Introduction to Accounting & Finance
Final Exam Review
Questions & Solutions
2025
©2025
, Multiple Choice Questions (15)
1. Revenue Recognition Principle
Scenario: Under accrual accounting, revenues are recognized when
earned rather than when cash is received. Which transaction best
illustrates this principle?
A. A customer pays in advance for a one‑year magazine subscription.
B. Services performed on credit during December are recorded in
December.
C. Cash is received upon delivery of goods.
D. Payment is collected from a customer after a promotional discount.
ANS: B
Rationale: Accrual principles require that revenue be recorded when
earned. Even if payment is received later, services rendered in December
are recognized in December.
---
2. Depreciation Method Selection
Scenario: A manufacturing firm wants to match depreciation expense
with production volume for an asset whose benefits decline as usage
increases. Which method is most suitable?
A. Straight‑line depreciation
B. Double declining balance
C. Units‑of‑production method
D. Sum‑of‑the‑years‑digits method
ANS: C
Rationale: The units‑of‑production method directly ties expense
recognition to actual usage, making it ideal when the asset’s benefits
decline as production increases.
---
©2025
, 3. Inventory Valuation Impact
Scenario: In an environment of rising prices, which inventory valuation
method generally results in lower reported net income?
A. FIFO
B. LIFO
C. Weighted Average
D. Specific Identification
ANS: B
Rationale: LIFO (Last‑in, First‑out) uses the more recent, higher costs
for cost of goods sold, thereby reducing net income during periods of
rising prices.
---
4. Assessing Liquidity
Scenario: Which ratio is most effective in measuring a company’s ability
to meet short‑term obligations?
A. Debt‑to‑Equity Ratio
B. Current Ratio
C. Return on Equity
D. Price/Earnings Ratio
ANS: B
Rationale: The current ratio (current assets divided by current
liabilities) directly measures liquidity and the ability to cover short‑term
obligations.
---
5. Capital Budgeting Evaluation
Scenario: A project has irregular cash flows over several years. Which
technique is most appropriate for evaluating its viability?
A. Payback Period
©2025
Final Exam Review
Questions & Solutions
2025
©2025
, Multiple Choice Questions (15)
1. Revenue Recognition Principle
Scenario: Under accrual accounting, revenues are recognized when
earned rather than when cash is received. Which transaction best
illustrates this principle?
A. A customer pays in advance for a one‑year magazine subscription.
B. Services performed on credit during December are recorded in
December.
C. Cash is received upon delivery of goods.
D. Payment is collected from a customer after a promotional discount.
ANS: B
Rationale: Accrual principles require that revenue be recorded when
earned. Even if payment is received later, services rendered in December
are recognized in December.
---
2. Depreciation Method Selection
Scenario: A manufacturing firm wants to match depreciation expense
with production volume for an asset whose benefits decline as usage
increases. Which method is most suitable?
A. Straight‑line depreciation
B. Double declining balance
C. Units‑of‑production method
D. Sum‑of‑the‑years‑digits method
ANS: C
Rationale: The units‑of‑production method directly ties expense
recognition to actual usage, making it ideal when the asset’s benefits
decline as production increases.
---
©2025
, 3. Inventory Valuation Impact
Scenario: In an environment of rising prices, which inventory valuation
method generally results in lower reported net income?
A. FIFO
B. LIFO
C. Weighted Average
D. Specific Identification
ANS: B
Rationale: LIFO (Last‑in, First‑out) uses the more recent, higher costs
for cost of goods sold, thereby reducing net income during periods of
rising prices.
---
4. Assessing Liquidity
Scenario: Which ratio is most effective in measuring a company’s ability
to meet short‑term obligations?
A. Debt‑to‑Equity Ratio
B. Current Ratio
C. Return on Equity
D. Price/Earnings Ratio
ANS: B
Rationale: The current ratio (current assets divided by current
liabilities) directly measures liquidity and the ability to cover short‑term
obligations.
---
5. Capital Budgeting Evaluation
Scenario: A project has irregular cash flows over several years. Which
technique is most appropriate for evaluating its viability?
A. Payback Period
©2025
