Question 1

The statement of cash flows provides insight into the firm's assets and liabilities and reconciles them with changes in its cash and marketable securities during the period of concern.

Accepted Answer

The answer of The statement of cash flows provides insight...

Question 2

Generally Accepted Accounting Principles are authorized by the Canadian Institute of CharteredAccountants.

Accepted Answer

The answer of Generally Accepted Accounting Principles are authorized by...

Question 3

The sale of every business requires a premium be paid to cover the cost of goodwill.

Accepted Answer

Not every business sale involves a premium for goodwill; it depends on the specific circumstances and agreements between the buyer and seller.

Question 4

Amortization is considered to be use of cash flow since the cash must be drawn from somewhere.

Accepted Answer

Amortization is a non-cash accounting expense that represents the gradual write-off of an intangible asset over time, not an actual cash outflow.

Question 5

The more risky an investment, the greater the investor's expected return and the greater the probability of less than desireable results.

Accepted Answer

This is the general principle of risk and return. Investors expect to be compensated for taking on more risk with a greater return, but there is also a higher likelihood of losing money or experiencing less desirable results.

Question 6

The net working capital investment is defined as the change in current assets minus the change incurrent liabilities.

Accepted Answer

This is the correct definition of net working capital investment.

Question 7

Amortization is the systematic expensing of a portion of the cost of a fixed asset against sales.

Accepted Answer

Amortization is the process of gradually expensing the cost of a fixed asset over its useful life against the sales or revenues it generates. This is done to reflect the decrease in the value of the asset over time due to wear and tear, obsolescence, or other factors. Amortization is commonly used for intangible assets like patents, copyrights, and trademarks, but it can also apply to tangible assets like buildings and equipment.

Question 8

The stated (par) value on preferred stock represents the actual price for which the shares must be sold.

Accepted Answer

The stated (par) value on preferred stock is usually a nominal value and doesn't necessarily represent the actual price for which the shares must be sold. The actual price for which the shares are sold may be above or below the par value, depending on market conditions and the issuing company's financial performance.

Question 9

An increase in the accounts payable account results in a outflow of cash.

Accepted Answer

An increase in the accounts payable account represents an increase in the amount owed to vendors or suppliers for goods or services. This represents a liability for the company and does not result in an outflow of cash. A decrease in accounts payable, on the other hand, represents a decrease in the amount owed and therefore results in an outflow of cash as payments are made to vendors.

Question 10

Business firms are permitted to systematically charge a portion of the market value of fixed assets, as depreciation, against annual revenues.

Accepted Answer

The answer of Business firms are permitted to systematically charge...

Question 11

The CICA has developed a set of accounting standards that specify the four financial statements that companies must develop and how information is to be presented and disclosed in the financial statements.

Accepted Answer

The CICA (Canadian Institute of Chartered Accountants) has developed accounting standards in Canada that specify the four financial statements that companies must develop and how information is to be presented and disclosed in the financial statements. These standards are known as the CPA Canada Handbook - Accounting.

Question 12

Net fixed assets represent the difference between gross fixed assets and the total expense recorded for the depreciation of fixed assets.

Accepted Answer

Net fixed assets is calculated by subtracting the accumulated depreciation from gross fixed assets.

Question 13

The Canada Customs and Revenue Agency provides businesses with a table of CCA rates used toamortize fixed assets for tax purposes.

Accepted Answer

The Canada Customs and Revenue Agency does provide businesses with a table of CCA (capital cost allowance) rates used to amortize fixed assets for tax purposes.

Question 14

The president's letter, as the first component of the stockholders' report, is the primary communication from management to the firm's employees.

Accepted Answer

The president's letter in the stockholders' report is the primary communication from management to the firm's shareholders, not employees.

Question 15

In the statement of cash flow, the operating cash flows are cash flows directly related to purchaseand sale of fixed assets.

Accepted Answer

Operating cash flows are cash flows directly related to the operations of the business, such as revenue from sales and payments for expenses. Cash flows related to the purchase and sale of fixed assets would fall under investing activities on the statement of cash flow.

Question 16

GAAP is the accounting profession's rule-setting body.

Accepted Answer

GAAP (Generally Accepted Accounting Principles) is a collection of commonly-followed accounting rules and standards for financial reporting. The rule-setting bodies are the Financial Accounting Standards Board (FASB) in the United States and the International Accounting Standards Board (IASB) for International Financial Reporting Standards (IFRS).

Question 17

In finance, operating cash flow is the cash flow a firm generates from its normal operations, calculated as EBIT - taxes + depreciation.

Accepted Answer

Operating cash flow is calculated as EBIT (earnings before interest and taxes) minus taxes and depreciation. This represents the cash generated from a company's regular operations, before taking into account any financing or investment activities.

Question 18

An increase in a firm's inventory account results in an outflow of cash.

Accepted Answer

An increase in inventory means the firm has purchased more goods, which requires an outflow of cash.

Question 19

Canadian- controlled private corporations have tax advantages relative to public companies.

Accepted Answer

This is true. Canadian-controlled private corporations have access to certain tax advantages not available to public companies. For example, they are eligible for the small business deduction, which reduces the amount of tax they have to pay on their active business income. They may also be able to pay dividends to shareholders at a lower rate of tax.

Quiz 2: Financial Statements, Cash Flows, and Taxes