ACCOUNTING CRASH COURSE EXAM V4 - WALL
STREET PREP /EXAM QUESTIONS AND CORRECT
ANSWERS LATEST 2026
This extensive -question practice bank provides a comprehensive
review of the Wall Street Prep Accounting Crash Course Exam
V4, covering the three financial statements, accounting principles,
journal entries, accrual vs. cash accounting, depreciation methods,
inventory valuation, and financial statement analysis. Each
question is carefully constructed to reflect the format, difficulty,
and conceptual depth of the actual certification exam, testing
your ability to apply accounting knowledge in real-world
scenarios. By studying these questions and their detailed
rationales, you will develop the confidence and technical precision
needed to pass the Accounting Crash Course Exam and excel in
financial modeling.
Question 1
Under GAAP, when is revenue recognized for a long-term construction
contract using the percentage-of-completion method?
A) When the contract is signed
B) When cash is received
C) Based on the percentage of work completed during the period
D) At the end of the project
,Correct Answer: C) Based on the percentage of work completed during
the period
(Rationale: The percentage-of-completion method recognizes revenue
proportionally as work is completed. Revenue is recognized based on the ratio
of costs incurred to total estimated costs or other measures of progress.)
Question 2
What is the effect on net income of capitalizing an expenditure instead of
expensing it?
A) Net income is higher in the current period
B) Net income is lower in the current period
C) Net income is unaffected
D) Net income is higher in all periods
Correct Answer: A) Net income is higher in the current period
(Rationale: Capitalizing an expenditure spreads the cost over multiple periods
through depreciation/amortization. This results in higher current-period net
income compared to expensing the full amount immediately.)
Question 3
What is the correct treatment of a foreign currency translation adjustment
under GAAP?
A) Included in net income
B) Included in other comprehensive income (OCI)
C) Recorded as a liability
D) Recorded as an asset
Correct Answer: B) Included in other comprehensive income (OCI)
(Rationale: Foreign currency translation adjustments are recorded in OCI
,under GAAP. They are not included in net income until the foreign entity is
sold or liquidated.)
Question 4
What is the difference between the temporal method and the current rate
method for foreign currency translation?
A) Temporal method uses historical rates; current rate method uses current
rates
B) Current rate method uses historical rates; temporal method uses current
rates
C) No difference
D) Temporal method is used for all translations
Correct Answer: A) Temporal method uses historical rates; current rate
method uses current rates
(Rationale: The temporal method translates monetary items at current rates
and non-monetary items at historical rates. The current rate method
translates all assets and liabilities at the current exchange rate.)
Question 5
What is the formula for basic earnings per share (EPS)?
A) Net Income / Weighted Average Shares Outstanding
B) Net Income / Total Shares Issued
C) Net Income - Preferred Dividends / Weighted Average Shares
Outstanding
D) Net Income / Total Shares Outstanding
Correct Answer: C) Net Income - Preferred Dividends / Weighted
Average Shares Outstanding
, (Rationale: Basic EPS = (Net Income - Preferred Dividends) / Weighted
Average Shares Outstanding. Preferred dividends are subtracted because they
are not available to common shareholders.)
Question 6
What is the difference between basic EPS and diluted EPS?
A) Diluted EPS includes the effect of convertible securities; basic EPS does
not
B) Basic EPS includes the effect of convertible securities; diluted EPS does
not
C) No difference
D) Diluted EPS is always higher than basic EPS
Correct Answer: A) Diluted EPS includes the effect of convertible
securities; basic EPS does not
(Rationale: Diluted EPS assumes that all potentially dilutive securities
(convertible debt, stock options, warrants) are converted or exercised. Diluted
EPS is always less than or equal to basic EPS.)
Question 7
What is the treasury stock method?
A) A method for calculating diluted EPS assuming proceeds from option
exercise are used to repurchase shares
B) A method for calculating basic EPS
C) A method for calculating stock dividends
D) A method for calculating preferred dividends
Correct Answer: A) A method for calculating diluted EPS assuming
proceeds from option exercise are used to repurchase shares
STREET PREP /EXAM QUESTIONS AND CORRECT
ANSWERS LATEST 2026
This extensive -question practice bank provides a comprehensive
review of the Wall Street Prep Accounting Crash Course Exam
V4, covering the three financial statements, accounting principles,
journal entries, accrual vs. cash accounting, depreciation methods,
inventory valuation, and financial statement analysis. Each
question is carefully constructed to reflect the format, difficulty,
and conceptual depth of the actual certification exam, testing
your ability to apply accounting knowledge in real-world
scenarios. By studying these questions and their detailed
rationales, you will develop the confidence and technical precision
needed to pass the Accounting Crash Course Exam and excel in
financial modeling.
Question 1
Under GAAP, when is revenue recognized for a long-term construction
contract using the percentage-of-completion method?
A) When the contract is signed
B) When cash is received
C) Based on the percentage of work completed during the period
D) At the end of the project
,Correct Answer: C) Based on the percentage of work completed during
the period
(Rationale: The percentage-of-completion method recognizes revenue
proportionally as work is completed. Revenue is recognized based on the ratio
of costs incurred to total estimated costs or other measures of progress.)
Question 2
What is the effect on net income of capitalizing an expenditure instead of
expensing it?
A) Net income is higher in the current period
B) Net income is lower in the current period
C) Net income is unaffected
D) Net income is higher in all periods
Correct Answer: A) Net income is higher in the current period
(Rationale: Capitalizing an expenditure spreads the cost over multiple periods
through depreciation/amortization. This results in higher current-period net
income compared to expensing the full amount immediately.)
Question 3
What is the correct treatment of a foreign currency translation adjustment
under GAAP?
A) Included in net income
B) Included in other comprehensive income (OCI)
C) Recorded as a liability
D) Recorded as an asset
Correct Answer: B) Included in other comprehensive income (OCI)
(Rationale: Foreign currency translation adjustments are recorded in OCI
,under GAAP. They are not included in net income until the foreign entity is
sold or liquidated.)
Question 4
What is the difference between the temporal method and the current rate
method for foreign currency translation?
A) Temporal method uses historical rates; current rate method uses current
rates
B) Current rate method uses historical rates; temporal method uses current
rates
C) No difference
D) Temporal method is used for all translations
Correct Answer: A) Temporal method uses historical rates; current rate
method uses current rates
(Rationale: The temporal method translates monetary items at current rates
and non-monetary items at historical rates. The current rate method
translates all assets and liabilities at the current exchange rate.)
Question 5
What is the formula for basic earnings per share (EPS)?
A) Net Income / Weighted Average Shares Outstanding
B) Net Income / Total Shares Issued
C) Net Income - Preferred Dividends / Weighted Average Shares
Outstanding
D) Net Income / Total Shares Outstanding
Correct Answer: C) Net Income - Preferred Dividends / Weighted
Average Shares Outstanding
, (Rationale: Basic EPS = (Net Income - Preferred Dividends) / Weighted
Average Shares Outstanding. Preferred dividends are subtracted because they
are not available to common shareholders.)
Question 6
What is the difference between basic EPS and diluted EPS?
A) Diluted EPS includes the effect of convertible securities; basic EPS does
not
B) Basic EPS includes the effect of convertible securities; diluted EPS does
not
C) No difference
D) Diluted EPS is always higher than basic EPS
Correct Answer: A) Diluted EPS includes the effect of convertible
securities; basic EPS does not
(Rationale: Diluted EPS assumes that all potentially dilutive securities
(convertible debt, stock options, warrants) are converted or exercised. Diluted
EPS is always less than or equal to basic EPS.)
Question 7
What is the treasury stock method?
A) A method for calculating diluted EPS assuming proceeds from option
exercise are used to repurchase shares
B) A method for calculating basic EPS
C) A method for calculating stock dividends
D) A method for calculating preferred dividends
Correct Answer: A) A method for calculating diluted EPS assuming
proceeds from option exercise are used to repurchase shares
