CNA Financial Reporting and Analysis 2

Question 1

Depreciation is recorded to comply with which accounting principle?

Accepted Answer

Matching principle

Answer

The matching principle requires that expenses be recognized in the same period as the revenues they help generate, so depreciation spreads a long-term asset's cost over its useful life.

Question 2

When a company uses the straight-line depreciation method, what remains constant each period?

Accepted Answer

The amount of depreciation expense

Answer

Straight-line depreciation spreads the depreciable cost evenly over the asset's useful life, resulting in an equal depreciation expense each period.

Question 3

Which of the following items would be found in the financing activities section of the Statement of Cash Flows?

Accepted Answer

Payment of dividends

Answer

Payment of dividends is a financing activity because it represents cash distributed to shareholders as a return on their equity investment.

Question 4

What is the formula for calculating the debt-to-equity ratio?

Accepted Answer

Total Liabilities ÷ Total Equity

Answer

Debt-to-Equity Ratio = Total Liabilities ÷ Total Shareholders' Equity, measuring financial leverage and the relative proportion of debt versus equity financing.

Question 5

Under ASC 842, operating leases are now required to be recorded on a lessee's balance sheet as what?

Accepted Answer

A right-of-use asset and a lease liability

Answer

ASC 842 requires lessees to recognize a right-of-use asset and a corresponding lease liability for operating leases with terms exceeding 12 months.

CNA - Certified National Accountant Practice Test

CNA - Certified National Accountant Practice Test

CNA Financial Reporting and Analysis 2