BUS-A 310 Management Decisions and Financial Reporting (3 cr.)
BUS-A 310 – MANAGEMENT DECISIONS AND FINANCIAL REPORTING |
EXAM QUESTIONS AND CORRECT ANSWERS | VERIFIED FINANCIAL
ACCOUNTING LATEST VERSION
BUS-A 310 Management Decisions and Financial Reporting (3 cr.)
1. Which financial statement reports a company's assets, liabilities, and
stockholders' equity at a specific point in time?
A. Statement of cash flows
B. Income statement
C. Statement of retained earnings
D. Balance sheet
ANSWER : D. Balance sheet
The balance sheet is a snapshot of financial position on a single date,
while the other statements cover a period of time.
2. Under the accrual basis of accounting, revenue is generally
recognized when:
A. The sales contract is signed
B. The invoice is mailed to the customer
C. Cash is received from the customer
D. The performance obligation is satisfied and control of goods or
services transfers to the customer
ANSWER : D. The performance obligation is satisfied and control
of goods or services transfers to the customer
Accrual accounting ties revenue to performance, not to the timing of
cash collection or paperwork.
Page 1 of 59
, BUS-A 310 Management Decisions and Financial Reporting (3 cr.)
3. Which of the following is a fundamental qualitative characteristic of
useful financial information under the FASB conceptual framework?
A. Understandability
B. Faithful representation
C. Timeliness
D. Comparability
ANSWER : B. Faithful representation
Relevance and faithful representation are the two fundamental
characteristics; the others are enhancing characteristics.
4. A company that prepares its financial statements assuming it will
continue operating for the foreseeable future is applying the:
A. Periodicity assumption
B. Monetary unit assumption
C. Economic entity assumption
D. Going concern assumption
ANSWER : D. Going concern assumption
The going concern assumption supports using historical cost rather
than liquidation values.
5. The accounting equation can be correctly expressed as:
A. Liabilities = Assets + Stockholders' Equity
B. Assets + Liabilities = Stockholders' Equity
C. Assets = Liabilities + Stockholders' Equity
D. Assets = Revenues − Expenses
ANSWER : C. Assets = Liabilities + Stockholders' Equity
Every resource a company controls is financed either by creditors or
by owners.
Page 2 of 59
, BUS-A 310 Management Decisions and Financial Reporting (3 cr.)
6. Which body is primarily responsible for establishing U.S. GAAP for
public companies?
A. Financial Accounting Standards Board (FASB)
B. Public Company Accounting Oversight Board (PCAOB)
C. International Accounting Standards Board (IASB)
D. Internal Revenue Service (IRS)
ANSWER : A. Financial Accounting Standards Board (FASB)
The SEC has delegated standard-setting authority to the FASB; the
PCAOB sets auditing standards.
7. A company earned net income of $85,000, paid dividends of $20,000,
and had beginning retained earnings of $140,000. Ending retained
earnings equal:
A. $160,000
B. $245,000
C. $225,000
D. $205,000
ANSWER : D. $205,000
Ending retained earnings = $140,000 + $85,000 − $20,000 = $205,000.
8. Which of the following is classified as a current asset?
A. Prepaid insurance covering the next six months
B. Land held for a future plant site
C. Long-term investment in bonds maturing in five years
D. Patent with a remaining life of eight years
ANSWER : A. Prepaid insurance covering the next six months
Current assets are expected to be used up or converted to cash within
one year or the operating cycle.
Page 3 of 59
, BUS-A 310 Management Decisions and Financial Reporting (3 cr.)
9. Salaries earned by employees but not yet paid at year-end are
recorded with an adjusting entry that:
A. Increases Salaries Expense and decreases Cash
B. Decreases Salaries Payable and increases Cash
C. Increases Prepaid Salaries and decreases Cash
D. Increases Salaries Expense and increases Salaries Payable
ANSWER : D. Increases Salaries Expense and increases Salaries
Payable
An accrued expense recognizes the cost incurred and the obligation
owed even though no cash has moved.
10. The matching (expense recognition) principle requires that:
A. Expenses be recorded when cash is paid
B. Revenues exceed expenses each period
C. All costs be capitalized as assets
D. Expenses be recognized in the same period as the revenues they
help generate
ANSWER : D. Expenses be recognized in the same period as the
revenues they help generate
Matching links efforts (expenses) with accomplishments (revenues) in
the same period.
11. Which item appears on a multi-step income statement but NOT on a
single-step income statement?
A. Net income
B. Sales revenue
C. Income tax expense
D. Gross profit
ANSWER : D. Gross profit
A multi-step format separates cost of goods sold from sales to show
gross profit as a subtotal.
Page 4 of 59
BUS-A 310 – MANAGEMENT DECISIONS AND FINANCIAL REPORTING |
EXAM QUESTIONS AND CORRECT ANSWERS | VERIFIED FINANCIAL
ACCOUNTING LATEST VERSION
BUS-A 310 Management Decisions and Financial Reporting (3 cr.)
1. Which financial statement reports a company's assets, liabilities, and
stockholders' equity at a specific point in time?
A. Statement of cash flows
B. Income statement
C. Statement of retained earnings
D. Balance sheet
ANSWER : D. Balance sheet
The balance sheet is a snapshot of financial position on a single date,
while the other statements cover a period of time.
2. Under the accrual basis of accounting, revenue is generally
recognized when:
A. The sales contract is signed
B. The invoice is mailed to the customer
C. Cash is received from the customer
D. The performance obligation is satisfied and control of goods or
services transfers to the customer
ANSWER : D. The performance obligation is satisfied and control
of goods or services transfers to the customer
Accrual accounting ties revenue to performance, not to the timing of
cash collection or paperwork.
Page 1 of 59
, BUS-A 310 Management Decisions and Financial Reporting (3 cr.)
3. Which of the following is a fundamental qualitative characteristic of
useful financial information under the FASB conceptual framework?
A. Understandability
B. Faithful representation
C. Timeliness
D. Comparability
ANSWER : B. Faithful representation
Relevance and faithful representation are the two fundamental
characteristics; the others are enhancing characteristics.
4. A company that prepares its financial statements assuming it will
continue operating for the foreseeable future is applying the:
A. Periodicity assumption
B. Monetary unit assumption
C. Economic entity assumption
D. Going concern assumption
ANSWER : D. Going concern assumption
The going concern assumption supports using historical cost rather
than liquidation values.
5. The accounting equation can be correctly expressed as:
A. Liabilities = Assets + Stockholders' Equity
B. Assets + Liabilities = Stockholders' Equity
C. Assets = Liabilities + Stockholders' Equity
D. Assets = Revenues − Expenses
ANSWER : C. Assets = Liabilities + Stockholders' Equity
Every resource a company controls is financed either by creditors or
by owners.
Page 2 of 59
, BUS-A 310 Management Decisions and Financial Reporting (3 cr.)
6. Which body is primarily responsible for establishing U.S. GAAP for
public companies?
A. Financial Accounting Standards Board (FASB)
B. Public Company Accounting Oversight Board (PCAOB)
C. International Accounting Standards Board (IASB)
D. Internal Revenue Service (IRS)
ANSWER : A. Financial Accounting Standards Board (FASB)
The SEC has delegated standard-setting authority to the FASB; the
PCAOB sets auditing standards.
7. A company earned net income of $85,000, paid dividends of $20,000,
and had beginning retained earnings of $140,000. Ending retained
earnings equal:
A. $160,000
B. $245,000
C. $225,000
D. $205,000
ANSWER : D. $205,000
Ending retained earnings = $140,000 + $85,000 − $20,000 = $205,000.
8. Which of the following is classified as a current asset?
A. Prepaid insurance covering the next six months
B. Land held for a future plant site
C. Long-term investment in bonds maturing in five years
D. Patent with a remaining life of eight years
ANSWER : A. Prepaid insurance covering the next six months
Current assets are expected to be used up or converted to cash within
one year or the operating cycle.
Page 3 of 59
, BUS-A 310 Management Decisions and Financial Reporting (3 cr.)
9. Salaries earned by employees but not yet paid at year-end are
recorded with an adjusting entry that:
A. Increases Salaries Expense and decreases Cash
B. Decreases Salaries Payable and increases Cash
C. Increases Prepaid Salaries and decreases Cash
D. Increases Salaries Expense and increases Salaries Payable
ANSWER : D. Increases Salaries Expense and increases Salaries
Payable
An accrued expense recognizes the cost incurred and the obligation
owed even though no cash has moved.
10. The matching (expense recognition) principle requires that:
A. Expenses be recorded when cash is paid
B. Revenues exceed expenses each period
C. All costs be capitalized as assets
D. Expenses be recognized in the same period as the revenues they
help generate
ANSWER : D. Expenses be recognized in the same period as the
revenues they help generate
Matching links efforts (expenses) with accomplishments (revenues) in
the same period.
11. Which item appears on a multi-step income statement but NOT on a
single-step income statement?
A. Net income
B. Sales revenue
C. Income tax expense
D. Gross profit
ANSWER : D. Gross profit
A multi-step format separates cost of goods sold from sales to show
gross profit as a subtotal.
Page 4 of 59
