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

Question 1

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

A)Trade receivables.
B)Dividends declared.
C)Merchandise inventory.
D)Office supplies inventory.

Answer 1

B

Question 2

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

A)there is no share price reaction because forecasts of profit almost never reflect actual results
B)it causes an increase in the share price
C)it causes a decrease in the share price
D)it can have any of these effects since it is impossible to understand the changes in market price of share

Answer 2

B

Question 3

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)Bring non-enforcement actions against company executives and auditors for accounting related violations
C)File anti-trust suits against companies involved in restraint of trade
D)Conduct external audits for a fee.

Answer 3

D

Question 4

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)Trade receivables would normally be classified as a current asset.
C)Accumulated depreciation would normally appear in the income statement.
D)The matching principle holds that all expenses incurred in the earning of revenue should be recognized in the same period as the revenue earned.

Question 5

The secondary quality--comparability-assumes which of the following?

A)users can compare financial data across businesses.
B)accounting procedures should be applied the same from year to year.
C)accounting data should be supported by documents when possible.
D)accounting data should be based on objective data and transactions.

Question 6

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

Question 7

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

Question 8

The qualitative characteristic that says accounting information can influence users' decisions is which of the following?

A)comparability.
B)materiality.
C)relevance.
D)reliability.

Question 9

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

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

Question 10

What are current liabilities?

A)obligations which are incurred during the past year.
B)debts at the statement of financial position date which must be paid within two years.
C)debts at the statement of financial positiondate which are expected to be paid with the current assets listed on the same statement of financial position.
D)trade payables and bonds payable.

Question 11

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

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

Question 12

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 debit to Cash for $10,000.
B.a credit to Common Shares for $10,000.
C.a credit to Common Shares for $15,000.
D.a credit to Cash for $15,000

Question 13

What are cost-benefit and prudence?

A)Qualitative characteristics.
B)Elements of financial statements.
C)Constraints of accounting measurement.
D)Accounting principles.

Question 14

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

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

Question 15

What are the primary qualities of accounting information that increase the usefulness to decision makers?

A)relevance and cost-benefit.
B)reliability and comparability.
C)reliability and relevance.
D)materiality and relevance.

Question 16

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

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

Question 17

Which statement is false regarding the financial statements?

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

Question 18

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

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

Question 19

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)CSA
B)SEC
C)CICA
D)GAAP

Question 20

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)In alphabetical order of accounts.
D)From the largest balance to the smallest balance.

Question 21

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

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

Question 22

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

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

Question 23

On a classified statement of financial position,prepaid expenses are classified as

A)a current liability.
B)property,plant,and equipment.
C)a current asset.
D)a long-term investment.

Question 24

Relevant accounting information

A)is information that has been audited.
B)must be reported within one year.
C)has been objectively determined.
D)helps users make predictions about the potential effects of past,present,or future transactions.

Question 25

If accounting information has feedback value,it

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

Question 26

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

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

Question 27

Which of the following statements is not true?

A)Comparability means using different accounting principles from year to year within a company.
B)Faithful representation means information must be verifiable,neutral and complete.
C)Relevant accounting information must be capable of making a difference in the decision.
D)In order for financial statements to be useful,the average user with a reasonable understanding of accounting concepts must be able to understand them.

Question 28

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 in which they are expected to be converted into cash.
D)in the order of acquisition.

Question 29

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

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

Question 30

Which of the following would not be a subclassification reported on a corporate income statement?

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

Question 31

Adherence to the same accounting principles from year to year is an example of the characteristic of

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

Question 32

Which of the following is not an asset account?

A)Long-term investments.
B)Dividends declared.
C)Machinery.
D)Patent.

Question 33

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

Question 34

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

Question 35

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

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

Question 36

The statement of cash flows and the statement of financial positionare interrelated because

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

Question 37

What are the categories of cash flows that appear on a statement of cash flows?

A)Cash flows from investing,financing,and service activities.
B)Cash flows from investing,financing,and saving activities.
C)Cash flows from operating,inventing,and financing activities.
D)Cash flows from operating,investing,and financing activities.

Question 38

Which of the following describes the prudence constraint?

A)Avoid overstating assets and revenues and avoid understating expenses and liabilities.
B)The benefits of accounting for and reporting information should outweigh the costs.
C)Amounts that are large enough to influence a user's decisions.
D)Differences due to long-standing and accepted accounting and reporting in a particular industry.

Question 39

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

Question 40

Which of the following is a constraint in accounting?

A)Comparability
B)Cost-benefit
C)Faithful representation
D)Relevance

Question 41

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

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

Question 42

The dollar amount of share capital is:

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

Question 43

The dollar amount of current assets is:

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

Question 44

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

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

Question 45

Which of the following statements is true?

A)Accumulated depreciation is the amount of depreciation on the income statement for the current year.
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)Property,plant,and equipment are classified as intangible assets on the statement of financial position.

Question 46

Libbyway,Inc.,paid cash dividends of $20,000 during 20A.In its statement of cash flows,the dividends would be shown as a cash flow used in which of the following?

A)Operating activities.
B)Financing activities.
C)Investing activities.
D)Distributing activities.

Question 47

Shortway Company purchased a piece of land to build a warehouse.In its statement of cash flows,the purchase of land would be shown as cash flow used in which of the following?

A)Operating activities.
B)Financing activities.
C)Investing activities.
D)Purchasing activities.

Question 48

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

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

Question 49

The dollar amount of current liabilities is:

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

Question 50

Which of the following statements is true?

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

Question 51

How is the debt-to-equity ratio computed?

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

Question 52

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)Retained earnings is the accumulated profit plus the accumulated dividends paid.
D)Book value of a building is the cost less the current year's depreciation.

Question 53

The difference between cost and accumulated depreciation is referred to as

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

Question 54

Which of the following is an example of a long-term liability?

A)Trade payables
B)Income taxes payable
C)Bonds payable
D)Salaries payable

Question 55

Which of the following is an example of a noncurrent asset?

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

Question 56

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

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

Question 57

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

Question 58

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

Question 59

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 debit to Cash for $10,000.
B)a credit to Common Shares for $10,000.
C)a credit to Common Shares for $15,000.
D)a credit to Cash for $15,000

Question 60

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

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

Question 61

Shareholders are most interested in evaluating

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

Question 62

Which of the following items does not appear in the operating activities section of the statement of cash flows prepared under the direct method?

A)Cash collections from customers
B)Depreciation expense
C)Cash payments for interest
D)Cash payments to suppliers

Question 63

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

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

Question 64

Financial leverage measures which of the following?

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

Question 65

Independent auditors are advisors who analyze financial and other economic information to formulate forecasts and stock recommendations.

Question 66

A supplier to a company would be most interested in the

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

Question 67

Faithful representation means information must be free of material error,neutral and complete.

Question 68

Financial analysts,using modern information technology to gather and analyze information about companies,competitors,the economy and even population trends,make predictions about future company profitability which form the basis of their buy,hold,or sell recommendations.

Question 69

Earnings per share is calculated by dividing

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

Question 70

The qualitative characteristic of relevance indicates that information is accurate,unbiased,and verifiable.

Question 71

Asset turnover measures which of the following?

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

Question 72

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

A)Profit,as reported on the income statement
B)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
C)Unearned revenue
D)Unrealized gains or losses on financial assets that are classified as available for sale

Question 73

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

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

Question 74

When the auditors give an unqualified opinion,it means the company's financial statements do not conform to international financial reporting standards.

Question 75

The users of accounting information are decision makers such as investors,creditors,and analysis experts who provide financial advice.

Question 76

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

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

Question 77

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

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

Question 78

All of the following ratios are investor measures of profitability except

A)earnings per share
B)debt equity ratio
C)return on equity
D)price-earnings ratio.

Question 79

A common measure of profitability is the

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

Question 80

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