WALL STREET PREP ACCOUNTING CRASH
COURSE V4: COMPREHENSIVE EXAM
QUESTIONS AND GRADED SOLUTIONS WITH
210 VERIFIED QUESTION & ANSWERS
GUARANTEED PASS \NEWEST
SECTION 1: ACCOUNTING PRINCIPLES & CONCEPTS
Question 1: Accounting as the "Language of Business"
According to the course material, accounting is best described as:
A) A method for calculating taxes
B) The language of business that standardizes financial performance measurement
C) A tool exclusively used by accountants
D) A system for tracking cash flows only
Correct Answer: B
Rationale: Accounting is the language of business; it is a standard set of rules for
measuring a company's financial performance. Assessing a company's financial
performance is important for firm officers, investors, lenders, and the general public .
Question 2: SEC Establishment
The Securities and Exchange Commission (SEC) was established in which year?
A) 1929
B) 1934
,C) 1973
D) 1940
Correct Answer: B
Rationale: The SEC was established in 1934 following the stock market crash of 1929
to regulate securities markets and protect investors .
Question 3: FASB
Which organization is directly responsible for establishing U.S. accounting
standards?
A) Securities and Exchange Commission (SEC)
B) Financial Accounting Standards Board (FASB)
C) International Accounting Standards Board (IASB)
D) Statements of Financial Accounting Standards (SFAS)
Correct Answer: B
Question 4: Accounting Equation
Which of the following best defines the accounting equation?
A) Assets = Liabilities – Equity
B) Assets = Liabilities + Equity
C) Assets + Liabilities = Equity
D) Assets = Revenue + Expenses
Correct Answer: B
,Rationale: The accounting equation is the foundation of double-entry bookkeeping,
stating that a company's assets are always equal to the sum of its liabilities and
shareholders' equity .
Question 5: Historical Cost Principle
Under the Historical Cost Principle, if a company purchased land for $1 million
that is now worth $3 million, the land should be recorded on the financial
statements at:
A) $3 million (current market value)
B) $1 million (original purchase price)
C) $2 million (average of cost and market value)
D) The amount can vary based on management's discretion
Correct Answer: B
Rationale: Financial statements report companies' resources at an initial historical
cost. This represents the easiest measurement method without a need for appraisal
and revaluation. Even if the land has increased in value, it continues to be recorded at
original cost under US GAAP .
Question 6: Historical Cost Principle - Reason for Use
What is the primary reason for using the Historical Cost Principle?
A) It shows the most current market value of assets
B) It represents the easiest measurement method without a need for appraisal and
revaluation
C) It maximizes reported profits
D) It minimizes tax liability
, Correct Answer: B
Rationale: Historical cost is used because it is objective, verifiable, and does not
require periodic appraisals or revaluations. Marking resources up to fair value allows
for more subjectivity and potential manipulation .
Question 7: Revenue Recognition Principle
The Revenue Recognition Principle states that revenue should be recorded:
A) When cash is received from the customer
B) When earned and measurable, regardless of when cash is received
C) When the order is placed by the customer
D) At the end of the fiscal year
Correct Answer: B
Rationale: Under the revenue recognition principle (accrual basis of accounting),
revenues must be recorded when earned and measurable. For example, Amazon
recognizes revenue when the book is shipped to the customer, not when cash is
received .
Question 8: Matching Principle
The Matching Principle requires that:
A) Revenues must be matched with cash receipts
B) Costs associated with making a product must be recorded in the same period as
the revenue from that product
C) Assets must be matched with liabilities
D) Expenses must be recorded when cash is paid
COURSE V4: COMPREHENSIVE EXAM
QUESTIONS AND GRADED SOLUTIONS WITH
210 VERIFIED QUESTION & ANSWERS
GUARANTEED PASS \NEWEST
SECTION 1: ACCOUNTING PRINCIPLES & CONCEPTS
Question 1: Accounting as the "Language of Business"
According to the course material, accounting is best described as:
A) A method for calculating taxes
B) The language of business that standardizes financial performance measurement
C) A tool exclusively used by accountants
D) A system for tracking cash flows only
Correct Answer: B
Rationale: Accounting is the language of business; it is a standard set of rules for
measuring a company's financial performance. Assessing a company's financial
performance is important for firm officers, investors, lenders, and the general public .
Question 2: SEC Establishment
The Securities and Exchange Commission (SEC) was established in which year?
A) 1929
B) 1934
,C) 1973
D) 1940
Correct Answer: B
Rationale: The SEC was established in 1934 following the stock market crash of 1929
to regulate securities markets and protect investors .
Question 3: FASB
Which organization is directly responsible for establishing U.S. accounting
standards?
A) Securities and Exchange Commission (SEC)
B) Financial Accounting Standards Board (FASB)
C) International Accounting Standards Board (IASB)
D) Statements of Financial Accounting Standards (SFAS)
Correct Answer: B
Question 4: Accounting Equation
Which of the following best defines the accounting equation?
A) Assets = Liabilities – Equity
B) Assets = Liabilities + Equity
C) Assets + Liabilities = Equity
D) Assets = Revenue + Expenses
Correct Answer: B
,Rationale: The accounting equation is the foundation of double-entry bookkeeping,
stating that a company's assets are always equal to the sum of its liabilities and
shareholders' equity .
Question 5: Historical Cost Principle
Under the Historical Cost Principle, if a company purchased land for $1 million
that is now worth $3 million, the land should be recorded on the financial
statements at:
A) $3 million (current market value)
B) $1 million (original purchase price)
C) $2 million (average of cost and market value)
D) The amount can vary based on management's discretion
Correct Answer: B
Rationale: Financial statements report companies' resources at an initial historical
cost. This represents the easiest measurement method without a need for appraisal
and revaluation. Even if the land has increased in value, it continues to be recorded at
original cost under US GAAP .
Question 6: Historical Cost Principle - Reason for Use
What is the primary reason for using the Historical Cost Principle?
A) It shows the most current market value of assets
B) It represents the easiest measurement method without a need for appraisal and
revaluation
C) It maximizes reported profits
D) It minimizes tax liability
, Correct Answer: B
Rationale: Historical cost is used because it is objective, verifiable, and does not
require periodic appraisals or revaluations. Marking resources up to fair value allows
for more subjectivity and potential manipulation .
Question 7: Revenue Recognition Principle
The Revenue Recognition Principle states that revenue should be recorded:
A) When cash is received from the customer
B) When earned and measurable, regardless of when cash is received
C) When the order is placed by the customer
D) At the end of the fiscal year
Correct Answer: B
Rationale: Under the revenue recognition principle (accrual basis of accounting),
revenues must be recorded when earned and measurable. For example, Amazon
recognizes revenue when the book is shipped to the customer, not when cash is
received .
Question 8: Matching Principle
The Matching Principle requires that:
A) Revenues must be matched with cash receipts
B) Costs associated with making a product must be recorded in the same period as
the revenue from that product
C) Assets must be matched with liabilities
D) Expenses must be recorded when cash is paid
