Deck 1: Overview of Corporate Financial Reporting

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

Prepaid expenses can be found on the Statement of Income.

Question 5

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

Question 6

Expenses are defined as increases in economic benefits.

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

Deferred revenue represents customer deposits.

Question 24

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

Question 25

Privately held corporations

A) always have multiple shareholders.
B) always require a board of directors to represents its interests.
C) raise capital through the sale of shares.
D) none of the above

Question 26

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

Question 27

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

Question 28

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

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

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 31

All of the following are external users except

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

Question 32

Publicly traded corporations that fail to comply with securities regulations related to statement presentation and timing, may

A) be fraudulent.
B) be delisted.
C) face criminal charges.
D) have a questionable management team.

Question 33

The annual report includes everything, except for

A) managerial statements.
B) management discussion and analysis.
C) financial statements.
D) notes to the financial statements.
E) all of the above

Question 34

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

Question 35

Creditors include which of the following?

A) suppliers
B) financial institutions
C) employees
D) all of the above

Question 36

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 37

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

Question 38

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

Question 39

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 40

Financial Accounting is also referred to as

A) internal reporting.
B) management reporting.
C) external financial reporting.
D) all of the above

Question 41

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 42

The form of business ownership that most effectively limits the risk of ownership is

A) sole proprietorship.
B) general partnership.
C) corporation.
D) none of the above, all forms of business ownership are equally risky.

Question 43

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 44

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 45

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 46

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 47

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 48

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 49

A friend is looking to purchase shares as an investment, but would like information about whether or not the company has paid dividends in the last year. Where would your friend find this information in the financial statements?

A) Income Statement
B) Operating Activities on the Cash Flow Statement
C) Investing Activities on the Cash Flow Statement
D) Financing Activities on the Cash Flow Statement

Question 50

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 51

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 52

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 53

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 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 a typical financing activity?

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

Question 56

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 57

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 58

Jennifer is a university student looking to earn some cash for tuition over the summer months (April-August). She has decided to start a lawn care business, what business structure would best suit her needs?

A) private corporation
B) public corporation
C) general partnership
D) sole proprietorship

Question 59

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 60

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 61

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 62

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 63

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 64

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 65

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

A) EPS.
B) Depreciation Expense.
C) Goodwill.
D) Cost of Goods Sold.

Question 66

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

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

Question 67

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 68

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 69

A positive ___ represents an internal source of funding.

A) Cash flow
B) Retained earnings
C) Dividends account
D) Share capital account

Question 70

Capital Appreciation refers to

A) sale of shares at a price higher than the purchase price
B) the gain on the sale of an asset
C) the allocation of the value of an asset over its useful life
D) all of the above

Question 71

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 72

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.

Question 73

Dividends are paid when approved by the

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

Question 74

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 75

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 76

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 77

In 2020 Muller Ltd. earned gross revenues of $2,500,000 and had net income of $480,000. During 2020 the company had 200,000 common shares outstanding and its average shareholders' equity was $1,000,000. Muller's basic earnings per share for 2020 is

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

Question 78

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 79

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

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

Question 80

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.