ACC 291T – PRINCIPLES OF ACCOUNTING II.

ACC 291T – PRINCIPLES OF
ACCOUNTING II
150 Practice Questions with Verified Answers & Detailed Explanations
Week 1 Practice – Topic 1 | 2025/2026 Exam Prep | Guaranteed A+


SECTION 1: FINANCIAL STATEMENT ANALYSIS (Questions 1-35)


Question 1
Which of the following is a measure of a company's ability to pay its current liabilities?
A) Debt to equity ratio
B) Current ratio
C) Return on assets
D) Asset turnover ratio

Correct Answer: B
Explanation: The current ratio (Current Assets / Current Liabilities) measures a company's
ability to pay its short-term obligations using its short-term assets.




Question 2
A company has current assets of $500,000 and current liabilities of $250,000. What is the
current ratio?
A) 0.5 to 1
B) 1 to 1
C) 2 to 1
D) 3 to 1

Correct Answer: C
Explanation: Current ratio Current Assets / Current Liabilities $500,000 / $250,000 2.0 or 2 to
1.




Question 3
The quick ratio (acid-test ratio) excludes which of the following from current assets?
A) Cash
B) Accounts receivable
C) Inventory
D) Marketable securities

,Correct Answer: C
Explanation: The quick ratio excludes inventory and prepaid expenses because they are less
liquid and may not be easily converted to cash.




Question 4
A company has net sales of $1,000,000 and average accounts receivable of $200,000. What is
the accounts receivable turnover ratio?
A) 2 times
B) 3 times
C) 4 times
D) 5 times

Correct Answer: D
Explanation: Accounts receivable turnover Net Credit Sales / Average Accounts Receivable
$1,000,000 / $200,000 5 times.




Question 5
The debt to equity ratio is calculated as:
A) Total liabilities / Total stockholders' equity
B) Total assets / Total liabilities
C) Net income / Total equity
D) Current liabilities / Total equity

Correct Answer: A
Explanation: Debt to equity ratio measures financial leverage by comparing total liabilities to
total stockholders' equity.




Question 6
A company has total liabilities of $600,000 and total stockholders' equity of $400,000. What is
the debt to equity ratio?
A) 0.67
B) 1.0
C) 1.5
D) 2.0

Correct Answer: C
Explanation: Debt to equity Total Liabilities / Total Equity $600,000 / $400,000 1.5.

,Question 7
Which ratio measures a company's profitability by comparing net income to net sales?
A) Return on assets
B) Return on equity
C) Profit margin
D) Gross profit margin

Correct Answer: C
Explanation: Profit margin (Net Income / Net Sales) measures how much profit each dollar of
sales generates.




Question 8
A company has net income of $150,000 and net sales of $1,000,000. The profit margin is:
A) 10%
B) 15%
C) 20%
D) 25%

Correct Answer: B
Explanation: Profit margin Net Income / Net Sales $150,000 / $1,000,000 15%.




Question 9
Return on assets (ROA) is calculated as:
A) Net income / Average total assets
B) Net sales / Average total assets
C) Net income / Average total equity
D) Operating income / Average total assets

Correct Answer: A
Explanation: ROA measures how efficiently a company uses its assets to generate profit.




Question 10
A company has net income of $120,000 and average total assets of $800,000. What is the
return on assets?
A) 10%

, B) 12%
C) 15%
D) 18%

Correct Answer: C
Explanation: ROA Net Income / Average Total Assets $120,000 / $800,000 15%.




Question 11
Return on equity (ROE) is calculated as:
A) Net income / Average total assets
B) Net income / Average total stockholders' equity
C) Net sales / Average total equity
D) Operating income / Average total equity

Correct Answer: B
Explanation: ROE measures the return earned on the owners' investment.




Question 12
A company has net income of $90,000 and average stockholders' equity of $450,000. What is
the return on equity?
A) 10%
B) 15%
C) 20%
D) 25%

Correct Answer: C
Explanation: ROE Net Income / Average Stockholders' Equity $90,000 / $450,000 20%.




Question 13
Horizontal analysis compares financial data:
A) Over a period of time (trend analysis)
B) Within a single period (component percentages)
C) Between different companies in the same industry
D) Between different divisions of the same company

Correct Answer: A
Explanation: Horizontal analysis (trend analysis) compares financial data across multiple
periods to identify growth patterns.