PEREGRINE EXAM Questions and Correct
Answers (Verified Answers) Plus Rationale
2027 Q&A| Instant Download Pdf
1. Which financial statement primarily reports a company’s revenues
and expenses over a specific period?
A. Balance sheet
B. Statement of cash flows
C. Income statement
D. Statement of retained earnings
Rationale: The income statement summarizes revenues, expenses,
gains, and losses over a defined period and determines whether the
organization generated a net income or net loss. The balance sheet
reports financial position at a point in time, while the cash-flow
statement focuses on cash inflows and outflows.
2. Which accounting principle requires expenses to be recognized in
the same period as the revenues they help generate?
,A. Conservatism principle
B. Going-concern principle
C. Cost principle
D. Matching principle
Rationale: The matching principle requires expenses associated with
generating revenue to be recognized in the same accounting period as
that revenue. This improves the accuracy of reported profitability.
3. What is the primary purpose of a balance sheet?
A. To measure employee productivity
B. To report only cash transactions
C. To show assets, liabilities, and equity at a specific point in time
D. To forecast future sales
Rationale: A balance sheet provides a snapshot of an organization's
financial position on a particular date. It is based on the fundamental
accounting equation: Assets = Liabilities + Equity.
4. A company has current assets of $150,000 and current liabilities of
$100,000. What is its current ratio?
A. 0.67
B. 1.0
,C. 1.5
D. 2.5
Rationale: The current ratio is calculated by dividing current assets by
current liabilities. Therefore, $150,000 ÷ $100,000 = 1.5. A ratio above 1
indicates that current assets exceed current liabilities.
5. Which financial ratio measures the extent to which a company uses
debt to finance its assets?
A. Current ratio
B. Return on assets
C. Gross margin ratio
D. Debt-to-assets ratio
Rationale: The debt-to-assets ratio compares total liabilities with total
assets. It indicates the proportion of company assets financed through
debt and therefore provides insight into financial leverage and risk.
6. What is the primary objective of financial management?
A. Maximize the number of employees
B. Minimize all business expenses
C. Increase market share regardless of profitability
D. Maximize shareholder wealth
, Rationale: Financial management generally focuses on decisions that
increase the long-term value of the organization for its owners. This
requires balancing profitability, risk, investment, financing, and cash-
flow considerations.
7. Which capital budgeting technique calculates the present value of
future cash flows minus the initial investment?
A. Payback period
B. Accounting rate of return
C. Net present value
D. Break-even analysis
Rationale: Net present value (NPV) discounts expected future cash flows
to their present value and subtracts the initial investment. A positive
NPV generally indicates that a project is expected to create value.
8. What does the time value of money concept indicate?
A. Money loses all value over time
B. Future money is always worth more than current money
C. A dollar available today is generally worth more than a dollar
received in the future
D. Inflation has no effect on investment decisions
Answers (Verified Answers) Plus Rationale
2027 Q&A| Instant Download Pdf
1. Which financial statement primarily reports a company’s revenues
and expenses over a specific period?
A. Balance sheet
B. Statement of cash flows
C. Income statement
D. Statement of retained earnings
Rationale: The income statement summarizes revenues, expenses,
gains, and losses over a defined period and determines whether the
organization generated a net income or net loss. The balance sheet
reports financial position at a point in time, while the cash-flow
statement focuses on cash inflows and outflows.
2. Which accounting principle requires expenses to be recognized in
the same period as the revenues they help generate?
,A. Conservatism principle
B. Going-concern principle
C. Cost principle
D. Matching principle
Rationale: The matching principle requires expenses associated with
generating revenue to be recognized in the same accounting period as
that revenue. This improves the accuracy of reported profitability.
3. What is the primary purpose of a balance sheet?
A. To measure employee productivity
B. To report only cash transactions
C. To show assets, liabilities, and equity at a specific point in time
D. To forecast future sales
Rationale: A balance sheet provides a snapshot of an organization's
financial position on a particular date. It is based on the fundamental
accounting equation: Assets = Liabilities + Equity.
4. A company has current assets of $150,000 and current liabilities of
$100,000. What is its current ratio?
A. 0.67
B. 1.0
,C. 1.5
D. 2.5
Rationale: The current ratio is calculated by dividing current assets by
current liabilities. Therefore, $150,000 ÷ $100,000 = 1.5. A ratio above 1
indicates that current assets exceed current liabilities.
5. Which financial ratio measures the extent to which a company uses
debt to finance its assets?
A. Current ratio
B. Return on assets
C. Gross margin ratio
D. Debt-to-assets ratio
Rationale: The debt-to-assets ratio compares total liabilities with total
assets. It indicates the proportion of company assets financed through
debt and therefore provides insight into financial leverage and risk.
6. What is the primary objective of financial management?
A. Maximize the number of employees
B. Minimize all business expenses
C. Increase market share regardless of profitability
D. Maximize shareholder wealth
, Rationale: Financial management generally focuses on decisions that
increase the long-term value of the organization for its owners. This
requires balancing profitability, risk, investment, financing, and cash-
flow considerations.
7. Which capital budgeting technique calculates the present value of
future cash flows minus the initial investment?
A. Payback period
B. Accounting rate of return
C. Net present value
D. Break-even analysis
Rationale: Net present value (NPV) discounts expected future cash flows
to their present value and subtracts the initial investment. A positive
NPV generally indicates that a project is expected to create value.
8. What does the time value of money concept indicate?
A. Money loses all value over time
B. Future money is always worth more than current money
C. A dollar available today is generally worth more than a dollar
received in the future
D. Inflation has no effect on investment decisions
