C214 UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS COMPREHENSIVE
STUDY GUIDE
●● Stocks and bonds are two types of financial instruments (T/F)
Answer: T
●● The matching principle in accrual accounting requires that:
a. Revenues be recognized when the earnings process is complete and
matches expenses to revenues recognized.
b. Expenses are matched to the year in which they are incurred
c. Revenues are matched to the year in which they are booked
d. Revenues should be large enough to match expenses
Answer: a
●● A basic equation for the balance sheet is:
a. Equity = Assets - Liabilities
b. Liabilities = Equity + Assets
c. Assets = Liabilities - Equity
d. Assets = Equity - Liabilities
Answer: a
,●● Why is the Balance Sheet known as a permanent statement?
a. Because the statement is sent to the SEC.
b. Because the other statements are reset at the end of the fiscal year
c. Because it is printed out and archived
d. Because it persists in the minds of the shareholders.
Answer: b
●● How do you calculate the change in Retained Earnings?
a. Ending Retained Earnings - Change in Cash
b. EBIT divided by Total Assets + Dividends
c. EBIT - Change in Cash - Dividends
d. Net Income - Dividends
Answer: d
●● Which of the following is generally true?
a. Gross Profit and Operating Income are the same
b. Cost of Goods Sold + Operating Expenses = Net Income
c. Operating Income and EBIT are the same
d. EBIT + Income Taxes = Net income
Answer: c
●● Which components are part of total assets?
,a. Cash, Accounts Receivable, Short Term Debt
b. Cash Accounts Receivable, Inventory, Long Term Assets
c. Accounts Payable, Long Term Assets, Long Term Debt
d. Accounts Payable, Net Income, Equity
Answer: b
●● Which components are part of current assets?
a. Cash, Accounts Receivable, Property Plant & Equipment
b. Accounts Receivable, Accounts Payable, Inventory
c. Long Term Debt, Property Plant & Equipment, Common Stock
d. Inventory, Cash, Accounts Receivable, Short Term Investments
Answer: d
●● Which components are part of Total Liabilities?
a. Accounts Payable, Accounts Receivable, Short Term Debt
b. Long Term Debt, Common Stock, Retained Earnings
c. Bonds, Accounts Payable, Mortgage
d. Common Stock, Long Term Debt, Short Term Investments
Answer: c
●● When Fixed Assets increase what happens to Cash?
a. Cash stays the same
, b. Cash increases
c. Cash decreases
d. Assets decrease
Answer: c
●● Which is the purpose of the statement of cash flows?
a. serves as the replacement for the income statement and balance sheet
b. explains the change in cash balance at one point in time
c. explains the change in cash balance for one period of time
d. both (a) and (b) above
Answer: c
●● The OIROI (Operating Income Return on Investment) uses what
elements on the income statement?
a. Operating Income, EBIT, Total Liabilities
b. EBIT, Total Assets
c. Sales, Total Assets, Equity
d. Net Margin, Total Current Assets
Answer: b
●● Why would a company be interested in the TAT(Total Asset
Turnover) ratio?
a. How efficient assets are at producing income
CORRECT ANSWERS COMPREHENSIVE
STUDY GUIDE
●● Stocks and bonds are two types of financial instruments (T/F)
Answer: T
●● The matching principle in accrual accounting requires that:
a. Revenues be recognized when the earnings process is complete and
matches expenses to revenues recognized.
b. Expenses are matched to the year in which they are incurred
c. Revenues are matched to the year in which they are booked
d. Revenues should be large enough to match expenses
Answer: a
●● A basic equation for the balance sheet is:
a. Equity = Assets - Liabilities
b. Liabilities = Equity + Assets
c. Assets = Liabilities - Equity
d. Assets = Equity - Liabilities
Answer: a
,●● Why is the Balance Sheet known as a permanent statement?
a. Because the statement is sent to the SEC.
b. Because the other statements are reset at the end of the fiscal year
c. Because it is printed out and archived
d. Because it persists in the minds of the shareholders.
Answer: b
●● How do you calculate the change in Retained Earnings?
a. Ending Retained Earnings - Change in Cash
b. EBIT divided by Total Assets + Dividends
c. EBIT - Change in Cash - Dividends
d. Net Income - Dividends
Answer: d
●● Which of the following is generally true?
a. Gross Profit and Operating Income are the same
b. Cost of Goods Sold + Operating Expenses = Net Income
c. Operating Income and EBIT are the same
d. EBIT + Income Taxes = Net income
Answer: c
●● Which components are part of total assets?
,a. Cash, Accounts Receivable, Short Term Debt
b. Cash Accounts Receivable, Inventory, Long Term Assets
c. Accounts Payable, Long Term Assets, Long Term Debt
d. Accounts Payable, Net Income, Equity
Answer: b
●● Which components are part of current assets?
a. Cash, Accounts Receivable, Property Plant & Equipment
b. Accounts Receivable, Accounts Payable, Inventory
c. Long Term Debt, Property Plant & Equipment, Common Stock
d. Inventory, Cash, Accounts Receivable, Short Term Investments
Answer: d
●● Which components are part of Total Liabilities?
a. Accounts Payable, Accounts Receivable, Short Term Debt
b. Long Term Debt, Common Stock, Retained Earnings
c. Bonds, Accounts Payable, Mortgage
d. Common Stock, Long Term Debt, Short Term Investments
Answer: c
●● When Fixed Assets increase what happens to Cash?
a. Cash stays the same
, b. Cash increases
c. Cash decreases
d. Assets decrease
Answer: c
●● Which is the purpose of the statement of cash flows?
a. serves as the replacement for the income statement and balance sheet
b. explains the change in cash balance at one point in time
c. explains the change in cash balance for one period of time
d. both (a) and (b) above
Answer: c
●● The OIROI (Operating Income Return on Investment) uses what
elements on the income statement?
a. Operating Income, EBIT, Total Liabilities
b. EBIT, Total Assets
c. Sales, Total Assets, Equity
d. Net Margin, Total Current Assets
Answer: b
●● Why would a company be interested in the TAT(Total Asset
Turnover) ratio?
a. How efficient assets are at producing income
