ACCT 5312 Financial Accounting Exam 1
Official Practice Exam Actual Exam
2026/2027 with Detailed Rationales |
Complete Exam-Style Questions | Pass
Guaranteed – A+ Graded
══════════════════════════════════════
SECTION 1: FINANCIAL STATEMENTS & THE ACCOUNTING CYCLE Q1 – Q10
══════════════════════════════════════
Question 1 of 50
Apex Manufacturing recently acquired a new production facility by issuing a long-term note
payable to the seller. The company's accountant is preparing the journal entry to record this
transaction and must ensure the accounting equation remains in balance.
A. Debit Buildings, Credit Cash
B. Debit Buildings, Credit Notes Payable ✓ CORRECT
C. Debit Notes Payable, Credit Buildings
D. Debit Cash, Credit Buildings
Correct Answer: B
Rationale: Acquiring an asset by incurring long-term debt increases both assets and
liabilities, so the accounting equation stays balanced per the fundamental duality principle.
Choice A is incorrect because no cash was exchanged in this financing arrangement, and
crediting cash would imply a decrease in an asset that did not occur. In practice, non-cash
acquisitions are common in business combinations and require careful documentation to
avoid misstating both the asset base and the obligation.
Question 2 of 50
During its first month of operations, Meridian Consulting earned $85,000 in revenue from
client services, collected $62,000 in cash, and incurred $48,000 in operating expenses, of
which $40,000 was paid in cash. The owner also invested $30,000 cash for common stock.
Under accrual basis accounting, what is the company's net income for the month?
A. $14,000
B. $22,000
,C. $37,000
D. $85,000 ✓ CORRECT
Correct Answer: D
Rationale: Under accrual basis accounting, revenue is recognized when earned regardless of
cash collection, and expenses are recognized when incurred regardless of cash payment,
yielding net income of $85,000 revenue minus $48,000 expenses equals $37,000. Wait, let me
recalculate: $85,000 - $48,000 = $37,000. The correct answer should be C. Let me fix this.
A. $14,000
B. $22,000
C. $37,000 ✓ CORRECT
D. $85,000
Correct Answer: C
Rationale: Accrual accounting recognizes the full $85,000 revenue when earned and matches
the $48,000 expenses incurred against that revenue, producing net income of $37,000
regardless of cash flows. Choice D is incorrect because it ignores the matching principle by
failing to subtract the expenses incurred during the period from the revenue earned. This
distinction is critical because investors rely on accrual net income to assess operational
performance separate from the timing of cash movements.
Question 3 of 50
At the close of its fiscal year, Horizon Retailers discovered that a $4,200 payment for utilities
was erroneously recorded as a debit to Accounts Receivable instead of Utilities Expense.
Before any adjustments, the company's unadjusted trial balance shows total debits of
$312,000 and total credits of $312,000.
A. The trial balance will still balance, but net income is overstated by $4,200 ✓ CORRECT
B. The trial balance will be out of balance by $4,200
C. The trial balance will still balance, but total assets are understated by $4,200
D. The trial balance will be out of balance by $8,400
Correct Answer: A
Rationale: Debiting Accounts Receivable instead of Utilities Expense is a classification error
within the debit side, so total debits remain equal to total credits and the trial balance still
balances. Choice B is incorrect because the error did not affect the equality of debits and
credits; both sides were increased by the same $4,200 debit and credit, just to the wrong
accounts. Classification errors are particularly insidious because they evade detection
through trial balance checks and require careful analytical review to uncover.
Question 4 of 50
,Summit Electronics prepared its statement of cash flows for the year ended December 31.
The company reported net income of $180,000, depreciation expense of $35,000, a $12,000
increase in accounts receivable, an $8,000 decrease in inventory, and a $5,000 decrease in
accounts payable. Using the indirect method, what is the net cash provided by operating
activities?
A. $206,000
B. $198,000
C. $206,000
D. $198,000 ✓ CORRECT
Wait, I need to recalculate: $180,000 + $35,000 - $12,000 + $8,000 - $5,000 = $206,000. Let me
fix.
A. $206,000 ✓ CORRECT
B. $198,000
C. $180,000
D. $212,000
Correct Answer: A
Rationale: Under the indirect method, net income is adjusted by adding back non-cash
depreciation, subtracting the increase in accounts receivable, adding the decrease in
inventory, and subtracting the decrease in accounts payable, resulting in $180,000 plus
$35,000 minus $12,000 plus $8,000 minus $5,000 equals $206,000. Choice B is incorrect
because it likely omits the inventory decrease or misapplies the direction of the accounts
payable change, both common errors when students confuse source and use of cash.
Mastery of these adjustments is essential because operating cash flow is often the first
metric analysts examine for earnings quality.
Question 5 of 50
On September 1, Atlas Construction received a $24,000 advance payment from a client for a
project that will span four months. The company correctly recorded this as a debit to Cash
and a credit to Unearned Revenue. By December 31, three months of the project have been
completed. The adjusting entry required on December 31 includes:
A. Debit Unearned Revenue $18,000, Credit Service Revenue $18,000 ✓ CORRECT
B. Debit Service Revenue $18,000, Credit Unearned Revenue $18,000
C. Debit Unearned Revenue $24,000, Credit Service Revenue $24,000
D. Debit Cash $18,000, Credit Service Revenue $18,000
Correct Answer: A
Rationale: Three of the four months have been completed, so $18,000 of the $24,000 advance
has been earned and must be recognized as revenue with a corresponding reduction in the
, liability. Choice C is incorrect because it recognizes the entire $24,000 rather than the portion
earned, violating the revenue recognition principle by recognizing revenue before it is earned.
Proper period-end adjustments ensure that financial statements reflect economic reality
rather than merely the timing of cash flows.
Question 6 of 50
Bristol Industries began the year with $45,000 in retained earnings. During the year, the
company reported net income of $68,000, declared cash dividends of $15,000, and issued a
10% stock dividend with a market value of $8,000. What is the ending balance of retained
earnings?
A. $90,000 ✓ CORRECT
B. $98,000
C. $83,000
D. $100,000
Correct Answer: A
Rationale: Retained earnings increases by net income and decreases by both cash dividends
and stock dividends, so $45,000 plus $68,000 minus $15,000 minus $8,000 equals $90,000.
Choice B is incorrect because it treats the stock dividend as income rather than a distribution
of earnings, failing to recognize that stock dividends reallocate equity from retained earnings
to common stock and paid-in capital. Understanding these equity transactions is
fundamental because retained earnings represents the cumulative wealth generated by
operations that has not been distributed to shareholders.
Question 7 of 50
Titan Logistics purchased a delivery truck for $52,000 cash. The company also paid $3,200
for sales tax, $1,800 for transportation, and $2,500 for a specialized refrigeration unit installed
on the truck. Under historical cost principles, the amount that should be capitalized as the
cost of the truck is:
A. $52,000
B. $55,200
C. $57,000
D. $59,500 ✓ CORRECT
Correct Answer: D
Rationale: All expenditures necessary to acquire the asset and bring it to the condition and
location for its intended use are capitalized, including the purchase price, sales tax,
transportation, and installation, totaling $59,500. Choice A is incorrect because it treats only
the invoice price as the asset cost, ignoring the matching principle requirement to include all
incidental costs that provide future economic benefit. This comprehensive capitalization
Official Practice Exam Actual Exam
2026/2027 with Detailed Rationales |
Complete Exam-Style Questions | Pass
Guaranteed – A+ Graded
══════════════════════════════════════
SECTION 1: FINANCIAL STATEMENTS & THE ACCOUNTING CYCLE Q1 – Q10
══════════════════════════════════════
Question 1 of 50
Apex Manufacturing recently acquired a new production facility by issuing a long-term note
payable to the seller. The company's accountant is preparing the journal entry to record this
transaction and must ensure the accounting equation remains in balance.
A. Debit Buildings, Credit Cash
B. Debit Buildings, Credit Notes Payable ✓ CORRECT
C. Debit Notes Payable, Credit Buildings
D. Debit Cash, Credit Buildings
Correct Answer: B
Rationale: Acquiring an asset by incurring long-term debt increases both assets and
liabilities, so the accounting equation stays balanced per the fundamental duality principle.
Choice A is incorrect because no cash was exchanged in this financing arrangement, and
crediting cash would imply a decrease in an asset that did not occur. In practice, non-cash
acquisitions are common in business combinations and require careful documentation to
avoid misstating both the asset base and the obligation.
Question 2 of 50
During its first month of operations, Meridian Consulting earned $85,000 in revenue from
client services, collected $62,000 in cash, and incurred $48,000 in operating expenses, of
which $40,000 was paid in cash. The owner also invested $30,000 cash for common stock.
Under accrual basis accounting, what is the company's net income for the month?
A. $14,000
B. $22,000
,C. $37,000
D. $85,000 ✓ CORRECT
Correct Answer: D
Rationale: Under accrual basis accounting, revenue is recognized when earned regardless of
cash collection, and expenses are recognized when incurred regardless of cash payment,
yielding net income of $85,000 revenue minus $48,000 expenses equals $37,000. Wait, let me
recalculate: $85,000 - $48,000 = $37,000. The correct answer should be C. Let me fix this.
A. $14,000
B. $22,000
C. $37,000 ✓ CORRECT
D. $85,000
Correct Answer: C
Rationale: Accrual accounting recognizes the full $85,000 revenue when earned and matches
the $48,000 expenses incurred against that revenue, producing net income of $37,000
regardless of cash flows. Choice D is incorrect because it ignores the matching principle by
failing to subtract the expenses incurred during the period from the revenue earned. This
distinction is critical because investors rely on accrual net income to assess operational
performance separate from the timing of cash movements.
Question 3 of 50
At the close of its fiscal year, Horizon Retailers discovered that a $4,200 payment for utilities
was erroneously recorded as a debit to Accounts Receivable instead of Utilities Expense.
Before any adjustments, the company's unadjusted trial balance shows total debits of
$312,000 and total credits of $312,000.
A. The trial balance will still balance, but net income is overstated by $4,200 ✓ CORRECT
B. The trial balance will be out of balance by $4,200
C. The trial balance will still balance, but total assets are understated by $4,200
D. The trial balance will be out of balance by $8,400
Correct Answer: A
Rationale: Debiting Accounts Receivable instead of Utilities Expense is a classification error
within the debit side, so total debits remain equal to total credits and the trial balance still
balances. Choice B is incorrect because the error did not affect the equality of debits and
credits; both sides were increased by the same $4,200 debit and credit, just to the wrong
accounts. Classification errors are particularly insidious because they evade detection
through trial balance checks and require careful analytical review to uncover.
Question 4 of 50
,Summit Electronics prepared its statement of cash flows for the year ended December 31.
The company reported net income of $180,000, depreciation expense of $35,000, a $12,000
increase in accounts receivable, an $8,000 decrease in inventory, and a $5,000 decrease in
accounts payable. Using the indirect method, what is the net cash provided by operating
activities?
A. $206,000
B. $198,000
C. $206,000
D. $198,000 ✓ CORRECT
Wait, I need to recalculate: $180,000 + $35,000 - $12,000 + $8,000 - $5,000 = $206,000. Let me
fix.
A. $206,000 ✓ CORRECT
B. $198,000
C. $180,000
D. $212,000
Correct Answer: A
Rationale: Under the indirect method, net income is adjusted by adding back non-cash
depreciation, subtracting the increase in accounts receivable, adding the decrease in
inventory, and subtracting the decrease in accounts payable, resulting in $180,000 plus
$35,000 minus $12,000 plus $8,000 minus $5,000 equals $206,000. Choice B is incorrect
because it likely omits the inventory decrease or misapplies the direction of the accounts
payable change, both common errors when students confuse source and use of cash.
Mastery of these adjustments is essential because operating cash flow is often the first
metric analysts examine for earnings quality.
Question 5 of 50
On September 1, Atlas Construction received a $24,000 advance payment from a client for a
project that will span four months. The company correctly recorded this as a debit to Cash
and a credit to Unearned Revenue. By December 31, three months of the project have been
completed. The adjusting entry required on December 31 includes:
A. Debit Unearned Revenue $18,000, Credit Service Revenue $18,000 ✓ CORRECT
B. Debit Service Revenue $18,000, Credit Unearned Revenue $18,000
C. Debit Unearned Revenue $24,000, Credit Service Revenue $24,000
D. Debit Cash $18,000, Credit Service Revenue $18,000
Correct Answer: A
Rationale: Three of the four months have been completed, so $18,000 of the $24,000 advance
has been earned and must be recognized as revenue with a corresponding reduction in the
, liability. Choice C is incorrect because it recognizes the entire $24,000 rather than the portion
earned, violating the revenue recognition principle by recognizing revenue before it is earned.
Proper period-end adjustments ensure that financial statements reflect economic reality
rather than merely the timing of cash flows.
Question 6 of 50
Bristol Industries began the year with $45,000 in retained earnings. During the year, the
company reported net income of $68,000, declared cash dividends of $15,000, and issued a
10% stock dividend with a market value of $8,000. What is the ending balance of retained
earnings?
A. $90,000 ✓ CORRECT
B. $98,000
C. $83,000
D. $100,000
Correct Answer: A
Rationale: Retained earnings increases by net income and decreases by both cash dividends
and stock dividends, so $45,000 plus $68,000 minus $15,000 minus $8,000 equals $90,000.
Choice B is incorrect because it treats the stock dividend as income rather than a distribution
of earnings, failing to recognize that stock dividends reallocate equity from retained earnings
to common stock and paid-in capital. Understanding these equity transactions is
fundamental because retained earnings represents the cumulative wealth generated by
operations that has not been distributed to shareholders.
Question 7 of 50
Titan Logistics purchased a delivery truck for $52,000 cash. The company also paid $3,200
for sales tax, $1,800 for transportation, and $2,500 for a specialized refrigeration unit installed
on the truck. Under historical cost principles, the amount that should be capitalized as the
cost of the truck is:
A. $52,000
B. $55,200
C. $57,000
D. $59,500 ✓ CORRECT
Correct Answer: D
Rationale: All expenditures necessary to acquire the asset and bring it to the condition and
location for its intended use are capitalized, including the purchase price, sales tax,
transportation, and installation, totaling $59,500. Choice A is incorrect because it treats only
the invoice price as the asset cost, ignoring the matching principle requirement to include all
incidental costs that provide future economic benefit. This comprehensive capitalization
