Financial Accounting:
1. Which financial statement provides a snapshot of a company's financial position at
a specific point in time?
a. Income Statement
b. Balance Sheet
c. Cash Flow Statement
d. Statement of Retained Earnings
Answer: b
2. Depreciation is a process of allocating the cost of a long-term asset over its useful
life. Which method of depreciation allocates an equal amount of depreciation
expense each year?
a. Straight-line method
b. Double-declining balance method
c. Units of production method
d. Sum-of-the-years-digits method
Answer: a
3. The main purpose of financial accounting is to keep track of company expenses.
Answer: False
4. Revenues are not included as a separate item in the basic accounting equation.
Answer: False
5. Which of the following financial ratios measures a company's profitability by
comparing its net income to its total revenue?
a. Debt-to-Equity Ratio
b. Return on Assets (ROA)
c. Current Ratio
d. Price-to-Earnings (P/E) Ratio
Answer: b
6. What does the term "accrual accounting" refer to in financial accounting?
a. Recording transactions when cash is received or paid
b. Recording transactions when goods are bought or sold
c. Recording transactions when expenses are incurred or revenue is earned
d. Recording transactions when assets are acquired or disposed of
Answer: c
Which financial statement shows the changes in a company's equity during a
specific period?
a. Income Statement
b. Balance Sheet
c. Statement of Cash Flows
d. Statement of Changes in Equity
Answer: d
7. The matching principle in accounting states that:
a. Assets should be matched with liabilities
b. Expenses should be matched with revenues
c. Equity should be matched with income
d. Cash inflows should be matched with cash outflows
Answer: b
8. Which accounting principle requires that expenses should be recorded in the same
accounting period as the related revenues?
a. Matching Principle
b. Revenue Recognition Principle
c. Historical Cost Principle
d. Materiality Principle
Answer: a
9. What is the purpose of the "double-entry" system in accounting?
a. To ensure that debits equal credits in the general ledger
b. To record transactions only once
c. To keep track of inventory levels
d. To prepare financial statements
Answer: a
10. Which financial ratio measures a company's ability to cover its interest expenses
with its earnings before interest and taxes?
a. Debt-to-Equity Ratio
b. Earnings Per Share (EPS)
c. Times Interest Earned Ratio
d. Price-to-Earnings (P/E) Ratio
Answer: c
11. Which financial statement provides a summary of a company's revenues and
expenses during a specific period?
a. Balance Sheet
b. Income Statement
c. Cash Flow Statement
d. Statement of Changes in Equity
Answer: b
12. What is the term for the systematic allocation of the cost of intangible assets
over their useful life?
a. Amortization
b. Depreciation
c. Impairment
d. Depletion
Answer: a
What is the accounting equation?
a. Assets = Liabilities + Equity
b. Liabilities = Assets + Equity
c. Equity = Assets - Liabilities
d. Equity = Assets + Liabilities
Answer: a
13. What is the term for the original cost of an asset minus its accumulated
depreciation?
a. Book Value
b. Market Value
c. Salvage Value
d. Replacement Cost
Answer: a
14. Which financial ratio measures a company's ability to pay its short-term
obligations using its most liquid assets?
a. Debt-to-Equity Ratio
b. Current Ratio
c. Quick Ratio
d. Return on Equity (ROE)
Answer: c
15. What is the primary purpose of the Statement of Cash Flows?
a. To report the company's financial position at a specific point in time
b. To disclose changes in the company's equity during a specific period
c. To provide information about the company's sources and uses of cash
d. To present the company's revenue and expenses for a specific period
Answer: c
16. Which principle requires that accounting information should be based on
objective evidence and verifiable data?
a. Materiality Principle
b. Matching Principle
c. Conservatism Principle
d. Objectivity Principle
Answer: d
17. What is the term for the process of transferring the balance of an account to the
general ledger?
a. Journalizing
b. Posting
c. Adjusting
d. Balancing
Answer: b
18. Which type of account is classified as a liability on the balance sheet?
a. Prepaid Expenses
b. Accumulated Depreciation
c. Accounts Receivable
d. Accounts Payable
Answer: d
19. What is the purpose of the International Financial Reporting Standards (IFRS)?
a. To provide guidelines for ethical conduct in accounting
b. To harmonize accounting standards across different countries
c. To regulate the disclosure of financial information to competitors
d. To determine tax regulations for multinational companies
Answer: b
Financial Management
20. What does the term "cost of capital" refer to?
a. The cost of goods sold by a company
b. The cost of financing for a company's projects
c. The cost of customer acquisition
d. The cost of manufacturing products
Answer: b
21. Which financial ratio measures a company's liquidity by comparing its current
assets to its current liabilities?
a. Debt-to-Equity Ratio
b. Return on Equity (ROE)
c. Current Ratio
d. Price-to-Earnings (P/E) Ratio
Answer: c
22. Which financial theory is based on the idea that investors make rational decisions
to maximize their own utility?
a. Efficient Market Hypothesis
b. Behavioral Finance
c. Capital Asset Pricing Model (CAPM)
d. Random Walk Theory
Answer: a
23. The primary goal of financial management is to: a. Maximize profit in the short
term
b. Maximize shareholder wealth
c. Minimize expenses at all costs
d. Achieve revenue growth at any cost
Answer: b
24. What is the purpose of the Capital Asset Pricing Model (CAPM)?
a. To determine a company's optimal capital structure
b. To calculate the cost of equity for a company
c. To estimate the net present value of a project
d. To assess a company's liquidity position
Answer: b
25. The Weighted Average Cost of Capital (WACC) is used to:
a. Calculate the return on investment for a project
b. Determine the cost of common equity
c. Evaluate a company's liquidity position
d. Estimate the cost of financing for a company's projects
Answer: d
26. Which financial concept refers to the difference between a company's total
revenue and its total explicit costs?
a. Economic Profit
b. Accounting Profit
c. Marginal Cost
d. Opportunity Cost
Answer: a
The process of evaluating potential investments or projects to determine their
feasibility is known as:
a. Financial Leverage
b. Capital Budgeting
c. Working Capital Management
d. Risk Management
Answer: b
27. Which financial ratio measures a company's efficiency in managing its assets to
generate sales revenue?
a. Return on Equity (ROE)
b. Current Ratio
c. Asset Turnover Ratio
d. Debt-to-Equity Ratio
Answer: c
28. In finance, what is the term for the rate of return required by an investor to invest
in a project with a similar level of risk?
a. Risk-Free Rate
b. Discount Rate
c. Market Rate of Return
d. Required Rate of Return
Answer: d
29. What does the term "working capital" represent?
a. The total value of a company's assets
b. The difference between current assets and current liabilities
c. The amount of retained earnings at the end of the year
d. The total revenue generated by a company
Answer: b
30. Which financial ratio measures a company's ability to generate profit relative to
its total assets?
a. Debt-to-Equity Ratio
b. Return on Equity (ROE)
c. Return on Assets (ROA)
d. Price-to-Earnings (P/E) Ratio
Answer: c
31. In the context of capital budgeting, what is the payback period of an investment?
a. The time it takes for an investment to earn back its initial cost
b. The time it takes for a company to recover its total liabilities
c. The time it takes for a company to achieve maximum profitability
d. The time it takes for a company to issue dividends to shareholders
Answer: a
32. What is the term for the discount rate that equates the present value of a
project's cash inflows with its initial investment?
a. Risk-Free Rate
b. Discount Rate
c. Internal Rate of Return (IRR)
d. Cost of Capital
Answer: c
33. Which financial theory suggests that investors are risk-averse and require higher
returns for taking on greater risk?
a. Efficient Market Hypothesis
b. Behavioral Finance
c. Modern Portfolio Theory (MPT)
d. Capital Asset Pricing Model (CAPM)
Answer: d
34. What is the formula for calculating the current ratio?
a. Current Assets / Current Liabilities
b. Current Liabilities / Current Assets
c. Total Assets / Total Liabilities
d. Total Liabilities / Total Assets
Answer: a
35. How does a decrease in the risk-free rate impact the present value of future cash
flows?
a. Increases the present value
b. Decreases the present value
c. Has no impact on the present value
d. Depends on the interest rate
Answer: a
36. What is the purpose of the Sarbanes-Oxley Act (SOX)?
a. To regulate international trade
b. To ensure fair competition among firms
c. To improve corporate governance and financial reporting
d. To promote environmental sustainability
Answer: c
37. Which type of financing involves issuing new shares of common stock to raise
capital?
a. Debt Financing
b. Equity Financing
c. Short-Term Financing
d. Trade Credit Financing
Answer: b
38. What is the formula for calculating the net present value (NPV) of an investment?
a. NPV = Initial Investment / Cash Inflows
b. NPV = Cash Inflows - Cash Outflows
c. NPV = Discount Rate * Cash Inflows
d. NPV = Cash Inflows / Discount Rate
Answer: b
39. What is the difference between stocks and bonds?
a. Stocks represent ownership in a company, while bonds are loans to a company.
b. Stocks pay fixed interest payments, while bonds provide potential for capital
gains.
c. Stocks have a guaranteed rate of return, while bonds have variable returns.
d. Stocks are only issued by government entities, while bonds are issued by
corporations.
Answer: a
40. What is the term for the risk associated with the possibility of losing money on an
investment due to changes in market conditions?
a. Inflation risk
b. Liquidity risk
c. Market risk
d. Interest rate risk
Answer: c
How does diversification reduce investment risk?
a. By concentrating investments in a single asset
b. By investing in multiple assets that are closely related
c. By investing in a single sector or industry
d. By spreading investments across different types of assets
Answer: d
41. What is the formula for calculating the return on investment (ROI)?
a. ROI = (Final Value - Initial Value) / Initial Value
b. ROI = Initial Value / Final Value
c. ROI = (Final Value - Initial Value) / Final Value
d. ROI = Initial Value * Final Value
Answer: a
42. What is the main advantage of investing in mutual funds?
a. Guaranteed returns on investment
b. Limited access to a diverse range of assets
c. Flexibility to trade individual stocks
d. Access to a diversified portfolio managed by professionals
Answer: d
43. How does compounding impact investment returns?
a. It decreases the overall return on investment
b. It has no impact on investment returns
c. It increases the potential for higher returns over time
d. It only applies to short-term investments
Answer: c
44. What is the concept of risk and return trade-off in investments?
a. Investors are guaranteed high returns for high levels of risk
b. Investors can achieve high returns without taking any risk
c. Investors can achieve high returns by minimizing risk
d. Investors must balance the desire for high returns with the level of risk they
are willing to take
Answer: d
45. What is the term for an investment strategy that involves buying and holding a
diversified portfolio for the long term?
a. Day trading
b. Speculation
c. Active investing
d. Passive investing
Answer: d
46. How does the concept of "buy low, sell high" relate to successful investing?
a. It encourages investors to only buy low-risk assets
b. It emphasizes the importance of timing the market accurately
c. It suggests that investors should sell high-risk assets quickly
d. It advises investors to purchase assets at lower prices and sell them when their
value has increased
Answer: d
Economics
47. In economics, what is the term for the total value of all goods and services
produced within a country's borders in a specific time period?
a. Gross Domestic Product (GDP)
b. Consumer Price Index (CPI)
c. Inflation Rate
d. Unemployment Rate
Answer: a
48. The law of supply states that:
a. As price increases, quantity supplied increases
b. As price increases, quantity supplied decreases
c. As price decreases, quantity supplied increases
d. Price and quantity supplied are not related
Answer: a
What is the stakeholder view of the firm?
a. Shareholders should eventually be returned their stake in the firm
b. The firm must honor its wider social obligations as well as making money
c. The only obligation on the firm is to maximize profit
d. The firm exists to maximize return
Answer: b
49. Which economic concept refers to the additional benefit gained from consuming
one more unit of a good or service?
a. Marginal Cost
b. Opportunity Cost
c. Marginal Utility
d. Diminishing Returns
Answer: c
50. The Phillips Curve illustrates the relationship between:
a. Inflation and unemployment
b. Interest rates and GDP growth
c. Fiscal policy and monetary policy
d. Exchange rates and trade balance
Answer: a
51. Which economic theory suggests that in the long run, changes in the money supply
only lead to changes in the price level and not real economic output?
a. Keynesian Economics
b. Monetarism
c. Supply-Side Economics
d. Behavioral Economics
Answer: b
52. What is the term for the cost of forgoing the next best alternative when making a
decision?
a. Marginal Cost
b. Opportunity Cost
c. Sunk Cost
d. Fixed Cost
Answer: b
53. Which market structure is characterized by a large number of small firms, identical
products, and no barriers to entry or exit?
a. Monopoly
b. Oligopoly
c. Perfect Competition
d. Monopolistic Competition
Answer: c
54. In economics, what is the term for the percentage of income that an individual or
household pays in taxes?
a. Marginal Tax Rate
b. Average Tax Rate
c. Progressive Tax Rate
d. Regressive Tax Rate
Answer: b
55. What is the main goal of monetary policy?
a. To control government spending
b. To promote economic growth through fiscal measures
c. To regulate the supply of money and interest rates
d. To control international trade and tariffs
Answer: c
56. Under what circumstances does a country tend to export goods and services?
a. When it has an absolute advantage in producing those goods
b. When it has a higher cost of production compared to other countries
c. When it wants to focus on self-sufficiency and reduce reliance on imports
d. When it wants to protect its domestic industries from foreign competition
Answer: a
57. What is the main reason countries engage in international trade?
a. To achieve self-sufficiency in all goods and services
b. To increase the prices of domestic goods
c. To benefit from specialization and access to a wider range of goods
d. To decrease the competitiveness of their domestic industries
Answer: c
58. What is the principle of comparative advantage in the context of international
trade?
a. Countries should only trade with countries that have a larger population.
b. Countries should only trade goods in which they have an absolute advantage.
c. Countries should focus on producing goods with the lowest opportunity cost
for trading.
d. Comparative advantage does not apply to international trade.
Answer: c
What is a trade deficit?
a. When a country exports more than it imports
b. When a country imports more than it exports
c. When a country's imports and exports are equal
d. When a country's currency is stronger than other currencies
Answer: b
59. How does protectionism impact international trade?
a. It encourages free trade and open markets
b. It increases barriers to trade, such as tariffs and quotas
c. It eliminates the need for trade agreements
d. It leads to decreased demand for imported goods
Answer: b
60. What is a tariff?
a. A limit on the quantity of a good that can be imported
b. A tax imposed on imported goods
c. A subsidy given to domestic producers to encourage exports
d. A grant provided to foreign countries for aid
Answer: b
61. How does a quota affect the quantity of imports of a specific good?
a. It encourages higher imports
b. It has no impact on imports
c. It restricts imports to a specific quantity
d. It eliminates imports completely
Answer: c
62. What is the World Trade Organization (WTO)?
a. A nonprofit organization promoting environmental sustainability
b. A global organization aimed at reducing the availability of goods
c. An international organization that deals with the rules of trade between
nations
d. A regional trade agreement between a few select countries
Answer: c
63. How do trade agreements like NAFTA (North American Free Trade Agreement)
impact international trade?
a. They increase tariffs on imports
b. They promote free trade among member countries
c. They restrict imports to member countries
d. They decrease the competitiveness of domestic industries
Answer: b
64. What is the term for a situation where a country produces a good domestically
that it could import at a lower cost?
a. Trade surplus
b. Comparative advantage
c. Import substitution
d. Opportunity cost
Answer: c
65. How does international trade impact a country's economic growth and
development?
a. It always leads to economic decline
b. It has no impact on economic growth
c. It can stimulate economic growth by expanding markets and increasing
efficiency
d. It only benefits large, developed countries
Answer: c
66. What is the concept of absolute advantage?
a. A situation where one country can produce a good at a lower opportunity cost
than another country
b. A situation where one country can produce a good with fewer resources than
another country
c. A situation where both countries can produce a good with equal efficiency
d. A situation where both countries can produce a good with the same
opportunity cost
Answer: b
67. What is the difference between comparative advantage and absolute advantage?
a. Comparative advantage considers the opportunity cost, while absolute
advantage considers the resources used.
b. Comparative advantage considers the resources used, while absolute
advantage considers the opportunity cost.
c. Both concepts are identical and used interchangeably.
d. Both concepts focus on the same aspect of production efficiency.
Answer: a
68. How does specialization based on comparative advantage benefit trading
countries?
a. It results in lower production costs for both countries.
b. It increases the need for trade restrictions.
c. It eliminates the need for international trade.
d. It leads to higher prices of goods in both countries.
Answer: a
69. If Country A has an absolute advantage in producing both goods X and Y
compared to Country B, should Country A trade with Country B?
a. No, because Country A has an absolute advantage.
b. No, because Country A lacks a comparative advantage.
c. Yes, because trade is always beneficial.
d. Yes, because Country A is more efficient in both goods.
Answer: b
70. Which of the following statements is true regarding the principle of comparative
advantage?
a. Countries should produce only goods in which they have an absolute
advantage.
b. Countries should focus on producing goods with the highest opportunity cost.
c. Countries should produce goods in which they have the lowest opportunity
cost.
d. Comparative advantage is not applicable to international trade.
Answer: c
71. What is a price ceiling?
a. A government-imposed maximum price that can be charged for a good or
service
b. A government-imposed minimum price that can be charged for a good or
service
c. The equilibrium price in a competitive market
d. A price determined by supply and demand without government intervention
Answer: a
72.
What is an example of a price ceiling implemented by a government?
a. Minimum wage laws
b. Rent control
c. Export tariffs
d. Subsidies for farmers
Answer: b
73. How can a binding price ceiling result in a shortage?
a. It causes suppliers to decrease production
b. It encourages suppliers to increase production
c. It reduces demand for the product
d. It creates excess supply in the market
Answer: a
74. What happens when the equilibrium price is below a price ceiling?
a. There is a surplus in the market
b. There is a shortage in the market
c. The price ceiling becomes non-binding
d. The government reduces the price ceiling
Answer: c
75. How can the government address a shortage caused by a binding price ceiling?
a. By reducing the price ceiling further
b. By implementing a price floor
c. By imposing taxes on consumers
d. By removing the price ceiling
Answer: d
76. What is market equilibrium?
a. A situation where supply and demand are not equal
b. A situation where the price is determined by sellers only
c. A situation where supply and demand are in balance, and there's no shortage
or surplus
d. A situation where prices are fixed by government intervention
Answer: c
77. If the price in a market is above the equilibrium price, what is likely to happen?
a. There will be a surplus
b. There will be a shortage
c. Demand will decrease
d. Supply will decrease
Answer: a
78. What does it mean when a market is in disequilibrium?
a. Supply and demand are in balance
b. There is a shortage in the market
c. Prices are fluctuating rapidly
d. Supply and demand are not in balance
Answer: d
79. How does an increase in demand affect the equilibrium price and quantity?
a. Price increases, quantity decreases
b. Price decreases, quantity increases
c. Both price and quantity increase
d. Both price and quantity decrease
Answer: c
80. In the absence of external influences, what will happen if the market price is
above the equilibrium price?
a. Demand will decrease
b. Supply will increase
c. Supply will decrease
d. Quantity supplied will exceed quantity demanded
Answer: d