Question 1

Which of the following best describes how the auditor indicate(s)whether the firm's financial statements are prepared and presented in a way that is likely to fairly represent the firm's financial condition?

Accepted Answer

The auditor gives an opinion on the financial statements in their audit report, indicating whether they are presented fairly in all material respects. Certification statements and letters to the CEO are not typically used for this purpose, and footnotes provide additional information but do not directly indicate the fairness of the financial statements.

Question 2

Which of the following is true about a firm's current liabilities?

Accepted Answer

Current liabilities are debts or obligations that are due within a year or less. Therefore, option D is the correct answer. Option A is incorrect because current liabilities do not necessarily have to equal current assets. Option B is incorrect because although some current liabilities may have flexible repayment terms, others have specific due dates. Option C is also incorrect because current liabilities are debts owed to creditors and not shareholders.

Question 3

What must publicly traded corporations in Canada have a public accountant do?

Accepted Answer

Publicly traded corporations in Canada are required by law to have an annual external audit performed by a public accountant to provide assurance to shareholders on the accuracy and completeness of financial statements. The other options listed (A, C, D) are not specifically required by law for publicly traded corporations in Canada, although some may voluntarily choose to do so.

Question 4

As represented on the balance sheet,a firm has which of the following two sources of funds?

Accepted Answer

Liabilities and the owners' equity are the two main sources of funds for a firm, as represented on the balance sheet. Liabilities represent what the firm owes, while owners' equity represents the owners' claims on the firm's assets after all liabilities have been paid.

Question 5

Sabiha is the small business loan officer at Regional National Bank.It is her job to approve loans for small businesses so that the local economy will grow.One factor she looks at carefully when making loan decisions is the amount of debt the firm already has outstanding.She can find this information by looking at which of the following financial statements of the firm?

Accepted Answer

The amount of debt outstanding is reported on the balance sheet of the firm. Therefore, Sabiha should look at the balance sheet to determine the amount of debt already owed by the small business. The income statement, statement of cash flows, and cash budget do not provide information on the amount of debt outstanding.

Question 6

Which type of analysis compares information contained in a firm's financial statements over a period of two or more years?

Accepted Answer

Horizontal analysis compares financial information over a period of two or more years to identify trends, changes, and growth patterns. Vertical analysis compares different elements of the financial statements within a single time period. Ratio analysis and profitability analysis use calculations to assess the financial health and performance of a company.

Question 7

In order to compute a firm's gross profit on the income statement,its cost of goods sold is subtracted from which of the following?

Accepted Answer

Gross profit is the amount earned by a company after deducting the cost of goods sold from its revenues. Therefore, the correct option is to subtract cost of goods sold from revenue. Total assets and liabilities are not used in the calculation of gross profit.

Question 8

If an auditor identifies limited problems with the firm's financial methods and statements but believes that in all other aspects the statements are fair and accurate,which of the following will be expressed in the auditor's report?

Accepted Answer

In this scenario, the auditor's report will express a qualified opinion. This is because the limited problems identified by the auditor would cause them to have some reservations about the accuracy and fairness of the financial statements, even though they believe that the statements are otherwise correct. A qualified opinion will highlight the issues that have been identified and the potential impact on the financial statements, but will still ultimately allow for the statements to be considered as fairly presented.

Question 9

The social movement to become more environmentally friendly or greener has resulted in TBL.What does the initialism TBL stand for?

Accepted Answer

TBL stands for Triple Bottom Line. The Triple Bottom Line (TBL) refers to a framework for evaluating a company's social, environmental, and economic performance. This approach acknowledges that businesses have an impact on society and the natural environment, and that they can create value in multiple ways, not just through profitability. The three pillars of the TBL are often referred to as people, planet, and profit.

Question 10

Which of the following is issued if the external auditor does not find any problems with the way a firm prepares and reports its financial statements?

Accepted Answer

An unqualified opinion is issued when the external auditor does not find any problems with the way a firm prepares and reports its financial statements. This is the best choice as it directly answers the question.

Question 11

Triple bottom line is a broader set of performance measures focusing on which of the following?

Accepted Answer

Triple bottom line refers to a business approach that considers not only financial profits but also social and environmental impacts. The three Ps of triple bottom line are profits, people, and planet. Therefore, the best choice is C as it includes all three P's. Choice A is incorrect because performance is too vague and not specific to social or environmental impacts. Choice B is incorrect because public image is too narrow and does not cover social impacts. Choice D is incorrect because precision has no relation to social or environmental impacts.

Question 12

Which of the following statements is the rationale for the accounting equation?

Accepted Answer

The accounting equation (Assets = Liabilities + Equity) is based on the principle that a firm's assets must equal the sum of its liabilities and equity. In other words, what the firm owns (assets) minus what it owes creditors (liabilities) equals what it is worth to its owners (equity). This equation forms the basis for double-entry bookkeeping and ensures that the financial statements are accurate and balanced. Option A is incorrect because equity is a part of a firm's worth, not a subtraction from it. Option B is incorrect because earnings and expenses are not part of the accounting equation. Option D is incorrect because profit is a result of revenue minus expenses, not part of the accounting equation itself.

Question 13

In evaluating companies across industries,what will financial managers often read as a means of interpreting the statements correctly?

Accepted Answer

The independent auditor's report provides an objective evaluation of the financial statements, helping financial managers interpret the statements correctly by ensuring their accuracy and reliability.

Question 14

Why did accounting firms cease to be truly independent and objective during the 1990s and the early part of the 21st century?

Accepted Answer

Accounting firms ceased to be truly independent and objective during the 1990s and the early part of the 21st century because they also consulted for the same firms they audited. This created a conflict of interest as the accounting firms were in a position to make larger profits from consulting than from auditing, leading to compromised audit quality and independence.

Question 15

The financing provided by owners is represented on the balance sheet as which of the following

Accepted Answer

Financing provided by owners is typically in the form of equity, which is recorded as part of owners' equity on the balance sheet. Revenues refer to income earned from business operations, dividends refer to payments made to shareholders from profits, and liabilities refer to money owed to others.

Question 16

When analyzing a company's financial statements it is also important to look at which of the following?

Accepted Answer

The independent auditor's report provides an opinion on whether the financial statements are presented fairly and in accordance with generally accepted accounting principles (GAAP). This report is important because it adds credibility to the financial statements and indicates whether they can be relied upon when making business decisions. The other options may provide additional information, but they are not as essential as the independent auditor's report.

Question 17

Lottadoe's liabilities are $130 000,and its owners' equity is $170 000.Which of the following is true about Lottadoe?

Accepted Answer

According to the accounting equation, Assets = Liabilities + Owners' Equity. 
Therefore, Assets = $130 000 + $170 000 = $300 000. 
Thus, option A is true about Lottadoe. 
Options B, C, and D are not necessarily true based on the given information.

Question 18

Which of the following best describes the notes to financial statements included in an annual report?

Accepted Answer

The notes to financial statements often disclose information such as changes in accounting practices and any special circumstances that had an impact on the firm's financial performance. This information is important for external stakeholders such as investors to understand the financial statements and make informed decisions.

Question 19

When analyzing financial statements what should you make sure to read because it can be very revealing?

Accepted Answer

The notes to financial statements provide additional information about the company's accounting policies, significant accounting estimates, and other important disclosures that may not be included in the main financial statements. This information can provide valuable insights into the company's financial health and performance. The other options listed may provide some context or commentary, but are not as directly relevant to the financial statements themselves.

Question 20

An auditor issuing what type of opinion shows that he has uncovered serious and widespread problems with the preparation of a firm's financial statements?

Accepted Answer

An adverse opinion indicates that the auditor has found significant issues with the financial statements and that they do not fairly represent the financial position of the company. This type of opinion is only issued when the auditor believes the issues are so severe that the financial statements are not reliable.

Quiz 7: Accounting: Decision Making by the Numbers

Which of the following best describes how the auditor indicate(s) whether the firm's financial statements are prepared and presented in a way that is likely to fairly represent the firm's financial condition?