Robert Half Assessment Test Core Accounting Principles 5 — Questions and Answers
Question 1: Which of the following best describes the going concern assumption?
- A business will report assets at their liquidation value
- A business is expected to continue operating indefinitely (Correct answer)
- Revenue must be recognized when cash is received
- Financial statements must be prepared monthly
Correct answer: A business is expected to continue operating indefinitely
The going concern assumption holds that a business will remain operational long enough to fulfill its obligations and complete its plans.
Question 2: An adjusting entry to record accrued salaries expense at year-end would:
- Debit Salaries Payable; credit Salaries Expense
- Debit Salaries Expense; credit Salaries Payable (Correct answer)
- Debit Cash; credit Salaries Expense
- Debit Salaries Expense; credit Cash
Correct answer: Debit Salaries Expense; credit Salaries Payable
Accrued salaries are recorded by debiting Salaries Expense (increasing expenses) and crediting Salaries Payable (creating a liability).
Question 3: Which financial ratio measures how many times a company collects its average accounts receivable balance during a period?
- Current ratio
- Accounts receivable turnover (Correct answer)
- Debt-to-equity ratio
- Gross profit margin
Correct answer: Accounts receivable turnover
Accounts receivable turnover = Net Credit Sales / Average Accounts Receivable and gauges collection efficiency.
Question 4: The concept of materiality in accounting means that:
- All transactions must be recorded regardless of size
- Insignificant items may be handled in the most practical manner (Correct answer)
- Only tangible assets are reported
- Financial statements must be audited annually
Correct answer: Insignificant items may be handled in the most practical manner
Materiality allows minor items to be accounted for expediently when their omission or misstatement would not influence financial statement users.
Question 5: Under FIFO inventory costing during a period of rising prices, compared to LIFO, a company will report:
- Lower net income and lower inventory value
- Higher net income and higher inventory value (Correct answer)
- Higher net income and lower inventory value
- Lower net income and higher inventory value
Correct answer: Higher net income and higher inventory value
With rising prices, FIFO assigns older (cheaper) costs to COGS, leaving newer (higher-priced) goods in ending inventory, resulting in higher income and inventory value.
Question 6: Which of the following would be recorded as a capital expenditure rather than a revenue expenditure?
- Replacing worn-out tires on a delivery truck
- Installing a new engine that extends the truck's useful life by 5 years (Correct answer)
- Paying for annual vehicle registration
- Routine oil change on company vehicles
Correct answer: Installing a new engine that extends the truck's useful life by 5 years
Capital expenditures extend an asset's useful life or increase its capacity and are capitalized; routine maintenance is expensed immediately.
Question 7: On the indirect method cash flow statement, a decrease in accounts payable is shown as a:
- Addition to net income
- Subtraction from net income (Correct answer)
- Investing cash inflow
- Financing cash inflow
Correct answer: Subtraction from net income
A decrease in accounts payable means the company paid suppliers more cash than the period's purchases expense, so cash used exceeds expense—subtract the decrease.
Robert Half Assessment Test Core Accounting Principles 5
Which of the following best describes the going concern assumption?