This study guide prepares you for the Final Examination you complete in the last week of the course. It contains
practice questions, which are related to each week’s objectives. Highlight the correct response, and then refer to
the answer key at the end of this Study Guide to check your answers.
Use each week’s questions as a self-test at the start of a new week to reflect on the previous week’s concepts.
When you come across concepts that you are unfamiliar with, refer to the Student Guide for that particular
week.
Week One: Accounting Environment
Objective: Describe the relationship between the financial statements and the supplemental
components comprised in an annual report.
1. Management’s views on the company’s short-term debt-paying ability, expansion financing, and results of
operations are in the
a. auditor’s report
b. management discussion and analysis section
c. notes to the financial statements
d. president’s state of the company report
2. Notes to the financial statements
a. are optional
b. help clarify information presented in the financial statements
c. are generally brief and few in number
, d. need not be read in detail if an unqualified opinion accompanies the financial statements
Objective: Explain how the accounting equation affects the financial statement components.
3. Finney Company began the year by issuing $20,000 of common stock for cash. The company recorded
revenues of $185,000 and expenses of $160,000, and paid dividends of $10,000. What was Finney’s net
income for the year?
a. $15,000
b. $35,000
c. $25,000
d. $45,000
4. Retained earnings at the end of the period is equal to
a. retained earnings at the beginning of the period plus net income minus liabilities
b. retained earnings at the beginning of the period plus net income minus dividends
c. net income
d. assets plus liabilities
Objective: Determine the effects of transactions on the accounting equation.
5. Stockholders’ equity is increased by
a. dividends
b. revenues
c. expenses
d. liabilities
6. If services are rendered for cash, then
a. assets will increase
b. liabilities will increase
c. stockholders’ equity will decrease
d. liabilities will decrease
Week Two: Financial Statements
Objective: Differentiate between accrual and cash accounting.
7. A small company may be able to justify using a cash basis of accounting if it has
a. sales under $1,000,000
b. no accountants on staff
c. few receivables and payables
practice questions, which are related to each week’s objectives. Highlight the correct response, and then refer to
the answer key at the end of this Study Guide to check your answers.
Use each week’s questions as a self-test at the start of a new week to reflect on the previous week’s concepts.
When you come across concepts that you are unfamiliar with, refer to the Student Guide for that particular
week.
Week One: Accounting Environment
Objective: Describe the relationship between the financial statements and the supplemental
components comprised in an annual report.
1. Management’s views on the company’s short-term debt-paying ability, expansion financing, and results of
operations are in the
a. auditor’s report
b. management discussion and analysis section
c. notes to the financial statements
d. president’s state of the company report
2. Notes to the financial statements
a. are optional
b. help clarify information presented in the financial statements
c. are generally brief and few in number
, d. need not be read in detail if an unqualified opinion accompanies the financial statements
Objective: Explain how the accounting equation affects the financial statement components.
3. Finney Company began the year by issuing $20,000 of common stock for cash. The company recorded
revenues of $185,000 and expenses of $160,000, and paid dividends of $10,000. What was Finney’s net
income for the year?
a. $15,000
b. $35,000
c. $25,000
d. $45,000
4. Retained earnings at the end of the period is equal to
a. retained earnings at the beginning of the period plus net income minus liabilities
b. retained earnings at the beginning of the period plus net income minus dividends
c. net income
d. assets plus liabilities
Objective: Determine the effects of transactions on the accounting equation.
5. Stockholders’ equity is increased by
a. dividends
b. revenues
c. expenses
d. liabilities
6. If services are rendered for cash, then
a. assets will increase
b. liabilities will increase
c. stockholders’ equity will decrease
d. liabilities will decrease
Week Two: Financial Statements
Objective: Differentiate between accrual and cash accounting.
7. A small company may be able to justify using a cash basis of accounting if it has
a. sales under $1,000,000
b. no accountants on staff
c. few receivables and payables
