Generally Accepted Accounting Principles (GAAP) MCQs
Generally Accepted Accounting Principles (GAAP) MCQs
These Generally Accepted Accounting Principles (GAAP) multiple-choice questions and their answers will help you strengthen your grip on the subject of Generally Accepted Accounting Principles (GAAP). You can prepare for an upcoming exam or job interview with these 100+ Generally Accepted Accounting Principles (GAAP) MCQs.
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1: Net Income is $150,000, dividends paid to preferred stock holder is $50,000 and weighted-avg number of common shares are 10,000. What is the basic EPS as per US GAAP?
A. $10
B. $30
C. $20
D. $5
2: Which of the following securities are reported on the balance sheet at amortized cost?
A. Trading Securities
B. Hold-till-maturity
C. Held-to-maturity
D. Available for Sale Securities
3: Your accounts payable increases from the prior year, what happens on the cash flow statement and in which section?
A. Cash increases - Operating section
B. Cash increases - Financing section
C. Cash decreases - Operating section
D. No change
4: Which of the following securities are purchased with the intent of NEITHER holding them till maturity NOR to get profit over near term?
A. Hold-till-maturity
B. Available for Sale Securities
C. Held-to-maturity
D. Trading Securities
5: Which of the following securities are reported on balance sheets at fair value?
A. Available for Sale Securities
B. Available for Sale and Trading Securities
C. Held-to-maturity
D. Trading Securities
6: When should costs be recognized?
A. (None of these)
B. When the cost has been paid
C. When they are probable
D. Only when an invoice is sent
7: Cost of good sold (COGS) reflects the cost of the most recent purchase in which of the following inventory valuation methods?
A. FILO
B. Average Cost
C. LIFO
D. FIFO
8: Which of the following consists of cash inflows and outflows from transactions related to a firm's capital structure ?
A. Cash flow from investing activities (CFI)
B. Cash flow from financing activities (CFF)
C. Cash flow from investing activities (CFI)
D. Cash flow from operating activities (CFO)
9: ABC company purchases a plot of land for $10,000. In the following year the value of the land increases by 10%. What value should this asset be recorded as?
A. $10,010
B. $11,000
C. $10,000
D. $10,100
10: Which of the following is prohibited in US GAAP?
A. Reversal of impairment loss
B. Recognition of impairment loss
C. Measurement of impairment loss
D. Allocation of goodwill
11: Which of the following is the correct formula for calculating basic EPS as per US GAAP?
A. weighted-average number of common shares outstanding / income available for common stockholders
B. Annualized Earnings / # of outstanding stock
C. Quartely Earnings / # of outstanding stock
D. income available for common stockholders / weighted-average number of common shares outstanding
12: In which of the following inventory valuation methods is the oldest cost of goods sold (COGS) entry processed first?
A. Average Cost
B. FILO
C. FIFO
D. LIFO
13: Your accounts receivable increases from the prior year, what happens on the cash flow statement and in which section?
A. Cash increases - Financing section
B. No change
C. Cash decreases - Operating section
D. Cash increases - Operating section
14: In which of the following accounting methods is profit not recognized until cash payments are greater than the cost of property?
A. Cost recovery method
B. Installment method
C. Deposit method
D. Full accrual method
15: Which of the following securities are purchased with the intent to profit over near term?
A. Trading Securities
B. Hold-till-maturity
C. Available for Sale Securities
D. Held-to-maturity
16: Which of the following securities are purchased with the intent of holding them until maturity?
A. Trading Securities
B. Hold-till-maturity
C. Available for Sale Securities
D. Held-to-maturity
17: In which of the following are profits recognized in full when real estate is sold?
A. Full accrual method
B. Installment method
C. Cost recovery method
D. Deposit method
18: A financial record that uses a highly volatile currency would violate which of the following principles?
A. The USD principle
B. The historical cost principle
C. The accounting entity principle
D. The monetary unit principle
19: Which of the following is an Investing Activity as per US GAAP classification?
A. Taxes Paid
B. Sales proceed from fixed assets
C. Interest Paid
D. Cash paid to employees
20: Which of the following is an Operating Activity as per US GAAP classification?
A. Sales proceed from fixed assets
B. Cash paid to employees
C. Dividends paid to shareholders
D. Principal paid on debt
21: True or false? GAAP is internationally based, whereas IFRS is US-centric.
A. True
B. False
22: Your accounts payable drops from the prior year, what happens on the cash flow statement and in which section?
A. Cash decreases - Financing section
B. No change
C. Cash increases - Financing section
D. Cash decreases - Operating section
23: Which of the following is NOT a valid cost flow assumption for determining the inventory cost?
A. FIFO
B. LIFO
C. FILO
D. Average Method
24: Your accounts receivable drops from the prior year. What happens on the cash flow statement and in which section?
A. No change
B. Cash increases - Financing section
C. Cash increases - Operating section
D. Cash decreases - Investing section
25: Which of the following is the formula for return on equity (ROE)?
A. Sales / Net Income
B. Net Income / Equity
C. Net Income / Sales
D. Equity / Net Income
26: Which of the following correctly formulates current ratio?
A. Current Asset - Current Liabilities
B. Current Asset x Current Liabilities
C. Current Liabilities / Current Asset
D. Current Asset / Current Liabilities
27: Under GAAP principles, expenses have to be matched with revenues (as long as it's reasonable to do so). This is an example of which principle?
A. The Revenue Principle
B. The Matching Principle
C. The Cost Principle
D. The Historical Cost Principle
28: Which of the following best describes Going Concern?
A. The decrease in goodwill that follows a decrease in revenue
B. The assumption that a company will operate indefinitely
C. The law of diminishing returns
D. The interest on accounts payable
29: The multiple-step income statement for a merchandiser shows each of the following features EXCEPT:
A. cost of goods sold
B. investing activities
C. sales revenue
D. gross profit
30: Which of the following is a US GAAP depreciation method for financial and tax reporting?
A. Modified Accelerated Cost Recovery Method
B. Straight line depreciation
C. Accelerated depreciation
D. (All of these)
31: Which of the following consists of cash inflows and outflows from transactions that affect a firm's net income?
A. Cash flow from investing activities (CFI)
B. Cash flow from operating activities (CFO)
C. Cash flow from investing activities (CFI)
D. Cash flow from financing activities (CFF)
32: You pay a dividend, what happens on the cash flow statement and in which section?
A. Cash increases - Investing section
B. Cash decreases - Financing section
C. Cash increases - Operating section
D. Cash increases - Financing section
33: Which of the following methods of presenting cash flow is permitted under US GAAP?
A. Indirect
B. Average Cost
C. Both Direct & Indirect
D. Direct
34: Account receivables are classified as which of the following?
A. Assets
B. Liabilities
C. Expenses
D. Revenue
35: When applying the full accrual method in retail land sales, which of the following conditions are required by GAAP?
A. (All of these)
B. Receivable are collectible
C. Receivables should not be subjected to subordination
D. Expiry of the refund period
36: Which of the following is NOT a non-current asset?
A. Intangible assets
B. Property, plant and equipment
C. Unearned income
D. Amortization of intangible assets
37: Which of the following is a Financing Activity as per US GAAP classification?
A. Proceeds from issuing stocks
B. Sales proceed from fixed assets
C. Available for Sale Securities
D. Interest Paid
38: Under US GAAP, minority (non controlling) interest in a subsidary can be reported in which of the following sections of a balance sheet?
A. Mezzanine Section
B. (All of these)
C. Liability Section
D. Equity Section
39: If Earnings before Interest and Taxes (EBIT) is $10,000, interest expense is $500 and number of outstanding common stocks are 20,000, which of the following is the value of interest coverage ratio?
A. 200
B. 1000
C. 20
D. 100
40: In which of the following securities are unrealized gains and losses reported in Other Comprehensive Income (as a part of stockholder's equity)?
A. Held-to-maturity
B. Available for Sale Securities
C. Hold-till-maturity
D. Trading Securities
41: You receive a dividend, what happens on the cash flow statement and in which section?
A. Non of the above
B. Cash increases - Financing section
C. Cash increases - investing section
D. Cash decreases - Financing section
42: Unrealized gain and losses of ________ securities are reported in the Income Statement.
A. Trading Securities
B. Available for Sale Securities
C. Hold-till-maturity
D. Held-to-maturity
43: You have depreciation for the past year, what happens on the cash flow statement and in which section?
A. Cash increases - Operating section
B. No change
C. Cash increases - Financing section
D. Cash decreases - Financing section
44: Under US GAAP, when must the fair value of an acquired firm's "in process research and development" be estimated?
A. Before Computing Goodwill
B. After Computing Expenses
C. After Computing Goodwill
D. Before Computing Expenses
45: In the United States, which of the following organizations mandate that financial reports adhere to GAAP standards?
A. FASB
B. SEC
C. IFRS
D. CFA
46: You declare a dividend. What happens on the cash flow statement and in which section?
A. Cash increases - Operating section
B. Cash increases - Financing section
C. Cash decreases - Investing section
D. No change
47: Which of the following is a valid method to calculate impairment loss in case of a long lived asset?
A. By taking off asset's fair value from it's current market value
B. By taking off asset's carrying amount from it's fair value
C. By taking off asset's current market value from it's fair value
D. By taking off asset's fair value from it's carrying amount
48: Which of the following is TRUE about Impairment of assets?
A. Carrying amount < Recoverable amount
B. Present Market Value > Present Value of all future cash flows
C. Carrying amount > Recoverable amount
D. Present Market Value < Present Value of all future cash flows
49: If the Exercise Price of a purchased put option is greater than Market Price, which of the following is TRUE?
A. The effect of the purchased option is antidilutive
B. The effect of the purchased option is dilutive
C. The buyer will not be able to excercise the option
D. The effect of the purchased option is neither antidilutive nor dilutive
50: If the Exercise Price of a purchased call option is less than Market Price, then which of the following is TRUE?
A. The effect of the purchased option is dilutive
B. The buyer will not be able to excercise the option
C. The effect of the purchased option is antidilutive
D. The effect of the purchased option is neither antidilutive nor dilutive
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