Intermediate Accounting I & II MCQs

1. Which financial statement reports a company’s financial position at a specific point in time?
(A) Income statement
(B) Balance sheet
(C) Statement of cash flows
(D) Statement of retained earnings

2. Under the accrual basis of accounting, revenue is recognized when:
(A) Cash is received
(B) The performance obligation is satisfied
(C) The invoice is issued
(D) Expenses are incurred

3. The matching principle requires that:
(A) Revenues be matched with cash receipts
(B) Expenses be recognized in the same period as the revenues they help generate
(C) Assets be matched with liabilities
(D) Revenues be recognized when cash is received

4. Depreciation expense is calculated to:
(A) Adjust the market value of an asset
(B) Allocate the cost of a tangible asset over its useful life
(C) Match cash outflows with asset usage
(D) Decrease the book value of an asset to zero

5. Intangible assets are characterized by:
(A) Physical substance
(B) A lack of physical form but the ability to generate future benefits
(C) A fixed useful life
(D) Tangibility and liquidity

6. Which inventory costing method results in the highest net income in periods of rising prices?
(A) FIFO
(B) LIFO
(C) Weighted average
(D) Specific identification

7. Unearned revenue is classified as:
(A) An asset
(B) A liability
(C) Revenue
(D) Equity

8. Accumulated Depreciation is a:
(A) Contra-asset account
(B) Liability account
(C) Revenue account
(D) Expense account

9. Which of the following is an example of a current liability?
(A) Accounts payable
(B) Goodwill
(C) Long-term debt
(D) Common stock

10. The primary purpose of adjusting entries is to:
(A) Record transactions not yet recorded
(B) Correct errors in the trial balance
(C) Ensure that revenue recognition and matching principles are followed
(D) Close temporary accounts

11. What is the primary purpose of financial accounting?
(A) Provide information for internal decision-making
(B) Prepare financial reports for external users
(C) Determine taxable income
(D) Monitor company policies

12. Which of the following principles or assumptions requires financial statements to be prepared assuming the business will continue to operate indefinitely?
(A) Going concern assumption
(B) Revenue recognition principle
(C) Historical cost principle
(D) Economic entity assumption

13. What type of account is Prepaid Insurance?
(A) Asset
(B) Liability
(C) Equity
(D) Expense

14. Under LIFO, in periods of rising prices:
(A) Cost of goods sold is higher than under FIFO
(B) Net income is higher than under FIFO
(C) Ending inventory is higher than under FIFO
(D) Inventory turnover is lower than under FIFO

15. What is the effect of an accrued expense on the financial statements?
(A) Decreases assets and increases liabilities
(B) Increases liabilities and decreases equity
(C) Decreases revenue and increases equity
(D) Increases assets and liabilities

16. The revenue recognition principle states that revenue should be recognized:
(A) When cash is received
(B) When the invoice is issued
(C) When the performance obligation is satisfied
(D) At the end of the accounting period

17. What is the purpose of a trial balance?
(A) To detect fraud
(B) To ensure that debits equal credits
(C) To prepare financial statements
(D) To record adjusting entries

18. The term “book value” refers to:
(A) The current market value of an asset
(B) The amount for which an asset can be sold
(C) The cost of an asset minus its accumulated depreciation
(D) The historical cost of an asset

19. Which of the following is considered a long-term liability?
(A) Accounts payable
(B) Deferred tax liability
(C) Accrued expenses
(D) Unearned revenue

20. The process of allocating the cost of natural resources over their useful life is called:
(A) Depreciation
(B) Amortization
(C) Depletion
(D) Capitalization