Financial accounting tests 1-3 | Questions and Answers
1. Independent auditors (CPA's) render an opinion that the financial state- ments do or do not
fairly present a company's financial position, operating results, and cash flows: True
2. Net loss reduces a company's retained earnings balance.: True
3. The classifications in the balance sheet are to help users determine how a company obtained
its resources: False
4. Three common categories of long-term assets are 1) property, plant, and equipment 2)
Long-term investments 3) intangibles: True
5. Stockholders equity is composed of contributed capital and retained earn- ings: True
6. The four basic financial statements are the Income statement, statement of retained earnings,
balance sheet, and statement of cash flows: True
7. Working capital is calculated by which of the following: Current assets minus current liabilities
8. Which of the following accounts are normally reported as current liabilities on a classified
balance sheet: Income taxes payable and salaries payable
9. Liquidity: Measures the ability of the firm to meet short term obligations as they become due
can be measured in terms of working capital can be
assessed by the current ratio
10.Which one of the following is the last step in the accounting cycle: closing the accounts
11.Home investors purchased land for $400,000 in 2007. In 2019, an indepen- dent appraiser
assessed the value of the land at 900,000. At what amount should the land be recorded on the
company's 2019 financial statements?: At its cost of 400,000
12.The time period assumption assumes that a company prepares its finan- cial statements
every month: True
13.Under the double-entry system of accounting, every transaction is entered in at least two
accounts on opposite sides of a T-Account.: True
14.The dividends account has a normal debit balance: True
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, Financial accounting tests 1-3 | Questions and Answers
15.A debit entry increases assets and revenue accounts: False
16.The accounting equation must balance before and after every accounting transaction: True
17.The issuance of common stock increases a company's assets and stock- holders equity: True
18.Which of the following is an assumption made in the preparation of the financial
statements?: Financial statements are prepared for a specific entity that is distinct from the entity's
owners.
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1. Independent auditors (CPA's) render an opinion that the financial state- ments do or do not
fairly present a company's financial position, operating results, and cash flows: True
2. Net loss reduces a company's retained earnings balance.: True
3. The classifications in the balance sheet are to help users determine how a company obtained
its resources: False
4. Three common categories of long-term assets are 1) property, plant, and equipment 2)
Long-term investments 3) intangibles: True
5. Stockholders equity is composed of contributed capital and retained earn- ings: True
6. The four basic financial statements are the Income statement, statement of retained earnings,
balance sheet, and statement of cash flows: True
7. Working capital is calculated by which of the following: Current assets minus current liabilities
8. Which of the following accounts are normally reported as current liabilities on a classified
balance sheet: Income taxes payable and salaries payable
9. Liquidity: Measures the ability of the firm to meet short term obligations as they become due
can be measured in terms of working capital can be
assessed by the current ratio
10.Which one of the following is the last step in the accounting cycle: closing the accounts
11.Home investors purchased land for $400,000 in 2007. In 2019, an indepen- dent appraiser
assessed the value of the land at 900,000. At what amount should the land be recorded on the
company's 2019 financial statements?: At its cost of 400,000
12.The time period assumption assumes that a company prepares its finan- cial statements
every month: True
13.Under the double-entry system of accounting, every transaction is entered in at least two
accounts on opposite sides of a T-Account.: True
14.The dividends account has a normal debit balance: True
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, Financial accounting tests 1-3 | Questions and Answers
15.A debit entry increases assets and revenue accounts: False
16.The accounting equation must balance before and after every accounting transaction: True
17.The issuance of common stock increases a company's assets and stock- holders equity: True
18.Which of the following is an assumption made in the preparation of the financial
statements?: Financial statements are prepared for a specific entity that is distinct from the entity's
owners.
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