CPB / BookKeeping Financial Statement Preparation 3

Question 1

Which financial statement reconciles net income to retained earnings?

Accepted Answer

Statement of retained earnings

Answer

The statement of retained earnings shows the beginning balance, adds net income, subtracts dividends, and arrives at the ending retained earnings balance.

Question 2

How are dividends declared reported on financial statements?

Accepted Answer

Both B and C

Answer

When dividends are declared, they create a dividends payable liability and reduce retained earnings; they are not an expense on the income statement.

Question 3

Which inventory cost flow assumption typically results in the lowest net income during a period of rising prices?

Accepted Answer

LIFO

Answer

LIFO assigns the most recent (higher) costs to cost of goods sold first, resulting in higher COGS and lower net income during periods of rising prices.

Question 4

On the balance sheet, how is accumulated depreciation presented?

Accepted Answer

As a contra-asset reducing the cost of property, plant, and equipment

Answer

Accumulated depreciation is a contra-asset account that offsets the gross cost of property, plant, and equipment to show net book value.

Question 5

What does the current ratio measure?

Accepted Answer

A company's ability to pay short-term obligations with current assets

Answer

The current ratio (current assets ÷ current liabilities) measures a company's short-term liquidity and ability to cover near-term obligations.

CPB / BookKeeping Practice Test

CPB / BookKeeping Practice Test

CPB / BookKeeping Financial Statement Preparation 3