Western Governors University, ACCOUNTING 02, ACC 330. All answers are 100% correct.

 Which accounting method requires that expenses be recognized when incurred?

 A) Cash Basis

 B) Accrual Basis

 C) Modified Cash Basis

 D) Deferral Basis
Answer: B

 Which of the following is a characteristic of a sole proprietorship?

 A) Limited liability

 B) Separate legal entity

 C) Unlimited liability

 D) Double taxation
Answer: C

 What does the term "capital structure" refer to?

 A) The mix of long-term debt and equity financing

 B) The short-term financial obligations of a company

 C) The total assets of a company

 D) The operating expenses of a company
Answer: A

 Which of the following represents an example of an investing activity?

 A) Borrowing money from a bank

 B) Purchasing machinery

 C) Paying off a loan

 D) Issuing shares of stock
Answer: B

 What does a high debt-to-equity ratio indicate?

 A) Lower financial risk

 B) Higher financial leverage

 C) Strong profitability

 D) Higher liquidity
Answer: B

 Which of the following is true about an operating lease?

 A) It is recorded as an asset on the balance sheet.

 B) It typically covers the entire useful life of the asset.

 C) Lease payments are recorded as an expense.

 D) It transfers ownership of the asset at the end of the lease.
Answer: C

,  A) Relevance

 B) Reliability

 C) Comparability

 D) Materiality
Answer: D

 Which accounting concept requires that the financial statements reflect the company’s actual
financial position?

 A) Going Concern

 B) Conservatism

 C) Fair Value

 D) Economic Entity
Answer: A

 Which of the following accounts is closed at the end of an accounting period?

 A) Cash

 B) Accounts Receivable

 C) Service Revenue

 D) Accounts Payable
Answer: C

 What is the primary purpose of the statement of retained earnings?

 A) To show the company's cash position

 B) To detail changes in retained earnings over a period

 C) To report the company's liabilities

 D) To summarize revenue and expenses
Answer: B

 Which method of depreciation uses a constant percentage of the asset’s book value?

 A) Straight-Line Method

 B) Declining Balance Method

 C) Units of Production Method

 D) Sum-of-the-Years'-Digits Method
Answer: B

 Which of the following is a characteristic of a corporation?

 A) Unlimited liability

 B) Limited life

 C) Separate legal entity

 D) Single taxation
Answer: C


 Which financial statement provides insight into a company's profitability over a specific period?