Deck 1: Overview of Corporate Financial Reporting

Question 1

Information contained in the financial statements of a company is of use to both internal and external users.

Answer 1

True

Question 2

Net earnings is the amount of the company's revenue that remains after all of its expenses are accounted for.

Answer 2

True

Question 3

Creditors are entities that lend money to a company rather than buying shares of a company.

Answer 3

True

Question 4

If an investor owns 10% of the shares of a company, they normally own 10 shares of the company.

Question 5

The primary purpose of financial accounting information is to aid users in their economic decision-making relative to the organization.

Question 6

The financial statements of a company are prepared by the shareholders.

Question 7

Income can also include gains that a company generates from sales that are outside their normal course of operations.

Question 8

A gain or increase in the value of shares is known as capital appreciation.

Question 9

The statement of financial position measures cash inflows and outflows of a company over a period of time.

Question 10

The section of an annual report that contains management's discussion of the company's operating results is referred to as the Statement of Management's Responsibility.

Question 11

Dividends are payments made by the company to distribute future profits.

Question 12

There may be a single shareholder in the case of a public company or many shareholders in the case of a private company.

Question 13

Decision makers are often referred to as users of the financial statements and include investors and creditors.

Question 14

The shareholders are an example of an internal user of annual report information.

Question 15

Assets are listed in the order of their liquidity on the classified Statement of Financial Position.

Question 16

A firm's activities can be divided into borrowing, investing, and operating.

Question 17

Profit is determined by subtracting the income earned during the period from the expenses incurred during the same period.

Question 18

Gross profit is equal to the sales received from goods and the operating expenses incurred during the period.

Question 19

Expenses are defined as increases in economic benefits.

Question 20

Prepaid expenses can be found on the Statement of Income.

Question 21

Which statement is INCORRECT in regards to the characteristics of a corporation?

A) It is a separate legal entity.
B) It can be sued.
C) Shareholders liability is limited to their investment.
D) It cannot be publicly accountable.

Question 22

Those who lend money or otherwise extend credit rather than invest it directly are known as

A) investors.
B) regulators.
C) creditors.
D) unions.

Question 23

Liquidity refers to how long something will be received, realized, or consumed.

Question 24

Share capital records the amount that investors have received in the form of dividends.

Question 25

IFRS are the financial reporting standards that must be followed by Canadian public companies.

Question 26

Which of the following statements best describes a partnership?

A) separate legal entity
B) single owner
C) most expensive to establish
D) owners are responsible for debt of the company

Question 27

Shareholders' equity is often referred to as the net assets of the company.

Question 28

In which section of the annual report does management comment on the company and its operating results?

A) report to the shareholders
B) management's discussion and analysis
C) corporate profile
D) selected financial data

Question 29

Which of the following is an internal user of annual report information?

A) creditors
B) board of directors
C) regulators
D) shareholders

Question 30

Working capital measures the company's ability to meet its short-term obligations using its non-current assets.

Question 31

Canadian companies use a 12-month period to distinguish between items that are current from those that are non-current.

Question 32

Businesses can be operated in a number of different forms, such as a

A) corporation.
B) partnership.
C) proprietorship.
D) all of the above.

Question 33

Retained earnings is the earnings that have been kept and not paid out as dividends.

Question 34

Deferred revenue represents customer deposits.

Question 35

The shareholders typically elect which of the following to represent their interests?

A) senior management
B) independent auditors
C) board of directors
D) chief operating officer

Question 36

The MD&A provides a discussion of the risks facing the company and information about future plans.

Question 37

Which of the following statements best describes a proprietorship?

A) can be single or multiple owners
B) taxed separately
C) most expensive to establish
D) owner is responsible for debt of the company

Question 38

Companies that are growing normally have negative cash flows from investing activities.

Question 39

A corporation whose shares are held by a small number of individuals is referred to as a

A) proprietorship.
B) publicly traded corporation.
C) small business corporation.
D) privately held corporation.

Question 40

All of the following are external users EXCEPT

A) labour unions.
B) management.
C) regulators.
D) journalists.

Question 41

Operating activities include all of the following EXCEPT

A) collections of accounts receivable.
B) payment of tax expense.
C) payment of dividends.
D) payment of interest expense.

Question 42

Which of the following statements best describes a corporation?

A) can be single or multiple owners
B) taxed separately
C) most expensive to establish
D) all of the above

Question 43

An example of an operating activity is

A) repaying loan principal.
B) paying dividends.
C) purchase of shares of other companies.
D) payments of taxes owed to the government.

Question 44

Which of the following is an example of an operating activity?

A) paying dividends
B) sale of investment in other companies' shares
C) purchase of property, plant, and equipment
D) payment of interest expense

Question 45

The fundamental types of business activities that a firm typically engages in include all of the following EXCEPT

A) operating.
B) borrowing.
C) investing.
D) financing.

Question 46

Which of the following are the two components of Shareholders' equity?

A) Dividends and Retained Earnings
B) Share Capital and Retained Earnings
C) Share Capital and Net Income
D) Net Income and Dividends

Question 47

All of the following are investing activities EXCEPT

A) earning interest income.
B) purchasing property, plant, and equipment.
C) purchasing other companies' shares.
D) selling property, plant, and equipment.

Question 48

Where would the information about company operations be found?

A) on the Statement of Income
B) on the Statement of Financial Position
C) in the notes of the financial statements
D) in the statement of management responsibility

Question 49

Which of the following is a typical financing activity?

A) purchasing property, plant or equipment
B) purchasing another company's shares
C) paying interest expense
D) paying dividends

Question 50

An example of an investing activity is

A) purchase of inventory.
B) collections of amounts owed by customers.
C) purchase of shares of other companies.
D) payment of taxes.

Question 51

Which of the following is a typical financing activity?

A) payment of dividends
B) payment of interest expense
C) payment of wages
D) purchases of inventory

Question 52

Which of the financial statements provides information about the company's financial position?

A) Statement of Income
B) Statement of Financial Position
C) Statement of Cash Flows
D) Statement of Changes in Equity

Question 53

Which of the following is the proper order to list current assets on the Statement of Financial Position?

A) Cash, Short-Term Investments, Inventory, Prepaid Expenses
B) Cash, Short-Term Investments, Prepaid Expenses, Accounts Receivable
C) Cash, Inventory, Accounts Receivable, Short-Term Investments
D) Cash, Accounts Receivable, Short-Term Investments, Inventory

Question 54

An example of a financing activity is

A) purchase of property.
B) issuing shares.
C) sales to customers.
D) payment of taxes.

Question 55

Which of the following is NOT a typical operating activity?

A) payment of accounts payable
B) payment of long term notes payable
C) payment of wages
D) collection of accounts receivable

Question 56

Which of the following statements best describes financial accounting?

A) An information system in which the underlying transactions of organization are captured, analyzed, and reported.
B) The reports that management prepares for the owners of the company summarizing how the company performed during the period.
C) An information system in which all transactions with the company are accurately reported.
D) The reports that management prepares for use in making decisions related to the financing, investing, and operating activities of a company.

Question 57

Which of the following is the basic accounting equation?

A) Assets = liabilities - shareholders' equity
B) Assets = liabilities × shareholders' equity
C) Assets = liabilities ÷ shareholders' equity
D) Assets = liabilities + shareholders' equity

Question 58

All of the following can be found on an Statement of Income EXCEPT

A) Interest expense.
B) Depreciation Salaries expense.
C) Prepaid rent expense.
D) Other income.

Question 59

What is the initial investment by the shareholders in a company called?

A) owners' capital
B) shareholders' capital
C) retained earnings
D) shareholders' equity

Question 60

In 2014 Farrow Ltd. earned gross revenues of $2,500,000 and had net income of $480,000. During 2014 the company had 200,000 common shares outstanding and its average shareholders' equity was $1,000,000. Farrow's basic earnings per share for 2014 is

A) $2.50.
B) $2.40.
C) $12.50.
D) $0.48.

Question 61

Where in the financial statements would a user find out which accounting policies management has selected to use?

A) Statement of Management Responsibility
B) Notes to the Financial Statements
C) Auditors' Report
D) Management Discussion and Analysis

Question 62

The accounting equation is

A) Assets = Liabilities - Shareholders' Equity.
B) Assets + Liabilities = Shareholders' Equity.
C) Assets = Liabilities + Shareholders' Equity.
D) Assets - Liabilities = Shareholders' Equity.

Question 63

Measures the resources controlled by a company and the claims on resources at a given point in time.

A) Statement of Financial Position
B) Statement of Income
C) Statement of Cash Flows
D) Statement of Changes in Equity

Question 64

A characteristic of an asset is

A) a resource controlled by an entity.
B) a future economic outflow.
C) an event that will happen in the future.
D) none of the above.

Question 65

The following information is NOT found on the Statement of Income:

A) EPS.
B) Depreciation Expense.
C) Future Income Taxes.
D) Cost of Goods Sold.

Question 66

The starting point in the operating activities section of the cash flow statement is

A) Sales Revenue.
B) Retained Earnings.
C) Beginning Cash Balance.
D) Net Income.

Question 67

Licences, patents, trademarks, and copyrights are all examples of

A) current assets.
B) goodwill.
C) intangible assets.
D) short term investments.

Question 68

Who determines how much of earnings will be paid as dividends?

A) management
B) board of directors
C) shareholders
D) regulators

Question 69

The change in retained earnings can be calculated as follows:

A) Net Income - Dividends
B) Net Income + Dividends
C) Net Income - Interest
D) Net Income + Interest

Question 70

The Statement of Income is also known as

A) Statement of Operations.
B) Statement of Earnings.
C) Statement of Profit or Loss.
D) all of the above.

Question 71

Which of the following statements is true?

A) The market value and the book value of a company's shareholders' equity are usually the same.
B) The market value is usually less than the book value of a company's shareholders' equity.
C) The market value is usually more than the book value of a company's shareholders' equity.
D) The value of the shareholders' equity on the Statement of Financial Position is based on the value of the company's shares in the market.

Question 72

The working capital equation is

A) Working Capital = Current Assets - Current Liabilities.
B) Working Capital = Current Assets + Current Liabilities.
C) Working Capital = Current Assets - Non-Current Liabilities.
D) Working Capital = Non-current Assets + Current Liabilities.

Question 73

Dividends are paid when approved by the

A) board of directors.
B) management.
C) shareholders.
D) creditors.

Question 74

Amounts owed to customers for advance payments until the related goods or services have been provided are called

A) Accounts Payable.
B) Deferred Revenue.
C) Accrued Liabilities.
D) Deferred Income Taxes.

Question 75

Which of the following is a section found in the Statement of Cash Flows?

A) cash from lending activities
B) cash from shareholder activities
C) cash from financing activities
D) cash from borrowing activities

Question 76

Goods held for resale to customers are called

A) Inventory.
B) Prepaid Deposits.
C) Property, Plant, and Equipment.
D) Intangible Assets.

Question 77

On the Statement of Cash Flows, the repayment of long-term obligations would be considered

A) a financing activity.
B) an investing activity.
C) an operating activity.
D) a reduction in a liability.