C214 - Topic 2 (Financial Statements,
IS and BS) Questions with complete
solution 2026
Cash accounting offers a superior method of analyzing a company.
(true/false) - correct answer ✔False
The income statement is the most easily interpreted of the basic financial statements.
(true/false) - correct answer ✔False
The basic equation of an income statement sis:
- Revenues - expenses = net income
- Revenues - liabilities = net income
- Revenue - net income = liabilities
- Assets - expenses = net income - correct answer ✔Revenues - expenses = net income
Revenues minus cost of goods sold is:
- Gross profit
- Operating profit
- Net income
- Earnings before taxes - correct answer ✔Gross Profit
On the income statement, Cost of Goods SOld includes:
- Research costs associated with the firm's current products/goods
- Interest expenses coming from the money borrowed to purchase production equipment
, - Direct materials and direct labor associated with production
- Administrative costs - correct answer ✔Direct materials and direct labor associated with production
Which of the following best describes the guiding principle for revenue recognition within accrual
accounting system:
- Revenue is reported when the earnings process is complete
- Revenue is reported when the firm uses assets to generate product
- Revenue is reported when cash is received
- Revenue is reported when product is delivered - correct answer ✔Revenue is reported when the
earnings process is complete
A high-quality customer just purchased $500,000 worth of product from your company. The contract
calls for immediate delivery of the product with a cash payment of $300,000 today and $200,000 to be
paid 60 days. The expense associated with the product is $300,000, of which $100,000 has not been
paid to your supplier. Under accrual based accounting system, you will most likely report:
- Revenues of $300,000 and expenses of $300,000.
- Revenues of $500,000 and expenses of $300,000.
- Revenues of $500,000 and expenses of $200,000.
- Revenues of $300,000 and expenses of $200,000. - correct answer ✔Revenues of $500,000 and
expenses of $300,000.
The basic equation for the balance sheet is:
- Equity = Assets - Liabilities
- Liabilities = Equity + Assets
- Assets = Liabilities - Equity
- Assets = Equity - Liabilities - correct answer ✔Equity = assets - liabilities
IS and BS) Questions with complete
solution 2026
Cash accounting offers a superior method of analyzing a company.
(true/false) - correct answer ✔False
The income statement is the most easily interpreted of the basic financial statements.
(true/false) - correct answer ✔False
The basic equation of an income statement sis:
- Revenues - expenses = net income
- Revenues - liabilities = net income
- Revenue - net income = liabilities
- Assets - expenses = net income - correct answer ✔Revenues - expenses = net income
Revenues minus cost of goods sold is:
- Gross profit
- Operating profit
- Net income
- Earnings before taxes - correct answer ✔Gross Profit
On the income statement, Cost of Goods SOld includes:
- Research costs associated with the firm's current products/goods
- Interest expenses coming from the money borrowed to purchase production equipment
, - Direct materials and direct labor associated with production
- Administrative costs - correct answer ✔Direct materials and direct labor associated with production
Which of the following best describes the guiding principle for revenue recognition within accrual
accounting system:
- Revenue is reported when the earnings process is complete
- Revenue is reported when the firm uses assets to generate product
- Revenue is reported when cash is received
- Revenue is reported when product is delivered - correct answer ✔Revenue is reported when the
earnings process is complete
A high-quality customer just purchased $500,000 worth of product from your company. The contract
calls for immediate delivery of the product with a cash payment of $300,000 today and $200,000 to be
paid 60 days. The expense associated with the product is $300,000, of which $100,000 has not been
paid to your supplier. Under accrual based accounting system, you will most likely report:
- Revenues of $300,000 and expenses of $300,000.
- Revenues of $500,000 and expenses of $300,000.
- Revenues of $500,000 and expenses of $200,000.
- Revenues of $300,000 and expenses of $200,000. - correct answer ✔Revenues of $500,000 and
expenses of $300,000.
The basic equation for the balance sheet is:
- Equity = Assets - Liabilities
- Liabilities = Equity + Assets
- Assets = Liabilities - Equity
- Assets = Equity - Liabilities - correct answer ✔Equity = assets - liabilities
