Financial Statements MCQs

Practice and Learn through MCQs and Quizzes. have 8 Financial Statements MCQs

Accounting MCQ1- A primary objective of external financial reporting is

  • A. Direct measurement of the value of a business enterprise.
  • B. "Provision of information that is useful to present and potential investors, creditors, and others in making rational financial decisions regarding the enterprise."
  • C. Establishment of rules for accruing liabilities.
  • D. Direct measurement of the enterprise�s stock price.
  • "Answer (B) is correct. According to the FASB�s Conceptual Framework, the objectives of external financial reporting are to provide information that (1) is useful to present and potential investors, creditors, and others in making rational financial decisions regarding the enterprise; (2) helps those parties in assessing the amounts, timing, and uncertainty of prospective cash receipts from dividends or interest and the proceeds from sale, redemption, or maturity of securities or loans; and (3) concerns the economic resources of an enterprise, the claims thereto, and the effects of transactions, events, and circumstances that change its resources and claims thereto."
  • Correct Answer: Option B

Accounting MCQ10- The primary purpose of the statement of financial position is to reflect

  • A. The fair value of the firm�s assets at some moment in time
  • B. The status of the firm�s assets in case of forced liquidation of the firm
  • C. The success of a company�s operations for a given amount of time
  • D. Items of value, debt, and net worth
  • Answer (D) is correct. The balance sheet presents three major financial accounting elements: assets (items of value), liabilities (debts), and equity (net worth). According to the FASB�s Conceptual Framework, assets are probable future economic benefits resulting from past transactions or events. Liabilities are probable future sacrifices of economic benefits arising from present obligations as a result of past transactions or events. Equity is the residual interest in the assets after deduction of liabilities.
  • Correct Answer: Option D

Accounting MCQ2- Notes to financial statements are beneficial in meeting

  • A. Describe significant accounting policies.
  • B. Describe depreciation methods employed by the company.
  • C. Describe principles and methods peculiar to the industry in which the company operates, when these principles and methods are predominantly followed in that industry.
  • D. Correct an improper presentation in the financial statements.
  • Answer (D) is correct. Financial statement notes should not be used to correct improper presentations. The financial statements should be presented correctly on their own. Notes should be used to explain the methods used to prepare the financial statements and the amounts shown. The first footnote typically describes significant accounting policies.
  • Correct Answer: Option D

Accounting MCQ4- The management of ABC Corporation is analyzing the financial statements of XYZ Corporation

  • A. Income statement
  • B. Statement of changes in equity
  • C. Statement of cash flows
  • D. Statement of financial position
  • Answer (C) is correct. A statement of cash flows provides information about the cash receipts and cash payments of an entity during a period. This information helps investors, creditors, and other users to assess the entity�s ability to generate cash and cash equivalents and the needs of the entity to use those cash flows. Historical cash flow data indicate the amount, timing, and certainty of future cash flows. It is also a means of verifying past cash flow assessments and of determining the relationship between profits and net cash flows and the effects of changing prices.
  • Correct Answer: Option C

Accounting MCQ5- An entity that sprays chemicals in residences to eliminate or prevent infestation of insects requires

  • A. Deferred income
  • B. Earned income
  • C. Accrued income
  • D. Prepaid expense
  • Answer (A) is correct. The future inflow of economic benefits is not sufficiently certain given that the entity has not done what is required to be entitled to those benefits. Thus, the receipt of cash in anticipation of goods to be delivered or services to be performed must be recognized as a liability, usually called deferred (or unearned) revenue or deferred (or unearned) income.
  • Correct Answer: Option A

Accounting MCQ6- Which of the following is true regarding the comparison of managerial and financial accounting?

  • A. Managerial accounting is generally more precise
  • C. The emphasis on managerial accounting is relevance, and the emphasis on financial accounting is timeliness
  • D. Managerial accounting need not follow generally accepted accounting principles (GAAP), while financial accounting must follow them
  • Answer (D) is correct. Managerial accounting assists management decision making, planning, and control. Financial accounting addresses accounting for an entity�s assets, liabilities, revenues, expenses, and other elements of financial statements. Financial statements are the primary method of communicating to external parties information about the entity�s results of operations, financial position, and cash flows. For general-purpose financial statements to be useful to external parties, they must be prepared in conformity with accounting principles that are generally accepted in the United States. However, managerial accounting information is primarily directed to specific internal users. Hence, it ordinarily need not follow such guidance.
  • Correct Answer: Option D

Accounting MCQ7- The financial statements included in the annual report to the shareholders are least useful to which one of the following?

  • A. Stockbrokers
  • B. Bankers preparing to lend money
  • C. Competing businesses
  • D. Managers in charge of operating activities
  • Answer (D) is correct. Accrual-basis amounts used in financial reporting are not useful to managers making day-to-day operating decisions. The practice of management accounting fulfills the needs of these users.
  • Correct Answer: Option D

Accounting MCQ8- Prepaid expenses are valued on the statement of financial position at the

  • A. Cost to acquire the asset
  • B. Face amount collectible at maturity.
  • C. Cost to acquire minus accumulated amortization
  • D. Cost less expired or used portion
  • Answer (D) is correct. Prepaid expenses, such as supplies, prepaid rent, and prepaid insurance, are reported on the balance sheet at cost minus the expired or used portion. These are typically current assets.
  • Correct Answer: Option D