IKM - International Knowledge Measurement Core Financial Accounting Questions and Answers 1

Question 1

Which of the following accounting principles requires that the expenses incurred to generate revenue be recorded in the same period as the revenue?

Accepted Answer

Matching Principle

Answer

Going Concern Principle

Answer

Cost Principle

Answer

Full Disclosure Principle

Question 2

A company performs services for a client in December but does not receive payment until January of the following year. According to the revenue recognition principle under accrual basis accounting, when should the company record the revenue?

Accepted Answer

In December, when the services are performed.

Answer

In January, when the cash is received.

Answer

Spread evenly between December and January.

Answer

At the end of the fiscal year in which the payment is received.

Question 3

Which of the following financial statements provides a snapshot of a company's financial position at a specific point in time?

Accepted Answer

Balance Sheet

Answer

Income Statement

Answer

Statement of Cash Flows

Answer

Statement of Retained Earnings

Question 4

A corporation issues common stock to investors in exchange for $50,000 in cash. What is the immediate effect of this transaction on the company's accounting equation?

Accepted Answer

Assets increase and Equity increases.

Answer

Assets decrease and Liabilities increase.

Answer

Assets increase and Liabilities increase.

Answer

Liabilities decrease and Equity increases.

Question 5

A company purchases a new machine for $100,000 with a useful life of 10 years and no salvage value. Using the straight-line depreciation method, what is the impact on the company's financial statements in the first year of the machine's use?

Accepted Answer

Net income decreases by $10,000 and the asset's book value decreases by $10,000.

Answer

Cash decreases by $100,000 and equity decreases by $100,000.

Answer

Expenses increase by $100,000 and assets decrease by $100,000.

Answer

Revenue decreases by $10,000 and liabilities increase by $10,000.

Question 6

In the double-entry accounting system, which of the following accounts is increased with a debit?

Accepted Answer

Assets

Answer

Liabilities

Answer

Owner's Equity

Answer

Revenue