SS2 Third Term Financial Account Past Questions And Answers

Here they are;

Question: What is the purpose of the statement of cash flows in financial reporting?

 

A) To provide information about a company’s cash and cash equivalents

B) To report changes in shareholders’ equity

C) To disclose the fair value of assets and liabilities

D) To calculate the return on investment

Answer: A) To provide information about a company’s cash and cash equivalents

Question: How does the FIFO (First-In, First-Out) method allocate costs to inventory?

 

A) Allocates the earliest costs to ending inventory first

B) Allocates the latest costs to ending inventory first

C) Allocates costs evenly across all inventory items

D) Ignores the concept of cost allocation in inventory accounting

Answer: A) Allocates the earliest costs to ending inventory first

Question: In financial accounting, what is the primary purpose of the post-closing trial balance?

 

A) To identify errors in the financial statements

B) To ensure that all temporary accounts are closed properly

C) To calculate the return on investment

D) To determine the company’s liquidity position

Answer: B) To ensure that all temporary accounts are closed properly

Question: How does the straight-line depreciation method impact the book value of an asset over time?

 

A) Book value increases

B) Book value decreases

C) Book value remains constant

D) Book value fluctuates randomly

Answer: B) Book value decreases

Question: According to the accounting equation, how are assets and liabilities related?

 

A) Assets equal liabilities

B) Assets minus liabilities equal equity

C) Assets plus liabilities equal equity

D) Assets and liabilities are unrelated

Answer: C) Assets plus liabilities equal equity

Question: What is the purpose of the Securities and Exchange Commission (SEC) in the United States?

 

A) To regulate international financial reporting

B) To set accounting standards for private companies

C) To enforce ethical conduct in accounting

D) To oversee securities markets and protect investors

Answer: D) To oversee securities markets and protect investors

Question: How does the double-declining balance method differ from the straight-line method in calculating depreciation?

 

A) It allocates an equal amount of depreciation each year

B) It results in a higher depreciation expense in the earlier years

C) It is only applicable to intangible assets

D) It ignores the concept of depreciation

Answer: B) It results in a higher depreciation expense in the earlier years

Question: What is the purpose of the income statement in financial reporting?

 

A) To report changes in equity

B) To provide information about a company’s cash flows

C) To show profitability over a specific period

D) To disclose the fair value of assets and liabilities

Answer: C) To show profitability over a specific period

Question: According to the conservatism principle, how should potential gains be treated?

 

A) Recognized immediately

B) Ignored until realized

C) Amortized over time

D) Disclosed only in footnotes

Answer: B) Ignored until realized

Question: How does the purchase of equipment using long-term debt affect the accounting equation?

 

A) Increases assets and liabilities

B) Increases assets and decreases liabilities

C) Decreases assets and liabilities

D) Decreases assets and increases liabilities

Answer: A) Increases assets and liabilities

Question: What is the purpose of the accrual basis of accounting?

 

A) To recognize revenues and expenses when cash is received or paid

B) To match revenues and expenses in the period they are incurred

C) To provide a comprehensive view of a company’s financial position

D) To calculate the return on equity

Answer: B) To match revenues and expenses in the period they are incurred

Question: How does the purchase of inventory on credit impact the current ratio?

 

A) Increases the current ratio

B) Decreases the current ratio

C) Leaves the current ratio unchanged

D) Converts the current ratio to a quick ratio

Answer: C) Leaves the current ratio unchanged

Question: According to the going concern assumption, how are long-term assets typically valued in the balance sheet?

 

A) At historical cost

B) At fair market value

C) At liquidation value

D) At par value

Answer: A) At historical cost

Question: What is the purpose of the perpetual inventory system in accounting?

 

A) To calculate depreciation expenses

B) To track inventory levels in real-time

C) To determine the fair value of assets

D) To disclose changes in shareholders’ equity

Answer: B) To track inventory levels in real-time

Question: According to the materiality concept, what factor determines whether an item should be disclosed in the financial statements?

 

A) Size and nature of the item

B) Company’s total revenue

C) Tax implications of the item

D) Frequency of similar items in the industry

Answer: A) Size and nature of the item

Question: How does the straight-line depreciation method allocate depreciation expense over an asset’s useful life?

 

A) Equally across all periods

B) Based on the asset’s market value

C) Inversely proportional to the asset’s age

D) Only in the first and last years of the asset’s life

Answer: A) Equally across all periods

Question: According to the prudence concept, how should uncertainties and future events be treated in financial reporting?

 

A) Recognize potential gains and losses immediately

B) Ignore uncertainties until they occur

C) Recognize potential gains immediately and losses only when realized

D) Disclose uncertainties only in footnotes

Answer: C) Recognize potential gains immediately and losses only when realized

Question: What is the purpose of the statement of changes in equity?

 

A) To report changes in shareholders’ wealth

B) To disclose changes in the fair value of assets

C) To calculate the return on investment

D) To provide information about a company’s cash flows

Answer: A) To report changes in shareholders’ wealth