Deck 11: Understanding Accounting

Question 1

________ call(s)attention to problems and helps managers carry out the planning,decision making,and controlling functions.

A)Budgeting
B)Financial accounting
C)Auditing
D)Managerial accounting
E)Generally accepted accounting principles

Answer 1

D

Question 2

Which of the following is correct with regard to private accountants?

A)They are hired by business firms who do not want to use the services of CPAs.
B)They are employed by business firms in areas such as marketing research,law,and production technology.
C)They are becoming less common as CPAs become more prominent and skilled.
D)They are almost exclusively found at the head office of business firms.
E)They are hired to deal with companies' day-to-day accounting needs.

Answer 2

E

Question 3

Arthur's primary responsibility as an auditor is

A)publishing the audit report results in the Financial Post.
B)preparing budgets for the forthcoming year.
C)ensuring the firm's accounting practices adhere to generally accepted accounting principles.
D)collecting taxes.
E)determining that the company has the inventory that it says it has.

Answer 3

C

Question 4

Who manages the entire firm's accounting activities?

A)Venture capitalist
B)Private accountant
C)Controller
D)Public (not chartered)accountant
E)Auditor

Question 5

Employees and unions use accounting information

A)to plan for tax inflows.
B)to set goals,develop plans,set budgets,and evaluate prospects.
C)to estimate returns.
D)to decide if the company is a good credit risk.
E)to plan for benefits.

Question 6

Al Rosen is working as a private investigator of white-collar crimes.He is

A)an IFRS accountant.
B)a financial scanner.
C)a whistleblower.
D)an auditor.
E)a forensic accountant.

Question 7

________ is the comprehensive information system for collecting,analyzing,and communicating financial information,while ________ is the recording of financial transactions.

A)Financial accounting;managerial accounting
B)Managerial accounting;financial accounting
C)Bookkeeping;accounting
D)Accounting;bookkeeping
E)Controlling;accounting

Question 8

Martin is a salaried accountant who has been hired by Lexar Corp.to carry out its day-to-day financial activities.Martin is a(n)

A)public accountant.
B)auditor.
C)controller.
D)private accountant.
E)advisor.

Question 9

Janice is a bookkeeper.Her primary function would be to

A)generate financial statements.
B)measure business performance.
C)record accounting transactions.
D)complete the same tasks as accountants do.
E)determine the value of the firm to investors.

Question 10

The field of accounting that serves internal users of a company's financial information is

A)financial accounting.
B)auditing.
C)public accounting.
D)bookkeeping.
E)managerial accounting.

Question 11

Marshall is preparing a statement of estimated profits and losses for a new product that has just been introduced by his company.The field of accounting that Marshall is working in is

A)managerial accounting.
B)auditing.
C)public accounting.
D)financial accounting.
E)bookkeeping.

Question 12

A(n)________ examines a company's accounting system to determine whether its financial reports fairly present its operations.

A)tax analysis
B)preliminary examination
C)company-wide analysis
D)portfolio analysis
E)audit

Question 13

Government agencies would be most interested in the output of ________ accountants,while company salespeople would be most interested in the output of ________ accountants.

A)public;private
B)private;public
C)managerial;financial
D)financial;managerial
E)financial;financial

Question 14

The field of accounting that is concerned with external users of a company's financial information is called

A)managerial accounting.
B)bookkeeping.
C)public accounting.
D)financial accounting.
E)auditing.

Question 15

Which of the following is correct with respect to generally accepted accounting principles?

A)Public and private businesses can no longer use generally accepted accounting principles.
B)They are used in many foreign countries but not in Canada.
C)Public companies in Canada have moved away from using generally accepted accounting principles and have adopted International Financial Reporting Standards (IFRS).
D)Private companies must use the new International Financial Reporting Standards (IFRS).
E)None of these statements is correct.

Question 16

Which of the following is correct with regard to auditing?

A)An audit focuses specifically on whether the inventory the company claims it has is actually there.
B)Companies do not normally have to supply audited financial statements when they apply for loans or when selling stock.
C)Audits determine if the firm has controls in place to prevent errors or fraud from going undetected.
D)Auditors generally do not have to examine documents such as cancelled cheques,payroll record,and cash receipts in order to conduct their audit.
E)Auditors ensures that the financial state of the company will be accurately reported.

Question 17

Rose is reviewing a company's accounting system,checking the ledgers and journals,and tracking some transactions to see how they were handled.Rose is engaged in

A)financial accounting.
B)managerial accounting.
C)auditing.
D)public accounting.
E)bookkeeping.

Question 18

The CPA Canada Handbook now has various parts,Part I is known as ________ and is designed for publicly accountable enterprises and government private enterprises;Part II is known by the abbreviation ________ and is designed for private companies.

A)ASPE,IMF
B)IFRS,ASPE
C)Global GAAP,GAAP
D)CPA,CGA
E)GAAP,IPRS

Question 19

Forensic accountants are sometimes used to

A)ensure that the accounting system adheres to GAAP.
B)track down hidden funds in business firms.
C)ensure auditors follow auditing standards.
D)ensure businesses remain profitable.
E)do all of these.

Question 20

David is an accountant who calls attention to problems and helps managers carry out the planning,decision making,and controlling functions.David is involved in ________ accounting.

A)budgeting
B)financial
C)auditing
D)managerial
E)generally accepted accounting principles

Question 21

The accounting equation is

A)owners' equity - assets = liabilities.
B)owners' equity - liabilities = assets.
C)assets + liabilities = owners' equity.
D)assets + owners' equity = liabilities.
E)assets = liabilities + owners' equity.

Question 22

Owners' equity consists of two sources of capital.They are

A)the amount that the owners originally invested,and profits earned by and reinvested in the company.
B)bank loans and money received from factoring accounts receivable.
C)bank loans and proceeds from the sale of stock.
D)trade credit and bank loans.
E)dividends received by investors and bank loans.

Question 23

Financial statements fall into three broad categories,which are

A)debits,credits,and loans.
B)income statements,balance sheets,and statements of cash flows.
C)assets,liabilities,and owners' equity.
D)cash,marketable securities,and goodwill.
E)budgets,income statements,and profit-and-loss statements.

Question 24

________ is the amount of money owners would theoretically receive if they sold all of a firm's assets and paid all of its liabilities.

A)Asset
B)Debit
C)Credit
D)Liability
E)Owners' equity

Question 25

A(n)________ is any economic resource expected to benefit a firm or the individual who owns it.

A)owners' equity
B)asset
C)debit
D)liability
E)credit

Question 26

Peter,an accountant,enters every transaction in the journal to reflect its impact on assets and its impact on liabilities and owners' equity.He is using

A)a double-entry accounting system.
B)a balance sheet.
C)a financial ratio.
D)breakeven analysis.
E)a financial statement.

Question 27

The financial statement detailing a firm's assets,liabilities,and owners' equity is the

A)income statement.
B)statement of cash flows.
C)balance sheet.
D)manufacturing statement.
E)statement of retained earnings.

Question 28

What are the three types of assets that will typically be found on a balance sheet?

A)Local,national,and international
B)Positive,negative,and neutral
C)Land,buildings,and equipment
D)Current,fixed,and intangible
E)Short term,long term,and medium term

Question 29

What is the formula for determining owners' equity?

A)Assets minus liabilities
B)Assets plus liabilities
C)Assets minus goodwill
D)Current assets minus current liabilities
E)There is no formula for computing owners' equity.

Question 30

According to the accounting equation,if assets equal $4000 and liabilities equal $1500,then owner's equity would equal

A)$5500.
B)$2500.
C)$3500.
D)$8000.
E)It is not possible to tell with the information given.

Question 31

Barry is a private accountant who is working through the accounting cycle.He has already analyzed transaction documents.His next step is to

A)record transactions in a journal.
B)do a trial balance.
C)prepare financial statements.
D)analyze the financial statements using ratio analysis.
E)transfer entries from the journal to the ledger.

Question 32

Janice is a private accountant.The first thing she must do when working through the accounting cycle is to

A)record transactions in a journal.
B)do a trial balance.
C)analyze transaction documents.
D)analyze the financial statements using ratio analysis.
E)transfer entries from the journal to the ledger.

Question 33

Which of the following ensures that the accounting equation is always kept in balance?

A)Credits
B)Debits
C)Double-entry accounting
D)Balance sheet
E)T-accounts

Question 34

An asset is

A)the amount of money originally invested in a business by its owners.
B)the amount of money that owners would receive if they sold all a firm's assets and paid all of its liabilities.
C)the profits earned by and reinvested in the company.
D)any economic resource expected to benefit a firm or an individual who owns it.
E)a debt owed by a firm to an outside organization or individual.

Question 35

Under which condition is owners' equity negative?

A)Credits exceed debits.
B)Assets are greater than liabilities.
C)Assets and liabilities are equal.
D)Debits exceed credits.
E)Liabilities are greater than assets.

Question 36

A(n)________ is a debt owed by a firm to an outside organization or individual.

A)liability
B)owners' equity
C)debit
D)asset
E)credit

Question 37

Which of the following is correct with respect to the issue of owners' equity?

A)It is the amount of cash listed on the balance sheet.
B)It is the amount of money the owners would receive if they sold all a company's assets and paid all its liabilities.
C)If a company's assets exceed its liabilities,owners' equity equals $10 000 for each dollar of assets.
D)If a company's liabilities exceed its assets,owners' equity equals minus $10 000 for each dollar of liabilities.
E)All of these are correct.

Question 38

Under which condition is owners' equity positive?

A)Assets are greater than liabilities.
B)Assets and liabilities are equal.
C)Credits exceed debits.
D)Liabilities are greater than assets.
E)Debits exceed credits.

Question 39

Sheena is a private accountant who is working through the accounting cycle.She has completed transferring entries from the journal to a ledger.Her next step is to

A)record transactions in a journal.
B)do a trial balance.
C)prepare financial statements.
D)analyze the financial statements using ratio analysis.
E)transfer entries from the journal to the ledger.

Question 40

Owners' equity is

A)the profits earned by and reinvested in the company.
B)the amount of money that owners would receive if they sold all a firm's assets and paid all of its liabilities.
C)the amount of money originally invested in a business by its owners.
D)a debt owed by a firm to an outside organization or individual.
E)any economic resource expected to benefit a firm or an individual who owns it.

Question 41

Due to a downturn in the local economy,Bob is concerned about converting his assets to cash quickly.In accounting terms,he is apprehensive about

A)current assets.
B)liquidity.
C)turnover.
D)net income.
E)marketable securities.

Question 42

Which term is used to identify how quickly assets can be converted into cash?

A)Acid-test ratio
B)Activity
C)Accounts receivable
D)Current ratio
E)Liquidity

Question 43

________ are purchased as short-term investments and are only slightly less liquid than cash.

A)Prepaid expenses
B)Patents
C)Accounts receivable
D)Marketable securities
E)Futures

Question 44

Current liabilities consisting of bills owed to suppliers plus wages and taxes due within the upcoming year are known as

A)accounts receivable.
B)accounts payable.
C)prepaid expenses.
D)marketable securities.
E)net liabilities.

Question 45

A fixed asset is

A)an amount due from a customer who has purchased goods on credit.
B)an asset with long-term use or value,such as land,buildings,and equipment.
C)an expense,such as rent,that is paid before the upcoming period in which it is due.
D)an asset that can or will be converted to cash within the following year.
E)a nonphysical asset,such as a patent or trademark,that has economic value in the form of expected benefit.

Question 46

A balance sheet would not be able to help a manager answer which question?

A)Is it a good time to try to grow the business?
B)Can the company survive if a period of low revenues happens?
C)Does the company have an excessive number of employees?
D)Is the company able to take on more debt?
E)What is the total value of all the company's assets?

Question 47

Andy's line of credit with a local bank is likely a(n)

A)intangible asset.
B)prepaid expense.
C)current liability.
D)account receivable.
E)long-term liability.

Question 48

Stephen is looking at a financial statement that shows detailed information about the accounting equation factors.He is looking at the company's

A)T-accounts.
B)income statement.
C)balance sheet.
D)double-entry accounting system.
E)profit-and-loss statement.

Question 49

________ is an asset that represents the cost of merchandise which was made or bought for sale to customers and that is still on hand.

A)Accounts payable
B)Prepaid expenses
C)Cost of goods sold
D)Merchandise inventory
E)Accounts receivable

Question 50

If the following facts were known,which one would strengthen the argument that a company would be able to meet its current financial obligations?

A)The level of accounts payable is high.
B)Liabilities exceed assets.
C)The company currently has a negative cash flow.
D)The company needs to increase the number of customers it serves.
E)Assets exceed liabilities.

Question 51

________ are amounts due from customers who have purchased goods on credit.

A)Accounts owed
B)Accounts receivable
C)Accounts forwarded
D)Accounts payable
E)Account balances

Question 52

If you wanted to see how much Mega Computer owed your company,where would be the best place to look?

A)Income statement
B)Balance sheet
C)Cash flow statement
D)Budget
E)Net income statement

Question 53

________ are non-physical assets,such as a patent or trademark,that have economic value in the form of expected benefits.

A)Intangible assets
B)Fixed assets
C)Prepaid assets
D)Current assets
E)Long-term assets

Question 54

Which of the following is an intangible asset?

A)An inventory level of 1000 copies of a book
B)The copyright for a textbook
C)A printing press used in the publication of a book
D)A $1000 Canada Savings Bond
E)The building in which a book was printed

Question 55

An account receivable represents

A)an asset with long-term use or value,such as land,buildings,and equipment.
B)an amount due from a customer who has purchased goods on credit.
C)an expense,such as rent,that is paid before the upcoming period in which it is due.
D)a nonphysical asset,such as a patent or trademark,that has economic value in the form of expected benefit.
E)an asset that can or will be converted to cash within the following year.

Question 56

A prepaid expense is

A)an expense,such as rent,that is paid before the upcoming period in which it is due.
B)a nonphysical asset,such as a patent or trademark,that has economic value in the form of expected benefit.
C)an amount due from a customer who has purchased goods on credit.
D)an asset that can or will be converted to cash within the following year.
E)an asset with long-term use or value,such as land,buildings,and equipment.

Question 57

What is the accounting term that describes an amount paid for an existing business above the value of its other assets?

A)A patent
B)A copyright
C)Goodwill
D)A franchise fee
E)Reputation

Question 58

What purpose does the balance sheet serve?

A)It shows the stock price of the firm during the last year and how much fluctuation there have been in the stock price.
B)It shows short- and long-term liquidity ratios,profitability ratios,and activity ratios.
C)It shows a firm's financial condition on a particular date in terms of its assets,liabilities,and owners' equity.
D)It shows investors how much profit the firm made during the last year.
E)It shows a firm's sources and uses of cash.

Question 59

Rent for the period to come is included in which account on the balance sheet?

A)Inventory
B)Cost of goods sold
C)Merchandise inventory
D)Accounts payable
E)Prepaid expenses

Question 60

A current asset is

A)an expense,such as rent,that is paid before the upcoming period in which it is due.
B)a nonphysical asset,such as a patent or trademark,that has economic value in the form of expected benefit.
C)an amount due from a customer who has purchased goods on credit.
D)an asset with long-term use or value,such as land,buildings,and equipment.
E)an asset that can or will be converted to cash within the following year.

Question 61

Which of the following statements best describes the difference between current and long-term liabilities?

A)Current liabilities are debts that need to be paid immediately,whereas long-term liabilities do not.
B)Current liabilities are those which will cost less in debt interest than long-term liabilities.
C)Current liabilities are debts that are settled sooner than long-term debts.
D)Current liabilities are debts on tangible assets,whereas long-term liabilities are debts on intangible assets.
E)Current liabilities are debts on current assets,whereas long-term liabilities are debts on fixed and intangible assets.

Question 62

A current liability is

A)additional money,above proceeds from a stock sale,paid directly to a firm by its owners.
B)the process of distributing the cost of an asset over its useful life.
C)the amount paid for an existing business above the value of its other assets.
D)a debt that is not due for at least one year.
E)a debt that must be paid within the year.

Question 63

At Lexi Corp. ,sales revenue is $20 million,the cost of goods sold is $14 million,operating expenses are $3 million,and income taxes are $1 million.What is the company's operating income?

A)$6 million
B)$17 million
C)$3 million
D)$2 million
E)None of these

Question 64

Jerry wants to calculate gross profit for his business.Which formula should he use?

A)Operating expenses minus income taxes
B)Sales revenue minus income taxes
C)Sales revenue minus operating expenses
D)Sales revenue minus cost of goods sold
E)Operating income minus income taxes

Question 65

If a firm has $1 000 000 in retained earnings,what does this mean?

A)That the firm had $2 000 000 at the beginning of year but paid out $1 000 000 during the year in dividends
B)That the company is owed $1 000 000 by its creditors but has not yet collected the money
C)That the firm has $1 000 000 in the bank
D)That the company's net profits less its dividend payments equals $1 000 000
E)That the company has saved $1 000 000 during the period since the last balance sheet was made up

Question 66

Which financial statement shows the cost of obtaining materials to make products that were sold during the year?

A)Income statement
B)Balance sheet
C)Statement of cash flows
D)Operating expenses statement
E)Statement of retained earnings

Question 67

A company's owners invested $10 000 total into the company,which made a profit of $3500 last year.Its total liabilities are currently at $7000.What is the value of the total assets of this company?

A)$3000
B)$3500
C)$6500
D)$13 500
E)$27 500

Question 68

Paid-in capital is

A)a debt that must be paid within the year.
B)the process of distributing the cost of an asset over its useful life.
C)the amount paid for an existing business above the value of its other assets.
D)a debt that is not due for at least one year.
E)additional money,above proceeds from a stock sale,paid directly to a firm by its owners.

Question 69

If the following facts were known,which one would strengthen the argument that a company is profitable?

A)The company's sales revenue is low relative to its cost of goods sold.
B)The company's cost of goods sold is low relative to its sales revenue.
C)The number of customers has remained stable for some time.
D)The company has had the same owners over its lifetime.
E)The company's selling expenses are high compared to its administrative expenses.

Question 70

At Lexi Corp. ,sales revenue is $20 million,the cost of goods sold is $14 million,operating expenses are $3 million,and income taxes are $1 million.What are retained earnings?

A)$6 million
B)$17 million
C)$3 million
D)$2 million
E)It is not possible to tell with the information provided.

Question 71

The process of distributing the cost of an asset over its life is known as

A)licensing.
B)subtracting methods.
C)cost averaging.
D)prepaid expenses.
E)depreciation.

Question 72

As buildings and equipment wear out or become obsolete,their value decreases.To reflect decreasing value,accountants use

A)prepaid expenses.
B)licensing.
C)subtracting methods.
D)depreciation.
E)all of these.

Question 73

Gem Corp.has $100 million in assets and $50 million in liabilities.Last year,the company earned $10 million in net profit and paid out $5 million in dividends to shareholders.What are the retained earnings for the company?

A)$50 million
B)$5 million
C)$45 million
D)$90 million
E)$95 million

Question 74

Meredith recently bought a business.But she paid more for the business than the total of its current and fixed assets.What did she pay extra for?

A)Land the company owns
B)Equipment in the company's factory
C)Goodwill
D)The franchise fee
E)Accounts receivable that are on the company's books

Question 75

The amount of profit or loss will be reflected in the

A)balance sheet.
B)cost of goods sold.
C)quick ratio.
D)income statement.
E)statement of cash flow.

Question 76

A company has an assets-to-liabilities ratio of 3:2 and total assets worth $6 million.What is its owners' equity?

A)$1 million
B)$2 million
C)$3 million
D)$9 million
E)$12 million

Question 77

Which of the following calculates the cost of goods sold during the period?

A)Beginning inventory plus purchases minus ending inventory
B)Ending inventory minus beginning inventory plus purchases
C)Purchases minus beginning inventory plus ending inventory
D)Beginning inventory plus ending inventory minus purchases
E)(Ending inventory plus beginning inventory)divided by two

Question 78

At Lexi Corp. ,sales revenue is $20 million,the cost of goods sold is $14 million,operating expenses are $3 million,and income taxes are $1 million.What is the company's gross profit?

A)$6 million
B)$17 million
C)$16 million
D)$2 million
E)None of these

Question 79

Prahbat is looking at a financial statement produced by Iron Corp.The statement lists the company's annual revenues,its expenses,and its profit.Prahbat is looking at a(n)

A)cash flow statement.
B)revenue-expense statement.
C)balance sheet.
D)budget.
E)income statement.

Question 80

At Lexi Corp. ,sales revenue is $20 million,the cost of goods sold is $14 million,operating expenses are $3 million,and income taxes are $1 million.What is the company's net income?

A)$6 million
B)$17 million
C)$16 million
D)$2 million
E)The answer cannot be computed with the information provided.