Deck 6: Reporting and Interpreting Sales Revenue, Receivables, and Cash

Question 1

Accounting information should be neutral in order to enhance:

A) comparability.
B) faithful representation.
C) materiality.
D) understandability.

Answer 1

B

Question 2

Wilburn Company collected $100,000 from customers and paid employees and suppliers $90,000 during 20A. In addition, the company borrowed $30,000 from the bank and purchased equipment for $20,000. The company's 20A statement of cash flows would show which of the following?

A) Decrease in cash of $20,000.
B) Increase in cash of $30,000.
C) Decrease in cash of $30,000.
D) Increase in cash of $20,000.

Answer 2

D

Question 3

On a classified statement of financial position, current assets are customarily listed

A) in alphabetical order.
B) with the largest dollar amounts first.
C) in the order of acquisition.
D) in the order in which they are expected to be converted into cash.

Answer 3

D

Question 4

The relationship between current assets and current liabilities is important in evaluating a company's

A) fair value.
B) liquidity.
C) solvency.
D) profitability.

Question 5

If accounting information has predictive value, it is useful in making predictions about

A) the potential effects of past, present, and future events of a company.
B) future Canada Revenue Agency audits.
C) foreign currency exchange rates.
D) new accounting principles.

Question 6

Which statement is false regarding the financial statements?

A) The statement of cash flows reports the sources and uses of cash during the accounting period.
B) Expenses on the income statement are reported as incurred, not as paid.
C) Distributions to owners (dividends) are reported in the income statement.
D) Current assets reported in the statement of financial position are generally reported in order of their liquidity.

Question 7

A current asset is

A) usually found as a separate classification in the income statement.
B) expected to be converted to cash or used in the business within a relatively short period of time.
C) the last asset purchased by a business.
D) an asset which is currently being used to produce a product or service.

Question 8

Which of the following statements is not true?

A) For accounting information to be relevant, it must have timeliness.
B) Relevant accounting information must be capable of making a difference in a user's decision.
C) Comparability means using different accounting principles from year to year within a company.
D) Faithful representation means information must be neutral, complete, and free from material error.

Question 9

Which of the following would appear in the intangible assets section of a classified statement of financial position?

A) Trade receivables.
B) Patents.
C) Cash.
D) Accumulated depreciation.

Question 10

Which of the following would most likely increase net profit margin?

A) Increasing sales volume
B) Decreasing selling price
C) Increasing expenses
D) Decreasing sales volume

Question 11

Return on equity (ROE) primarily measures which of the following?

A) The ability to earn profit for the common shareholders
B) The ability to earn profit for the preferred shareholders
C) The ability to generate revenue while holding assets steady
D) The ability to generate sufficient profit on total assets

Question 12

On January 1, 20B, Milburn Corporation had the following balances in its shareholders' equity accounts: Common Shares - $100,000 (10,000 shares) and Retained Earnings - $30,000. During 20B, the company issued 1,000 additional shares of common shares for
$10 per share, reported profit of $40,000, and paid cash dividends of $20,000. What amount of total shareholders' equity would the company report in its December 31, 20B, statement of financial position?

A) $180,000.
B) $140,000.
C) $120,000.
D) $160,000.

Question 13

A common measure of profitability is the

A) return on equity ratio.
B) debt to total assets ratio.
C) current ratio.
D) cash current debt coverage ratio.

Question 14

What amount of current liabilities would appear on the statement of financial position?

A) $28,300.
B) $15,300.
C) $15,200.
D) $55,200.

Question 15

The category that is generally considered to be the best measure of a company's ability to continue as a going concern is:

A) cash flows from investing activities.
B) usually different from year to year.
C) cash flows from operating activities.
D) cash flows from financing activities.

Question 16

Earnings per share is calculated by dividing

A) profit margin by the weighted average number of common shares.
B) net earnings by weighted average shareholders' equity.
C) profit margin by weighted average shareholders' equity.
D) net earnings by the weighted average number of common shares.

Question 17

The statement of cash flows and the statement of financial position are interrelated because:

A) both disclose the corporation's profit.
B) the ending amount of cash on the statement of cash flows must agree with the amount in the statement of financial position.
C) the ending amount of cash on the statement of cash flows must agree with the amount on the income statement.
D) the ending amount of cash on the statement of cash flows must agree with the amount in the statement of changes in equity.

Question 18

In addition to the four required financial statements, which of the following is a required disclosure in the annual report?

A) Marketing forecasts.
B) Full descriptions of legal actions against the company.
C) Expansion plans of the company.
D) Management's discussion and analysis.

Question 19

Financial leverage measures which of the following?

A) the profit generated for every dollar of investment by the shareholders
B) the ability to convert sales dollars to profit
C) how many dollars of assets are employed for each dollar of shareholders' investment
D) the sales revenue generated by effective asset management

Question 20

The elements of comprehensive income would include all of the following items except

A) Net earnings, as reported on the income statement.
B) Unrealized gains or losses on financial assets that are classified as available for sale.
C) Unearned revenue
D) Unrealized gains or losses on translating the financial statements of companies that have operations in other countries, but are controlled by the Canadian reporting entity.

Question 21

The difference between cost of fixed assets and accumulated depreciation is referred to as:

A) salvage value.
B) carrying amount.
C) fair value.
D) net depreciation.

Question 22

Which of the following will cause an increase in net profit margin, asset turnover and financial leverage as long as expenses do not grow faster than revenue?

A) An increase in profit
B) A decrease in average total assets
C) An increase in sales volume
D) A decrease in total liabilities

Question 23

Liberward, Inc. sold and issued 1,000 shares for $15 per share. The book value of the shares was $10 per share. The journal entry to record the share issue would include which of the following?

A) a credit to Cash for $15,000
B) a debit to Cash for $10,000.
C) a credit to Contributed capital for $15,000.
D) a credit to Contributed capital for $10,000.

Question 24

Which of the following is not used by financial analysts in forming a recommendation about whether a company's shares should be sold, held or bought?

A) Opinions of "the man on the street".
B) Information about competitors within the industry.
C) Information about the general economy.
D) Knowledge of alternative accounting methods used by companies in their financial statement preparation.

Question 25

What is the primary purpose of hiring a public accounting firm to examine the financial statements of the company?

A) To detect all accounting errors made by the accounting system and employees.
B) To provide credibility that the financial information conforms with international financial reporting standards in all material respects.
C) To assure no fraud has been committed by the company's management.
D) To detect fraud committed by employees.

Question 26

Financing activities involve

A) lending money.
B) issuing debt.
C) acquiring investments.
D) acquiring long-lived assets.

Question 27

Which of the following statements is true?

A) Accumulated depreciation is a contra account in the income statement.
B) The current ratio is current assets divided by current liabilities.
C) Book value of a building is the cost less the current year's depreciation.
D) Retained earnings is the accumulated profit plus the accumulated dividends paid.

Question 28

In what order are current assets usually reported on the statement of financial position?

A) From the least liquid to the most liquid.
B) From the most liquid to the least liquid.
C) From the largest balance to the smallest balance.
D) In alphabetical order of accounts.

Question 29

The dollar amount of current liabilities is:

A) $40,000
B) $196,000
C) $30,000
D) $170,000

Question 30

Which of the following is not classified as a current asset?

A) Equipment with an estimated useful life of five years.
B) Short-term (trading) investments.
C) Supplies.
D) Cash.

Question 31

The conceptual framework of accounting helps to ensure that

A) a rule will be in place for every possible situation.
B) there are consistent standards prescribing the nature, functions and limits of financial statements.
C) all countries have their own unique accounting standards.
D) users with no accounting or business knowledge will understand financial statements.

Question 32

The dollar amount of current assets is:

A) $40,000
B) $196,000
C) $26,000
D) $25,000

Question 33

If a company has both an inflow and outflow of cash related to the acquisition of equipment for $15,000 cash and the sale of machinery for $10,000 cash, the

A) cash inflow from the sale and cash outflow for the acquisition should be reported separately in the investing activities section.
B) two cash effects can be netted and presented as one item in the financing activities section.
C) cash inflow and cash outflow should be reported separately in the financing activities section.
D) two cash effects can be netted and presented as one item in the investing activities section.

Question 34

Which one of the following is not a qualitative characteristic of useful accounting information?

A) Comparability.
B) Going concern.
C) Verifiability.
D) Relevance.

Question 35

What happens when the actual profit reported exceed the expected profit for a company?

A) It causes an increase in the share price.
B) It causes a decrease in the share price.
C) It is impossible to understand the changes in market price of share.
D) There is no share price reaction because forecasts of profit almost never reflect actual results.

Question 36

Which of the following would appear in the current asset section of a classified statement of financial position?

A) Accumulated depreciation.
B) Bonds payable.
C) Prepaid expenses.
D) Intangible assets.

Question 37

The two qualitative characteristics that are defined in terms of what influences or makes a difference to a decision maker are

A) faithful representation and materiality.
B) comparability and timeliness.
C) relevance and understandability.
D) materiality and relevance.

Question 38

Liabilities are generally classified on a statement of financial position as

A) tangible liabilities and intangible liabilities.
B) small liabilities and large liabilities.
C) present liabilities and future liabilities.
D) current liabilities and non-current liabilities.

Question 39

Which of the following is true about gross profit (gross margin)?

A) It is net sales minus all expenses.
B) It is a separate account in the general ledger.
C) It is net sales minus cost of goods sold.
D) It is sales plus cost of goods sold.

Question 40

Long-lived assets without physical substance are:

A) intangible assets.
B) listed as a long-term investment on the statement of financial position.
C) listed directly under current assets on the statement of financial position.
D) not listed on the statement of financial position because they do not have physical substance.

Question 41

The dollar amount of net property, plant and equipment is:

A) $210,000
B) $180,000
C) $350,000
D) $80,000

Question 42

Shareholders are most interested in evaluating

A) liquidity and profitability.
B) marketability and solvency.
C) profitability and solvency.
D) liquidity and solvency.

Question 43

Which of the following statements is true?

A) Property, plant, and equipment are classified as intangible assets on the statement of financial position.
B) Current liabilities are debts expected to be paid out of current assets within the next year.
C) Current assets are resources of a company which might include cash and copyrights.
D) Accumulated depreciation is the amount of depreciation on the income statement for the current year.

Question 44

Which of the following statements is true?

A) Accumulated depreciation is a contra account on the income statement.
B) Intangible assets are assets that do not have a physical existence.
C) The current ratio is current assets plus current liabilities.
D) Book value of a building is the cost plus accumulated depreciation to date.

Question 45

Milsap Corporation reported total assets of $2,500,000, total current liabilities of $900,000, and total long-term liabilities of $800,000. What was the shareholders' equity?

A) $1,700,000.
B) $1,600,000.
C) $100,000
D) $800,000.

Question 46

If accounting information has confirmatory value, it

A) is prepared on an annual basis.
B) has been verified by external audit.
C) confirms or corrects prior expectations.
D) is neutral in its representations.

Question 47

Which of the following is an example of accumulated other comprehensive income?

A) rent revenue
B) loss on disposal of equipment
C) unrealized gains on security investments
D) interest income

Question 48

The indirect and direct methods of preparing the cash flow statement are identical except for the

A) operating activities section.
B) investing activities section.
C) financing activities section.
D) significant noncash activity section.

Question 49

The dollar amount of share capital is:

A) $236,000
B) $406,000
C) $140,000
D) $96,000

Question 50

Which of the following is an example of a typical institutional investor?

A) The mutual funds managed by Nesbitt Burns.
B) The officers of IntraWest who own shares in the company.
C) Employees who participate in a stock option plan and own shares of IntraWest.
D) Individuals who buy shares of IntraWest from their brokers.

Question 51

Which of the following would not be a sub-classification reported on a corporate income statement?

A) Gross profit
B) Earnings per share.
C) Profit before income taxes.
D) Accumulated depreciation.

Question 52

Asset turnover measures which of the following?

A) the sales revenue generated by efficient management of assets
B) the profit generated by efficient management of assets
C) how quickly we liquidate our inventory
D) the ability to earn profit for the shareholders

Question 53

The cash flow statement will not report the

A) sources of cash in the current period.
B) change in the cash balance for the current period.
C) uses of cash in the current period.
D) amount of cheques outstanding at the end of the period.

Question 54

On the multiple step income statement, which of the following is an example of a non-operating (other) expense?

A) depreciation expense
B) selling expense
C) research and development costs
D) interest expense

Question 55

The objective of financial reporting is to

A) comply with International Financial Reporting Standards.
B) provide information to the Canada Revenue Agency.
C) comply with Accounting Standards for Private Enterprises.
D) provide financial information that is useful to existing and potential investors, lenders and other creditors.

Question 56

Which one of the following is a fundamental qualitative characteristic?

A) Relevance.
B) Understandability.
C) Comparability.
D) Timeliness.

Question 57

In order for accounting information to be relevant, it must

A) help predict future economic events or confirm prior expectations.
B) have very little cost.
C) be used by a lot of different organizations.
D) be verifiable.

Question 58

The cash flow statement

A) summarizes the operating, financing, and investing activities of a company.
B) is another name for the statement of earnings.
C) is a special section of the statement of earnings.
D) must be prepared on a daily basis.

Question 59

The Ontario Securities Commission (OSC) is not empowered to do which of the following?

A) Set reporting standards for firms with publicly traded debt or equity securities.
B) Conduct external audits for a fee.
C) File anti-trust suits against companies involved in restraint of trade.
D) Bring non-enforcement actions against company executives and auditors for accounting related violations.

Question 60

Which of the following websites provides access to the Ontario Securities Commission's (OSC) reports filed by companies?

A) First Call
B) SEDAR
C) Compustat
D) Lexis-Nexis

Question 61

Ramstetter, Inc. purchased a piece of land with a new building on January 1, 20A. The land was valued at $40,000 and the building was valued at $120,000 with a 40 year life and a zero salvage (residual) value. How would the land and building appear in the plant, property and equipment section of the December 31, 20A statement of financial position?

A) Land at $40,000 less accumulated depreciation of $1,000; Building at $120,000 less accumulated depreciation of $3,000.
B) Land at $40,000; Building at $120,000 less accumulated depreciation of $3,000.
C) Land at $40,000; Building at $120,000.
D) Land at $30,000; Building at $120,000.

Question 62

The objective of financial reporting is to provide financial information about a company that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the company.

Question 63

All long-lived assets including land have estimated useful lives over which they are expected to generate revenue.

Question 64

The more useful format for the income statement for external users is the single step because it discloses intermediate profit figures before reporting profit.

Question 65

Harris Company issued 10,000 shares of its common shares for cash. The journal entry to record the share issue would include

A) a debit to Retained Earnings.
B) a credit to Common Shares.
C) a debit to Common Shares.
D) a credit to Cash.

Question 66

Determining, if an item is material to the users of financial statements requires professional judgement.

Question 67

Gross profit is an important profit measure for companies that sell inventory because it shows the profit left from net sales after the cost of inventory sold has been deducted.

Question 68

The securities commission staff reviews public reports for compliance with legal and professional standards, investigates irregularities, and punishes violators.

Question 69

Having a conceptual framework of accounting ensures that standards and practices are clear and consistent.

Question 70

This question focuses on the financial statements. Indicate the letter that best applies to each statement in the blank provided.
A. Does not apply to a corporation.
B. Reports the results of operations.
C. Reports changes in retained earnings and changes in share capital.
D. Reports cash inflows and outflows.
E. Reports financial position.
F. None of the above.
1. Income statement
2. Statement of financial position
____ 3. Statement of cash flows
4. Statement of changes in equity
____ 5. Statement of partners' equity

Question 71

The conceptual framework of accounting begins with

A) qualitative characteristics.
B) the going concern assumption.
C) elements of financial statements.
D) the objective of financing reporting.

Question 72

What amount of current assets would appear on the statement of financial position?

A) $26,200.
B) $56,200.
C) $24,000.
D) $56,600.

Question 73

The primary responsibility for the information reported by a company rests with which of the following?

A) The company's management.
B) The company's auditors.
C) The local city council.
D) The Canada Revenue Agency.

Question 74

Which of the following is false?

A) Relevance is the qualitative characteristic of accounting information that says the information would make a difference in a user's decision.
B) The matching principle holds that all expenses incurred in the earning of revenue should be recognized in the same period as the revenue earned.
C) Trade receivables would normally be classified as a current asset.
D) Accumulated depreciation would normally appear in the income statement.

Question 75

Cash receipts from customers are greater than sales revenues when there is a(n)

A) increase in trade receivables
B) decrease in trade receivables
C) increase in cost of goods sold
D) decrease in cost of goods sold

Question 76

A supplier to a company would be most interested in the

A) price-earnings ratio.
B) cash total debt coverage.
C) current ratio.
D) earnings per share.

Question 77

How is the debt-to-equity ratio computed?

A) total liabilities divided by total shareholders' equity
B) current liabilities divided by total shareholders' equity
C) current assets divided by total shareholders' equity
D) total assets divided by total shareholders' equity

Question 78

On January 1, 20A, Virginia Company had $22,000 of Retained Earnings. During 20A Virginia earned profit of $40,000 and declared and paid dividends of $20,000. In addition, the company received cash of $15,000 as an additional investment by its owners. What is the ending balance in Retained Earnings at December 31, 20A?

A) $42,000.
B) $57,000.
C) $67,000.
D) $32,000.

Question 79

The financial information reported by Canadian companies is subject to strict regulations and standards issued by government regulators and private standard-setting organizations. Canadian publicly traded corporations must comply with provincial securities regulations that are coordinated by the

A) GAAP
B) SEC
C) CSA
D) CICA

Question 80

Which of the following is an example of a non-current asset?

A) prepaid expenses
B) inventory
C) trade receivables
D) long term investments