IBA Accounting Fundamentals 3

Question 1

Goodwill as an intangible asset arises when:

Accepted Answer

A company acquires another company for more than the fair value of its net assets

Answer

Goodwill is recorded only in a business acquisition and represents the excess of the purchase price over the fair market value of the acquired company's identifiable net assets.

Question 2

Which financial statement reports the inflows and outflows of cash during an accounting period?

Accepted Answer

Statement of Cash Flows

Answer

The Statement of Cash Flows categorizes cash movements into operating, investing, and financing activities, showing how a company generated and used cash.

Question 3

Under the lower of cost or net realizable value (LCNRV) rule, inventory is written down when:

Accepted Answer

The inventory's net realizable value falls below its recorded cost

Answer

LCNRV requires inventory to be reported at the lower of its original cost or its net realizable value, ensuring assets are not overstated on the balance sheet.

Question 4

Which of the following best describes the purpose of a trial balance?

Accepted Answer

To verify that total debits equal total credits in the ledger

Answer

A trial balance lists all ledger accounts with their debit or credit balances to verify the mathematical equality of total debits and total credits after journalizing.

Question 5

Accounts receivable on the balance sheet represent:

Accepted Answer

Amounts owed to the company by customers for goods or services delivered

Answer

Accounts receivable are current assets representing money customers owe to the company for credit sales of goods or services already delivered.

IBA - Institute of Business Administration Practice Test

IBA - Institute of Business Administration Practice Test

IBA Accounting Fundamentals 3