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Quizzes > Business & Finance > Finance & Economics

Master Exam 2 Financial Accounting: Take the Quiz

Ready to ace the financial accounting 2 exam? Dive into our accounting 2 exam challenge!

Difficulty: Moderate
2-5mins
Learning OutcomesCheat Sheet
Paper art illustration for free Exam 2 Financial Accounting quiz on a sky blue background.

This Exam 2 Financial Accounting quiz helps you practice core topics and spot gaps before your test. Work through questions on adjusting and closing entries, ledgers, ratios, and income statements. For more practice, try this practice set or take a timed exam run .

Which financial statement reports a company's assets, liabilities, and equity at a specific point in time?
Statement of Retained Earnings
Balance Sheet
Income Statement
Statement of Cash Flows
The balance sheet provides a snapshot of a company's financial position at a specific date by listing assets, liabilities, and equity. Unlike the income statement or cash flow statement, it reflects balances rather than flows. For more details on balance sheet components, see .
Under the accrual basis of accounting, revenues are recognized when ______ and expenses when ______.
earned, incurred
cash is received, cash is paid
received, incurred
earned, paid
Accrual accounting recognizes revenues when they are earned and expenses when they are incurred regardless of cash movements. This matches revenue to related expenses in the same period. For an in-depth explanation, see .
Which account is increased with a debit entry?
Revenue
Cash
Common Stock
Accounts Payable
Assets, including Cash, increase with debit entries under double-entry accounting. Revenues and equity accounts increase with credits, and liabilities increase with credits as well. Learn more about debits and credits at .
A company purchases machinery for $50,000 with an estimated salvage value of $5,000 and a useful life of 10 years. What is the annual depreciation expense using the straight-line method?
$4,500
$5,000
$4,950
$4,000
Straight-line depreciation is calculated as (Cost - Salvage Value) / Useful Life. Here, ($50,000 - $5,000) / 10 years equals $4,500 per year. For a detailed breakdown, see .
In a period of rising prices, the FIFO inventory costing method will result in which of the following compared to LIFO?
Lower net income
Higher cost of goods sold
Lower cost of goods sold
Lower ending inventory value
FIFO (First-In, First-Out) assumes older, lower-cost inventory is sold first, so in a rising price environment cost of goods sold is lower under FIFO than under LIFO. This leads to higher ending inventory and higher net income. See more at .
A company issues $100,000 of bonds at 98. What is the correct journal entry to record this issuance?
Debit Cash $100,000; Debit Discount on Bonds Payable $2,000; Credit Bonds Payable $102,000
Debit Cash $98,000; Credit Premium on Bonds Payable $2,000; Credit Bonds Payable $100,000
Debit Cash $98,000; Debit Discount on Bonds Payable $2,000; Credit Bonds Payable $100,000
Debit Cash $100,000; Credit Discount on Bonds Payable $2,000; Credit Bonds Payable $98,000
Issuing at 98 means bonds sell for 98% of face value, so cash is $98,000 and the $2,000 difference is recorded as a discount. The discount is a contra-liability to be amortized over the bond life. Further reading is available at .
A company paid $2,400 for a 12-month insurance policy on October 1. What is the insurance expense adjustment on December 31?
$800
$1,200
$600
$2,400
Prepaid insurance of $2,400 covers 12 months or $200 per month. From October through December is 3 months, so $200 × 3 = $600 expense. The remainder remains as prepaid insurance. More on adjusting entries: .
Under US GAAP, how should a capital lease be recorded at inception?
As both an asset and a liability at the present value of lease payments
As deferred revenue
Off-balance-sheet until payments are complete
As an expense when paid
Capital leases require lessees to recognize a right-of-use asset and a lease liability equal to the present value of lease payments at lease commencement. This aligns with ASC 842 guidance. For details, see .
A company issues bonds at a discount of $81,000 with a 10-year term. Using straight-line amortization, how much discount is amortized each year?
$9,000
$8,100
$8,000
$7,800
Straight-line amortization allocates the total discount evenly over the bond's life. Here, $81,000 / 10 years = $8,100 per year. This increases interest expense by that amount annually. See more at .
An investor owns 30% of an associate and uses the equity method. The associate reports net income of $100,000 and pays dividends of $20,000. By how much should the investor's investment account increase?
$30,000
$10,000
$20,000
$24,000
Under the equity method, the investor recognizes 30% of net income ($30,000) and reduces the investment by 30% of dividends ($6,000), yielding a $24,000 net increase. This reflects the investor's share of earnings less dividends received. For more, see .
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Study Outcomes

  1. Apply Adjusting Entries Accurately -

    Demonstrate the ability to prepare and record end-of-period adjustments for prepaid expenses, unearned revenue, and accrued items in exam 2 financial accounting scenarios.

  2. Prepare Core Financial Statements -

    Compile and present the income statement, statement of retained earnings, and balance sheet using adjusted trial balance data from your financial accounting 2 exam practice.

  3. Analyze and Record Complex Transactions -

    Examine multifaceted business transactions and correctly journalize them in the ledger to reinforce skills for accounting exam 2 questions.

  4. Interpret Financial Statement Data -

    Assess the significance of major line items and summary figures to understand company performance and decision-making in financial accounting test 2 contexts.

  5. Evaluate Quiz Performance for Targeted Review -

    Use quiz results to identify strengths and weaknesses, enabling focused study on areas needing improvement before your accounting 2 exam.

Cheat Sheet

  1. Accounting Equation & Double-Entry System -

    For exam 2 financial accounting, master the core equation Assets = Liabilities + Equity, which ensures every transaction has dual effects. Use T-accounts to visualize increases and decreases, always keeping total debits equal to total credits (source: Kieso et al., IFRS).

  2. Accrual Accounting & Matching Principle -

    Under the accrual basis, record revenues when earned and expenses when incurred, not when cash changes hands, aligning with the matching principle. This approach gives a truer picture of performance and is required by FASB and IASB standards (source: FASB Codification).

  3. Adjusting Entries: Deferrals vs Accruals -

    There are two main types of adjustments: deferrals (prepaid expenses and unearned revenues) and accruals (accrued revenues and expenses). Remember the mnemonic "DEAD CLIC" (Debits: Expenses, Assets, Dividends; Credits: Liabilities, Income, Capital) to ensure correct journal entries.

  4. Depreciation Methods & Formula -

    On your exam 2 financial accounting quiz, be comfortable deriving depreciation using the straight-line formula: (Cost - Salvage Value) ÷ Useful Life = Annual Depreciation Expense. Compare with units-of-production or declining-balance methods to match an asset's usage pattern (source: Wiley Online Library).

  5. Classified Financial Statements & Closing Process -

    Classify assets and liabilities as current or long-term to enhance clarity and comply with IAS 1. After preparing the income statement and balance sheet, use closing entries to reset temporary accounts and generate a post-closing trial balance, ensuring only balance sheet accounts carry forward.

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