Here are 50 MCQs covering Basic Financial Accounting Concepts (US GAAP focus) – US CMA Level:
1. Under US GAAP, revenue is recognized when:
A. Cash is received
B. Performance obligation is satisfied
C. Invoice is issued
D. Contract is signed
Answer:
2. Basic EPS is calculated as:
A. Net income / Total shares issued
B. Net income / Weighted avg. shares outstanding
C. Net income / Ending shares
D. EBIT / Shares
Answer:
3. Diluted EPS considers:
A. Only common shares
B. Potentially dilutive securities
C. Treasury stock only
D. Preferred dividends only
Answer:
4. If convertible bonds are dilutive, diluted EPS requires:
A. Subtracting interest (after tax) from numerator
B. Adding interest (after tax) to numerator
C. Ignoring interest
D. Reducing shares
Answer:
5. Capital maintenance concept focuses on:
A. Cash balance
B. Maintaining purchasing power of capital
C. Profit distribution
D. Dividend policy
Answer:
6. Under proprietary theory, income belongs to:
A. Company
B. Creditors
C. Owners
D. Government
Answer:
7. Under entity theory, the business is separate from:
A. Customers
B. Owners
C. Suppliers
D. Employees
Answer:
8. Residuary theory emphasizes rights of:
A. Creditors
B. Government
C. Equity shareholders
D. Employees
Answer:
9. Depreciable assets exclude:
A. Building
B. Machinery
C. Land
D. Equipment
Answer:
10. Depreciation is allocation of:
A. Market value
B. Replacement cost
C. Historical cost over useful life
D. Cash flow
Answer:
11. Amortization generally applies to:
A. Tangible assets
B. Intangible assets
C. Inventory
D. Land
Answer:
12. Liquidity measures ability to:
A. Earn profits
B. Pay long-term debt
C. Pay short-term obligations
D. Issue shares
Answer:
13. Solvency measures:
A. Short-term liquidity
B. Long-term financial stability
C. Inventory turnover
D. Profit margin
Answer:
14. Leverage refers to use of:
A. Equity only
B. Debt financing
C. Inventory
D. Cash
Answer:
15. Capital gearing relates to proportion of:
A. Current assets
B. Debt vs equity
C. Revenue
D. Expenses
Answer:
16. High capital gearing means:
A. Low debt
B. High equity
C. High fixed interest bearing securities
D. No preference shares
Answer:
17. Going concern assumption implies business will:
A. Liquidate soon
B. Continue operations
C. Merge
D. Be sold
Answer:
18. Accrual concept requires:
A. Cash basis recording
B. Recording when earned/incurred
C. Ignoring expenses
D. Delaying revenue
Answer:
19. Conservatism convention means:
A. Overstate income
B. Understate liabilities
C. Recognize probable losses
D. Record gains early
Answer:
20. Consistency concept requires:
A. Same accounting method over periods
B. Changing methods yearly
C. Ignoring standards
D. Reporting cash only
Answer:
21. Stock dividend results in:
A. Decrease in total equity
B. No change in total equity
C. Increase in assets
D. Decrease in liabilities
Answer:
22. Stock split affects:
A. Total equity
B. Par value per share
C. Retained earnings
D. Net income
Answer:
23. Property dividend is:
A. Cash dividend
B. Dividend paid in assets other than cash
C. Stock dividend
D. Liquidating dividend
Answer:
24. Upon declaration of cash dividend:
A. Assets decrease
B. Liability increases
C. Equity increases
D. Revenue increases
Answer:
25. Upon payment of dividend:
A. Liability increases
B. Cash increases
C. Liability decreases
D. Equity increases
Answer:
26. Gross profit equals:
A. Sales – Operating expenses
B. Sales – COGS
C. Net income + tax
D. Sales – Tax
Answer:
27. Net income equals:
A. Revenue – All expenses
B. Revenue – COGS
C. Assets – Liabilities
D. Equity – Dividends
Answer:
28. Under US GAAP, extraordinary items are:
A. Separately reported
B. Prohibited classification
C. Shown in OCI
D. Reported before tax
Answer:
29. Prior period adjustment is reported in:
A. Current income statement
B. Retained earnings (beginning balance)
C. OCI
D. Cash flow
Answer:
30. Other Comprehensive Income includes:
A. Sales revenue
B. Unrealized gain on AFS securities
C. COGS
D. Dividends
Answer:
31. Under IFRS, revaluation surplus is shown in:
A. P&L
B. OCI
C. Assets only
D. Liability
Answer:
32. US GAAP does NOT allow:
A. LIFO
B. FIFO
C. Revaluation of PPE upward
D. Historical cost
Answer:
33. Preference dividends are treated as:
A. Expense
B. Finance cost
C. Distribution of profit
D. Liability
Answer:
34. In EPS calculation, preferred dividends are:
A. Added
B. Ignored
C. Subtracted from net income
D. Treated as expense
Answer:
35. Preemptive right allows shareholders to:
A. Receive dividend first
B. Buy additional shares first
C. Vote twice
D. Sell shares early
Answer:
36. Voting rights generally belong to:
A. Preference shareholders
B. Bondholders
C. Common shareholders
D. Creditors
Answer:
37. Treasury stock is recorded at:
A. Par value
B. Cost
C. Market value
D. Face value
Answer:
38. Treasury stock reduces:
A. Assets
B. Liabilities
C. Equity
D. Revenue
Answer:
39. Purchase of treasury stock results in:
A. Increase in assets
B. Decrease in equity
C. Increase in revenue
D. Increase in liabilities
Answer:
40. Treasury stock has:
A. Voting rights
B. Dividend rights
C. No voting or dividend rights
D. Priority rights
Answer:
41. Financial leverage increases:
A. Operating risk only
B. Financial risk
C. Liquidity
D. Inventory
Answer:
42. Current ratio measures:
A. Profitability
B. Liquidity
C. Solvency
D. Leverage
Answer:
43. Debt-to-equity ratio measures:
A. Liquidity
B. Profitability
C. Solvency
D. Revenue
Answer:
44. Return on equity measures:
A. Liquidity
B. Profitability
C. Asset turnover
D. Inventory
Answer:
45. Accumulated depreciation is:
A. Expense
B. Contra asset
C. Liability
D. Revenue
Answer:
46. Comprehensive income equals:
A. Net income only
B. Net income + OCI
C. Revenue – Expenses
D. Cash flow
Answer:
47. Amortization of bond discount increases:
A. Cash
B. Interest expense
C. Revenue
D. Equity
Answer:
48. Stock dividend transfers amount from:
A. Assets to liabilities
B. Retained earnings to paid-in capital
C. Cash to equity
D. Revenue to expense
Answer:
49. Liquidating dividend reduces:
A. Retained earnings
B. Contributed capital
C. Revenue
D. Assets only
Answer:
50. Financial capital maintenance approach defines profit as:
A. Increase in physical capacity
B. Increase in net assets excluding owner contributions
C. Cash surplus
D. Revenue increase
Answer:
