale: GAAP is the set of accounting standards and principles used in the United States to ensure
consistency and comparability in financial reporting.
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4. For accounting information to be useful, it must be which of the following?
A. It must be comparable and reliable.
B. It must be consistent and comparable.
C. It must be a faithful representation and relevant.
D. It must be relevant and consistent.
Answer: C. It must be a faithful representation and relevant.
Rationale: The two fundamental qualitative characteristics of useful financial information are relevance
(capable of making a difference in decisions) and faithful representation (complete, neutral, and free
from error).
5. Which of the following best describes the purpose of an audit?
A. To audit every transaction that an entity entered into.
B. To establish that a corporation's stock is a sound investment.
C. To prove the accuracy of an entity's financial statements.
D. To lend credibility to an entity's financial statements.
Answer: D. To lend credibility to an entity's financial statements.
Rationale: An audit provides reasonable assurance that financial statements are free from material
misstatement. Auditors do not examine every transaction or guarantee accuracy; they enhance the
credibility of the financial statements for external users.
6. Which of the following is NOT an external user of financial accounting information?
A. General public
B. Banks
C. Factory line manager
D. Investors
Answer: C. Factory line manager
Rationale: A factory line manager is an internal user who needs managerial accounting information.
External users include investors, creditors, regulators, and the general public.
7. Which of the following statements accurately describes equity investors and debt investors in a
business?
A. Equity investors and debt investors both contribute to the business as owners and benefit from
retained earnings.
B. Equity investors and debt investors are only concerned with the business's profitability.
C. Equity investors are creditors who provide loans to the business, while debt investors contribute as
owners.
D. Equity investors contribute to the business as owners and benefit from retained earnings, while debt
investors are creditors who expect both principal and interest payments.
Answer: D. Equity investors contribute to the business as owners and benefit from retained earnings,
while debt investors are creditors who expect both principal and interest payments.
Rationale: Equity investors (stockholders) have an ownership interest and benefit from dividends and
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retained earnings. Debt investors (bondholders, lenders) are creditors who have a contractual right to
interest and principal repayment.
8. Which of the following statements accurately represents a key legal right of debt investors?
A. Debt investors have no legal recourse to "call" the loan and demand payment in case of missed
payments.
B. Debt investors can only recover their funds by liquidating assets if the company files for bankruptcy.
C. Debt investors have the legal right to demand both interest and principal payments, and they can
"call" the loan if the company fails to make payments on time.
D. Debt investors can only demand payment of principal, not interest, if the company fails to make
timely payments.
Answer: C. Debt investors have the legal right to demand both interest and principal payments, and
they can "call" the loan if the company fails to make payments on time.
Rationale: Debt contracts give creditors the legal right to receive interest and principal payments
according to the agreed-upon schedule. Failure to pay may trigger default provisions, including the right
to demand immediate repayment.
9. Which organization is responsible for establishing and maintaining the Generally Accepted
Accounting Principles (GAAP) for companies in the United States?
A. The Securities and Exchange Commission (SEC).
B. The International Financial Reporting Standards (IFRS).
C. The Financial Accounting Standards Board (FASB).
D. The Internal Revenue Service (IRS).
Answer: C. The Financial Accounting Standards Board (FASB)
Rationale: The FASB is the independent, private-sector body that establishes and improves GAAP in the
United States. The SEC has the legal authority to set accounting standards but has delegated this
responsibility to the FASB.
10. What is the primary scope of the Securities and Exchange Commission (SEC) in the United States?
A. Regulating and requiring financial reporting from public companies while exempting private
companies from such regulations.
B. Overseeing the financial reporting of all businesses, regardless of their public or private status.
C. Applying strict regulations to ensure private companies' compliance with financial reporting
requirements.
D. Regulating both public and private companies' financial reporting.
Answer: A. Regulating and requiring financial reporting from public companies while exempting
private companies from such regulations.
Rationale: The SEC's jurisdiction extends to publicly traded companies. Private companies are generally
exempt from SEC filing requirements unless they meet certain thresholds.
11. Which financial statement would you utilize to determine whether a company will be able to pay
liabilities which are due in 30 days?
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A. Income statement.
B. Statement of cash flows.
C. Statement of stockholders' equity.
D. Balance sheet.
Answer: D. Balance sheet
Rationale: The balance sheet provides a snapshot of a company's assets, liabilities, and equity at a
specific point in time. Comparing current assets to current liabilities allows assessment of short-term
liquidity.
12. Which of the following is considered to be an expense on the income statement?
A. Accounts payable
B. Notes payable
C. Wages payable
D. Cost of goods sold
Answer: D. Cost of goods sold
Rationale: Cost of goods sold is an expense account that appears on the income statement. Accounts
payable, notes payable, and wages payable are liability accounts that appear on the balance sheet.
13. Atlantic Corporation reported the following amounts at the end of the first year of operations:
Common stock $200,000; Sales revenue $800,000; Total assets $600,000; Dividends declared $40,000;
Total liabilities $320,000. What are the retained earnings of Atlantic at the end of the year, and what
amount of expenses were incurred during the year?
A. Retained earnings are $280,000 and expenses incurred totaled $480,000.
B. Retained earnings are $280,000 and expenses incurred totaled $520,000.
C. Retained earnings are $80,000 and expenses incurred totaled $720,000.
D. Retained earnings are $80,000 and expenses incurred totaled $680,000.
Answer: D. Retained earnings are $80,000 and expenses incurred totaled $680,000.
*Rationale: Assets = Liabilities + Equity → $600,000 = $320,000 + Equity → Equity = $280,000. Equity =
Common Stock ($200,000) + Retained Earnings → Retained Earnings = $80,000. Net Income = Revenue
($800,000) - Expenses. Retained Earnings = Net Income - Dividends ($40,000) → $80,000 = Net Income -
$40,000 → Net Income = $120,000. Expenses = $800,000 - $120,000 = $680,000.*
14. Seitz Trucking's retained earnings increased $20,000 during the current year. What was Seitz
Trucking's current year net income or loss if the company declared $5,000 in dividends?
A. Net income was $25,000.
B. Net loss was $15,000.
C. Net income was $20,000.
D. Net income was $15,000.
Answer: A. Net income was $25,000.
*Rationale: Change in Retained Earnings = Net Income - Dividends. $20,000 = Net Income - $5,000 →
Net Income = $25,000.*
A100 Final Exam Indiana University With Complete
250 Questions And Answers Latest Update
2025/2026
1. Which of the following is primarily responsible for the information provided in the financial
statements?
A. Board of Directors
B. Internal Accounting Staff
C. Company Top Management
D. External Auditors
Answer: C. Company Top Management
Rationale: Management is ultimately responsible for the preparation and integrity of financial
statements. While the accounting staff prepares them and auditors review them, management has the
final responsibility for the information presented.
2. Which of the following describes the primary objective of financial accounting?
A. To provide information about a business' future business strategies.
B. To provide useful financial information only to stockholders.
C. To provide useful financial information about a business to help external parties make informed
decisions.
D. To provide useful financial information about a business to help internal parties make informed
decisions.
Answer: C. To provide useful financial information about a business to help external parties make
informed decisions.
Rationale: Financial accounting focuses on providing information to external users such as investors,
creditors, and regulators. Managerial accounting serves internal users.
3. Financial accounting standards are known collectively as GAAP. What does that acronym stand for?
A. Generally Authorized Auditing Principles
B. Generally Applied Accounting Procedures
C. Governmentally Approved Accounting Practices
D. Generally Accepted Accounting Principles
Answer: D. Generally Accepted Accounting Principles
Rationale: GAAP is the set of accounting standards and principles used in the United States to ensure
consistency and comparability in financial reporting.
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4. For accounting information to be useful, it must be which of the following?
A. It must be comparable and reliable.
B. It must be consistent and comparable.
C. It must be a faithful representation and relevant.
D. It must be relevant and consistent.
Answer: C. It must be a faithful representation and relevant.
Rationale: The two fundamental qualitative characteristics of useful financial information are relevance
(capable of making a difference in decisions) and faithful representation (complete, neutral, and free
from error).
5. Which of the following best describes the purpose of an audit?
A. To audit every transaction that an entity entered into.
B. To establish that a corporation's stock is a sound investment.
C. To prove the accuracy of an entity's financial statements.
D. To lend credibility to an entity's financial statements.
Answer: D. To lend credibility to an entity's financial statements.
Rationale: An audit provides reasonable assurance that financial statements are free from material
misstatement. Auditors do not examine every transaction or guarantee accuracy; they enhance the
credibility of the financial statements for external users.
6. Which of the following is NOT an external user of financial accounting information?
A. General public
B. Banks
C. Factory line manager
D. Investors
Answer: C. Factory line manager
Rationale: A factory line manager is an internal user who needs managerial accounting information.
External users include investors, creditors, regulators, and the general public.
7. Which of the following statements accurately describes equity investors and debt investors in a
business?
A. Equity investors and debt investors both contribute to the business as owners and benefit from
retained earnings.
B. Equity investors and debt investors are only concerned with the business's profitability.
C. Equity investors are creditors who provide loans to the business, while debt investors contribute as
owners.
D. Equity investors contribute to the business as owners and benefit from retained earnings, while debt
investors are creditors who expect both principal and interest payments.
Answer: D. Equity investors contribute to the business as owners and benefit from retained earnings,
while debt investors are creditors who expect both principal and interest payments.
Rationale: Equity investors (stockholders) have an ownership interest and benefit from dividends and
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retained earnings. Debt investors (bondholders, lenders) are creditors who have a contractual right to
interest and principal repayment.
8. Which of the following statements accurately represents a key legal right of debt investors?
A. Debt investors have no legal recourse to "call" the loan and demand payment in case of missed
payments.
B. Debt investors can only recover their funds by liquidating assets if the company files for bankruptcy.
C. Debt investors have the legal right to demand both interest and principal payments, and they can
"call" the loan if the company fails to make payments on time.
D. Debt investors can only demand payment of principal, not interest, if the company fails to make
timely payments.
Answer: C. Debt investors have the legal right to demand both interest and principal payments, and
they can "call" the loan if the company fails to make payments on time.
Rationale: Debt contracts give creditors the legal right to receive interest and principal payments
according to the agreed-upon schedule. Failure to pay may trigger default provisions, including the right
to demand immediate repayment.
9. Which organization is responsible for establishing and maintaining the Generally Accepted
Accounting Principles (GAAP) for companies in the United States?
A. The Securities and Exchange Commission (SEC).
B. The International Financial Reporting Standards (IFRS).
C. The Financial Accounting Standards Board (FASB).
D. The Internal Revenue Service (IRS).
Answer: C. The Financial Accounting Standards Board (FASB)
Rationale: The FASB is the independent, private-sector body that establishes and improves GAAP in the
United States. The SEC has the legal authority to set accounting standards but has delegated this
responsibility to the FASB.
10. What is the primary scope of the Securities and Exchange Commission (SEC) in the United States?
A. Regulating and requiring financial reporting from public companies while exempting private
companies from such regulations.
B. Overseeing the financial reporting of all businesses, regardless of their public or private status.
C. Applying strict regulations to ensure private companies' compliance with financial reporting
requirements.
D. Regulating both public and private companies' financial reporting.
Answer: A. Regulating and requiring financial reporting from public companies while exempting
private companies from such regulations.
Rationale: The SEC's jurisdiction extends to publicly traded companies. Private companies are generally
exempt from SEC filing requirements unless they meet certain thresholds.
11. Which financial statement would you utilize to determine whether a company will be able to pay
liabilities which are due in 30 days?
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A. Income statement.
B. Statement of cash flows.
C. Statement of stockholders' equity.
D. Balance sheet.
Answer: D. Balance sheet
Rationale: The balance sheet provides a snapshot of a company's assets, liabilities, and equity at a
specific point in time. Comparing current assets to current liabilities allows assessment of short-term
liquidity.
12. Which of the following is considered to be an expense on the income statement?
A. Accounts payable
B. Notes payable
C. Wages payable
D. Cost of goods sold
Answer: D. Cost of goods sold
Rationale: Cost of goods sold is an expense account that appears on the income statement. Accounts
payable, notes payable, and wages payable are liability accounts that appear on the balance sheet.
13. Atlantic Corporation reported the following amounts at the end of the first year of operations:
Common stock $200,000; Sales revenue $800,000; Total assets $600,000; Dividends declared $40,000;
Total liabilities $320,000. What are the retained earnings of Atlantic at the end of the year, and what
amount of expenses were incurred during the year?
A. Retained earnings are $280,000 and expenses incurred totaled $480,000.
B. Retained earnings are $280,000 and expenses incurred totaled $520,000.
C. Retained earnings are $80,000 and expenses incurred totaled $720,000.
D. Retained earnings are $80,000 and expenses incurred totaled $680,000.
Answer: D. Retained earnings are $80,000 and expenses incurred totaled $680,000.
*Rationale: Assets = Liabilities + Equity → $600,000 = $320,000 + Equity → Equity = $280,000. Equity =
Common Stock ($200,000) + Retained Earnings → Retained Earnings = $80,000. Net Income = Revenue
($800,000) - Expenses. Retained Earnings = Net Income - Dividends ($40,000) → $80,000 = Net Income -
$40,000 → Net Income = $120,000. Expenses = $800,000 - $120,000 = $680,000.*
14. Seitz Trucking's retained earnings increased $20,000 during the current year. What was Seitz
Trucking's current year net income or loss if the company declared $5,000 in dividends?
A. Net income was $25,000.
B. Net loss was $15,000.
C. Net income was $20,000.
D. Net income was $15,000.
Answer: A. Net income was $25,000.
*Rationale: Change in Retained Earnings = Net Income - Dividends. $20,000 = Net Income - $5,000 →
Net Income = $25,000.*
