Page 1 of 110
ASU Exam 2 Wolfe Exam Questions And
Correct Answers (Verified Answers) Plus
Rationales 2026 Q&A | Instant Download Pdf
Q1. Which of the following represents the correct accounting
equation?
A) Assets = Liabilities - Stockholders' Equity
B) Assets = Liabilities + Stockholders' Equity
C) Assets + Liabilities = Stockholders' Equity
D) Assets + Stockholders' Equity = Liabilities
Correct Answer: B
Rationale: The accounting equation is the foundation of double-
entry accounting: Assets = Liabilities + Equity. Every transaction
affects at least two accounts, and the equation must remain in
balance after each entry .
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Q2. Liabilities are defined as:
A) Future economic benefits of a company
B) Earnings retained in the business
C) Stockholders' claims to assets
D) Amounts owed to lenders or creditors
Correct Answer: D
Rationale: Liabilities represent obligations or debts owed to
external parties (creditors, lenders, suppliers) arising from past
transactions. They are claims against the company's assets .
Q3. Assets are defined as:
A) Stockholders' claims to assets
B) Economic resources of a company
C) Amounts owed to others
D) Earnings retained in the business
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Correct Answer: B
Rationale: Assets are resources controlled by the entity as a
result of past events from which future economic benefits are
expected. Examples include cash, inventory, equipment, and
accounts receivable .
Q4. Which of the following does NOT describe Stockholders'
Equity?
A) Money lent to a business
B) Money invested in a business by its owners
C) The owners' claim on the assets of a company
D) Profits retained in the business
Correct Answer: A
Rationale: Money lent is a liability (notes payable or accounts
payable), not equity. Equity consists of contributed capital
, Page 4 of 110
(money invested by owners) and retained earnings (accumulated
profits kept in the business) .
Q5. Which of the following is NOT an asset?
A) Buildings
B) Net income
C) Prepaid insurance
D) Accounts receivable
Correct Answer: B
Rationale: Net income is a result of operations (revenues minus
expenses) reported on the income statement over a period of
time. It is not a resource controlled by the company; it is a
performance measure. Buildings, prepaid insurance, and accounts
receivable are all assets .
ASU Exam 2 Wolfe Exam Questions And
Correct Answers (Verified Answers) Plus
Rationales 2026 Q&A | Instant Download Pdf
Q1. Which of the following represents the correct accounting
equation?
A) Assets = Liabilities - Stockholders' Equity
B) Assets = Liabilities + Stockholders' Equity
C) Assets + Liabilities = Stockholders' Equity
D) Assets + Stockholders' Equity = Liabilities
Correct Answer: B
Rationale: The accounting equation is the foundation of double-
entry accounting: Assets = Liabilities + Equity. Every transaction
affects at least two accounts, and the equation must remain in
balance after each entry .
,Page 2 of 110
Q2. Liabilities are defined as:
A) Future economic benefits of a company
B) Earnings retained in the business
C) Stockholders' claims to assets
D) Amounts owed to lenders or creditors
Correct Answer: D
Rationale: Liabilities represent obligations or debts owed to
external parties (creditors, lenders, suppliers) arising from past
transactions. They are claims against the company's assets .
Q3. Assets are defined as:
A) Stockholders' claims to assets
B) Economic resources of a company
C) Amounts owed to others
D) Earnings retained in the business
,Page 3 of 110
Correct Answer: B
Rationale: Assets are resources controlled by the entity as a
result of past events from which future economic benefits are
expected. Examples include cash, inventory, equipment, and
accounts receivable .
Q4. Which of the following does NOT describe Stockholders'
Equity?
A) Money lent to a business
B) Money invested in a business by its owners
C) The owners' claim on the assets of a company
D) Profits retained in the business
Correct Answer: A
Rationale: Money lent is a liability (notes payable or accounts
payable), not equity. Equity consists of contributed capital
, Page 4 of 110
(money invested by owners) and retained earnings (accumulated
profits kept in the business) .
Q5. Which of the following is NOT an asset?
A) Buildings
B) Net income
C) Prepaid insurance
D) Accounts receivable
Correct Answer: B
Rationale: Net income is a result of operations (revenues minus
expenses) reported on the income statement over a period of
time. It is not a resource controlled by the company; it is a
performance measure. Buildings, prepaid insurance, and accounts
receivable are all assets .
