ASU ACC232 FINANCIAL
ACCOUNTING PRACTICE
EXAM COMPLETE 80
Question 1: Which �nancial statement reports assets, liabilities, and stockholders’ equity at a speci�c date?
Choices:
1) Income statement 2) Balance sheet 3) Statement of cash �ows 4) Statement of retained earnings
Correct Answer: Balance sheet
Explanation: The balance sheet presents the accounting equation—assets = liabilities + stockholders’ equity—at a speci�c point in time.Page 1
Question 2: A company earns $18,000 of service revenue on account. What is the
immediate e�ect on the accounting equation?
Choices:
1) Assets increase $18,000 and equity increases $18,000 2) Assets increase $18,000 and liabilities increase $18,000 3) Liabilities decrease $18,000 and equity increases $18,000 4) Assets and equity both decrease $18,000
Correct Answer: Assets increase $18,000 and equity increases $18,000
Explanation: Accounts receivable increases by $18,000 and revenue increases retained earnings through net income, so assets and equity both increase $18,000.
Question 3: Which item is reported as an expense on the income statement?
Choices:
1) Dividends 2) Accounts payable 3) Utilities used during the period 4) Common stock issued
Correct Answer: Utilities used during the period
Explanation: Utilities consumed in generating revenue are an expense. Dividends are distributions to owners, accounts payable is a liability, and common stock is equity.Page 2
Question 4: If beginning retained earnings are $42,000, net income is $16,000, and dividends are $5,000, what is ending retained earnings?
Choices:
1) $53,000
2) $63,000
3) $31,000
4) $21,000
Correct Answer: $53,000
Explanation: Ending retained earnings = $42,000 + $16,000 - $5,000 = $53,000.
Question 5: Which assumption allows accountants to divide the life of a business into months, quarters, and years for reporting purposes?
Choices:
1) Going concern assumption 2) Economic entity assumption 3) Monetary unit assumption 4) Periodicity assumption
Correct Answer: Periodicity assumption
Explanation: The periodicity assumption permits the life of a business to be divided into arti�cial reporting periods such as months, quarters, and years.Page 3