Deck 1: The Financial Statements

Question 1

Which of the following best describes a liability?

A) Liabilities are a form of share capital.
B) Liabilities are future economic benefits to which a company is entitled.
C) Liabilities are accounts receivable of the company.
D) Liabilities are economic obligations to creditors to be paid at some future date by the company.

Answer 1

D

Question 2

How do revenues for a period relate to the beginning and ending balances in retained earnings?

A) Revenues will increase the beginning balance of retained earnings for the period.
B) Revenues will decrease the beginning balance of retained earnings for the period.
C) Revenues less expenses will either increase or decrease the beginning balance of retained earnings for the period.
D) Revenues less expenses will either increase or decrease the ending balance of retained earnings for the period.

Answer 2

D

Question 3

Payables are classified as:

A) increases in earnings
B) assets
C) decreases in earnings
D) liabilities

Answer 3

D

Question 4

Expenses are:

A) increases in assets resulting from operations
B) increases in retained earnings resulting from operations
C) increases in liabilities resulting from purchasing assets
D) decreases in retained earnings resulting from operations

Question 5

Claims held by the shareholders (owners) of a corporation are referred to as:

A) retained earnings
B) share capital
C) share capital minus retained earnings
D) share capital plus retained earnings

Question 6

Receivables are classified as:

A) increases in earnings
B) assets
C) decreases in earnings
D) liabilities

Question 7

Dividends:

A) always affect net income
B) are distributions to shareholders of assets (usually cash) generated by net income
C) are expenses
D) must be paid to shareholders when the company earns a profit

Question 8

Shareholders' equity is often referred to as "net assets" and represents the residual amount of business assets that can be claimed by the owners.

Question 9

If liabilities increase $120,000 during a given period and shareholders' equity decreases $25,000 during the same period, assets must:

A) decrease $145,000
B) increase $145,000
C) increase $95,000
D) decrease $95,000

Question 10

On January 1, 2014, total assets for Liftoff Technologies were $125,000; on December 31, 2014, total assets were $145,000. On January 1, 2014, total liabilities were $110,000; on December 31, 2014, total liabilities were $115,000. What are the amount of the change and the direction of the change in Liftoff Technologies shareholders' equity for 2014?

A) decrease of $15,000
B) increase of $15,000
C) increase of $30,000
D) decrease of $30,000

Question 11

The accounting equation must always be in balance.

Question 12

Liabilities are often referred to as "outsider claims" and owners' equity as "insider claims" to assets.

Question 13

Revenues are:

A) increases in liabilities resulting from delivering goods or services to customers
B) increases in retained earnings resulting from delivering goods or services to customers
C) decreases in assets resulting from delivering goods or services to customers
D) decreases in retained earnings resulting from delivering goods or services to customers

Question 14

Which of the following persons or groups have the ultimate control of a corporation?

A) the chief executive officer
B) the board of directors
C) the audit committee
D) the shareholders

Question 15

Shareholders' equity for Raisin Corporation on January 1, 2014 and December 31, 2014 were $60,000 and $75,000, respectively. Assets on January 1, 2014 and December 31, 2014 were $115,000 and $105,000, respectively. Liabilities on January 1, 2014 were $55,000. What is the amount of liabilities on December 31, 2014?

A) $40,000
B) $15,000
C) $30,000
D) indeterminable from the given information

Question 16

The accounting equation can be stated as:

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

Question 17

A form of the accounting equation can be stated as Assets - Liabilities = Share capital + Retained earnings.

Question 18

The owners' interest in the assets of a corporation is known as:

A) assets
B) shareholders' equity
C) expenses
D) revenues

Question 19

Financial statements are:

A) reports issued by outside consultants who are hired to analyze key operations of the business
B) reports created by management that states it is responsible for the acts of the corporation
C) standard documents that tell us how well a business is performing and where it stands in financial terms
D) standard documents issued by outside consultants who are hired to analyze key operations of the business in financial terms

Question 20

If assets increase $120,000 during a given period and liabilities decrease $25,000 during the same period, shareholders' equity must:

A) increase $95,000
B) decrease $145,000
C) decrease $95,000
D) increase $145,000

Question 21

Since they are both the same activities, the terms "accounting" and "bookkeeping" are synonymous and can be used interchangeably.

Question 22

The basic component of share capital is retained earnings.

Question 23

One benefit of organizing a business as a proprietorship is that the proprietor is not required to pay income tax on the business' earnings.

Question 24

For business purposes, dividend payments are classified as expenses.

Question 25

Net earnings are calculated by taking a company's earnings less their dividends paid out.

Question 26

Revenues are increases in retained earnings from the delivery of goods or services.

Question 27

Revenues less cash outflow equals net income (or net loss).

Question 28

There are several types of decision makers who use accounting information. List five of these users of accounting information and give an example of a decision each would make.

Question 29

Financial accounting information is prepared exclusively for external users.

Question 30

Retained earnings represent cash that is available to a company for future operations and expansion.

Question 31

Accounting is called an information system since it measures business activities, processes data into reports, and communicates results to decision makers.

Question 32

Management accounting is prepared primarily for external users.

Question 33

From an accounting viewpoint, a proprietorship is a distinct and separate entity from the proprietor.

Question 34

The Cash Flow Statement is organized in terms of the organization's operating, investing, and financing activities.

Question 35

Dividends are a form of expenses.

Question 36

Expenses are increases in retained earnings that result from operations.

Question 37

The owners' equity of proprietorships and partnerships is different.

Question 38

The three forms of business organizations are sole proprietorships, partnerships, and non-profit organizations.

Question 39

From a legal perspective, sole proprietors, partners and shareholders are personally liable for the debts of their businesses they invest in.

Question 40

Accounting is often referred to as "the language of business." Why is accounting described this way? How is accounting different from bookkeeping?

Question 41

Generally accepted accounting principles, or GAAP, are the rules and procedures established by the Canadian Institute of Chartered Accountants (CICA Handbook).

Question 42

Relevance and comparability are the two fundamental qualitative characteristics of accounting.

Question 43

Telus Corporation is a publicly owned corporation. How does it differ from a privately owned corporation?

Question 44

All corporations have to follow the same sections of the CICA Handbook.

Question 45

The main source of cash for a business normally arises from:

A) current assets
B) operating activities
C) financing activities
D) investing activities

Question 46

Cash spent to purchase a new building would appear on the cash flow statement as:

A) a financing activity
B) an operating activity
C) an investing activity
D) purchases of new equipment do not appear on a cash flow statement

Question 47

Materiality is a component of the faithful representation qualitative characteristic.

Question 48

What are the three forms of business organizations? How do they differ?

Question 49

The relevant measure of value of the assets of a company that is going out of business is its:

A) historical cost
B) recorded value
C) book value
D) Liquidation value

Question 50

What is a not-for-profit organization?

Question 51

There are many different stakeholders in Telus Corporation. Explain why the same information may not be suitable or appropriate for all stakeholders.

Question 52

The CEO of a business owns a home and two automobiles. The company the CEO works for also owns automobiles and a home in a remote area used for strategic planning meetings by its executives. Which principle or assumption "draws a sharp boundary" around the possessions of the CEO and the assets of the business for which he works?

A) the entity assumption
B) the stable-monetary-unit assumption
C) the going-concern assumption
D) the objectivity assumption

Question 53

Which financial statement is based on the accounting equation?

A) statement of retained earnings
B) income statement
C) cash flow statement
D) balance sheet

Question 54

The principle that states that assets acquired by the business should be recorded at their actual price is the:

A) objectivity assumption
B) stable monetary unit assumption
C) cost assumption
D) reliability assumption

Question 55

The accounting concept that maintains that each organization or section of an organization stands apart from other organizations and individuals is known as the:

A) reliability principle
B) going-concern assumption
C) entity assumption
D) monetary unit assumption

Question 56

Think about the impact accounting has on our economy and our nation. Name some external groups interested in reviewing a company's financial statements.

Question 57

The reliability principle states that assets and services should be recorded at their actual cost, since cost is a reliable measure to use in financial accounting.

Question 58

The ________ assumption assumes that the organization will continue operating normally for the foreseeable future.

A) cost
B) stable monetary unit
C) entity
D) going-concern

Question 59

The stable-monetary-unit assumption is the basis for ignoring:

A) the possibility that the value of inventory might drop below its historical cost
B) fluctuations in the value of the Canadian dollar relative to foreign currencies
C) the effect of inflation in the accounting records
D) the difference between the appraised value and the actual cost when recording an asset at its historical cost

Question 60

Retained earnings appear on which of the following financial statements?

A) statement of retained earnings, cash flow statement, and income statement, but not the balance sheet
B) statement of retained earnings and balance sheet, but not the income statement or cash flow statement
C) statement of retained earnings, cash flow statement, and balance sheet, but not the income statement
D) statement of retained earnings and cash flow statement, but not the income statement or balance sheet

Question 61

Notes receivable due in 60 days would be classified as a:

A) non-current asset on the balance sheet
B) current asset on the balance sheet
C) current liability on the balance sheet
D) non-current liability on the balance sheet

Question 62

An investor wishes to assess a company's financial position at the end of the period. Which financial statement would the investor probably examine?

A) the cash flow statement
B) the income statement
C) the balance sheet
D) the statement of retained earnings

Question 63

Financial statement information that reflects the economic substance of a transaction is considered to be representationally faithful.

Question 64

Suppose The Fruit Group buys a kiwi for $.10 and sells the kiwi for $.50. The cost of goods sold would be:

A) $.10
B) $.40
C) $.50
D) $.05

Question 65

The date of the income statement:

A) covers one day in time
B) covers a period of time, usually for an accounting period
C) is not dated
D) may cover a period of time or only one day in time, like a snapshot photograph

Question 66

Assets appear on the:

A) balance sheet
B) income statement
C) retained earnings statement
D) cash flow statement

Question 67

Dividends appear on the:

A) retained earnings statement
B) income statement
C) balance sheet
D) both the retained earnings statement and the income statement

Question 68

Operating expenses appear on the income statement:

A) directly after gross margin
B) directly after cost of goods sold
C) directly after revenue
D) do not appear on the income statement

Question 69

What is the proper order for the cash flow statement?

A) financing activities, investing activities, and operating activities
B) operating activities, investing activities, and financing activities
C) operating activities, financing activities, and investing activities
D) investing activities, financing activities, and operating activities

Question 70

Losses are reported on the:

A) income statement
B) balance sheet
C) cash flow statement
D) statement of retained earnings

Question 71

The balance sheet is sometimes also called the:

A) statement of operations
B) statement of cash position
C) statement of financial position
D) statement of income and expense

Question 72

Cost of goods sold is:

A) added to sales on the income statement
B) deducted from sales on the balance sheet
C) deducted from sales on the income statement
D) added to sales on the retained earnings statement

Question 73

Common shares is a component of:

A) total assets
B) total liabilities
C) share capital
D) retained earnings

Question 74

Cash received from the issuance of share capital would appear:

A) as an operating activity on the cash flow statement
B) would not appear on a cash flow statement
C) as an investing activity on the cash flow statement
D) as a financing activity on the cash flow statement

Question 75

Gains and losses appear on which of the financial statements listed below?

A) the balance sheet
B) the income statement
C) the retained earnings statement
D) the cash flow statement

Question 76

To determine a company's gross margin for the period, an investor would look on the:

A) balance sheet
B) cash flow statement
C) income statement
D) statement of retained earnings

Question 77

Net income is:

A) deducted from beginning retained earnings on the retained earnings statement
B) added to beginning retained earnings on the retained earnings statement
C) added to assets on the balance sheet
D) deducted from net sales on the income statement

Question 78

The cash flow statement is divided into three categories relating to cash flows from operating, investing, and:

A) management planning activities
B) financing activities
C) strategic positioning activities
D) marketing activities

Question 79

Which of the following financial statements would a potential investor most likely use to evaluate a company's financial performance for the current period?

A) balance sheet
B) income statement
C) cash flow statement
D) retained earnings statement

Question 80

The ending balance in retained earnings appears on the:

A) balance sheet only
B) balance sheet and statement of retained earnings
C) statement of retained earnings only
D) income statement