Deck 1: Business Decisions and Financial Accounting

Question 1

Which of the following activities involves raising the necessary funds to support the business?

A) Operating.
B) Investing.
C) Financing.
D) Marketing.

Answer 1

Financing.

Question 2

Which financial statement would indicate whether the company relies more on debt or shareholders' equity to finance its assets?

A) Statement of cash flows.
B) Statement of changes in equity.
C) Statement of earnings.
D) Statement of financial position.

Answer 2

Statement of financial position.

Question 3

The statement of financial position and statement of changes in equity are related because

A) the total assets on the statement of financial position is reported on the statement of changes in equity.
B) the ending amount on the statement of changes in equity is reported on the statement of financial position.
C) the ending amount on the statement of changes in equity is transferred to the statement of cash flows.
D) both contain information for the corporation.

Answer 3

the ending amount on the statement of changes in equity is reported on the statement of financial position.

Question 4

Shareholders' equity can be described as claims of

A) creditors on total assets.
B) owners on total assets.
C) customers on total assets.
D) debtors on total assets.

Question 5

The BAT Corporation had revenues of $110,000, expenses of $85,000, and an income tax rate of 20 percent in 20X2. What would profit after taxes be?

A) $5,000.
B) $15,000.
C) $20,000.
D) $25,000.

Question 6

Expenses are incurred

A) only on rare occasions.
B) to produce assets.
C) to produce liabilities.
D) to generate revenues.

Question 7

If total liabilities increased by $25,000 and shareholders' equity increased by $5,000 during a period, then total assets must change by what amount and direction during that same period?

A) $20,000 decrease.
B) $20,000 increase.
C) $25,000 increase.
D) $30,000 increase.

Question 8

The common characteristic possessed by all assets is

A) long life.
B) great monetary value.
C) tangible nature.
D) future economic benefit.

Question 9

Which of the following are the two primary components of shareholders' equity?

A) Non-current assets and liabilities
B) Contributed capital and Retained earnings.
C) Short term debt and retained earnings
D) Long-term debt and retained earnings.

Question 10

Which of the following would not be considered an internal user of accounting data?

A) The president of a company.
B) The controller of a company.
C) A creditor of a company.
D) A salesperson of a company.

Question 11

The financial statement that summarizes the changes in contributed capital and retained earnings for a specific period of time is the

A) statement of financial position.
B) statement of earnings.
C) statement of cash flows.
D) statement of changes in equity.

Question 12

What is the primary purpose of the statement of financial position?

A) To measure the profit of a business up to a particular point in time.
B) To report the difference between cash inflows and cash outflows for the period.
C) To report the financial position of the reporting entity at a particular point in time.
D) To report assets at their current market value at a particular point in time.

Question 13

Retained earnings at the end of the period is equal to

A) retained earnings at the beginning of the period plus net earnings minus liabilities.
B) retained earnings at the beginning of the period plus net earnings minus dividends.
C) net earnings for the period
D) assets plus liabilities.

Question 14

On January 1, 20X1, two individuals invested $150,000 each to form Hornbeck Corporation. Hornbeck had total revenues of $15,000 during 20X1 and $40,000 during 20X2. Total expenses for the same periods were $8,000 and $22,000, respectively. Cash dividends paid out to shareholders totaled $6,000 in 20X1 and $12,000 in 20X2. What was the ending balance in Hornbeck's retained earnings account at the end of 20X1 and 20X2?

A) $1,000 and $6,000 respectively.
B) $1,000 and $7,000, respectively.
C) $7,000 and $19,000 respectively.
D) $301,000 and $306,000 respectively.

Question 15

Brown Corporation reported the following amounts at the end of the first year of operations, December 31, 20X1:
Share capital $20,000;
Sales revenue $95,000;
Total assets $85,000,
No dividends,
and Total liabilities $35,000.
What would shareholders' equity and total expenses be?

A) Shareholders' equity, $50,000 and expenses $65,000.
B) Shareholders' equity, $60,000 and expenses $75,000.
C) Shareholders' equity, $80,000 and expenses $40,000.
D) Shareholders' equity, $80,000 and expenses $85,000.

Question 16

What form does financial accounting information provided by an entity to decision makers generally take?

A) Financial statements.
B) Various forecasts and performance reports.
C) An analysis of changes in the price of a corporation's shares.
D) Comparisons between the company and its competitors.

Question 17

The statement of cash flows and the statement of financial position are interrelated because

A) the ending amount of cash on the statement of cash flows must agree with the amount on the statement of earnings.
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) the ending amount of cash on the statement of cash flowsmust agree with the amount in the statement of financial position.
D) both disclose the corporation's profit.

Question 18

If the retained earnings account increases from the beginning of the year to the end of the year, then

A) profit is greater than dividends.
B) a loss is less than dividends.
C) additional investments are less than reported losses.
D) dividends were paid.

Question 19

Carrington Company owes you $500 on account due within 15 days. Which of the following amounts on its statement of financial position would help you to determine the likelihood that you will be paid in full and on time?

A) Cash and trade receivables.
B) Cash and property and equipment.
C) Cash and inventory.
D) Contributed capital and retained earnings.

Question 20

Buying assets needed to operate a business is an example of a(n)

A) purchasing activity.
B) ?nancing activity.
C) investing activity.
D) operating activity.

Question 21

Why would Parker Bank, in deciding whether to make a loan to Davis Company, be interested in the amount of liabilities, Davis has on its statement of financial position?

A) The liabilities represent resources that could be used to repay the loan.
B) If Davis already has many other obligations, it might not be able to repay the loan.
C) Existing liabilities give an indication of how profitable Davis has been in the past.
D) Parker would be interested in the amount of Davis's assets but not the amount of liabilities.

Question 22

The most significant expense for a merchandising company is

A) salaries expense
B) equipment maintenance
C) cost of goods sold
D) income taxes

Question 23

On January 1, 20X1, Taylor Corporation had retained earnings of $6,500,000. During 20X1, Taylor had profit of $1,050,000 and dividends of $450,000. What is the amount of Taylor's retained earnings at the end of 20X1?

A) $6,050,000.
B) $6,950,000.
C) $7,100,000.
D) $7,550,000.

Question 24

Retained earnings are

A) the shareholders' claim on total assets.
B) equal to cash.
C) equal to revenues.
D) the amount of profit kept in the corporation for future use.

Question 25

A group of individuals formed a new company with an investment of $100,000. The most likely effect of this transaction on the company's accounting equation at the time of the formation is an increase in cash and

A) an increase in revenue.
B) an increase in liabilities.
C) an increase in owners' capital.
D) an increase in assets.

Question 26

During 20X2, its second year in operation, Banner Company delivered goods to customers for which customers paid or promised to pay $5,850,000. Assume all sales were on account and the amount of cash collected from customers was $5,960,000. The amount of trade receivables at the beginning of 20X2 was $1,200,000. Based on this information, what is the amount of trade receivables that Banner would report at the end of 20X2?

A) $110,000.
B) $1,090,000.
C) $1,310,000.
D) $5,850,000.

Question 27

Allentown Corporation has on its statement of financial position the following amounts:
Total assets of $3,500,000
Total liabilities of $500,000
Contributed capital of $1,000 ,000.
What is the amount of retained earnings that should appear on Allentown's statement of financial position?

A) $2,000,000.
B) $3,000,000.
C) $4,000,000.
D) $5,000,000.

Question 28

What are business liabilities?

A) Amounts it expects to collect in the future from customers.
B) Debts or obligations resulting from past business events.
C) The amounts that owners have invested in the business.
D) The increases in assets that result from profitable operations.

Question 29

What is the amount of revenue recognized in the statement of earnings by a company that sells goods to customers?

A) The cash collected from customers during the current period.
B) Total sales, both cash and credit sales, for the period.
C) Total sales minus beginning amount of trade receivables.
D) The amount of cash collected plus the beginning amount of trade receivables.

Question 30

How do most businesses earn revenues?

A) When they collect trade receivables.
B) Through sales of goods or services to customers.
C) By borrowing money from a bank.
D) By selling shares to shareholders.

Question 31

During 20X2, its second year in operation, Banner Company delivered goods to customers for which customers paid or promised to pay $5,850,000. The amount of cash collected from customers was $5,960,000. The amount of trade receivables at the beginning of 20X2 was $1,200,000. What is the amount of sales revenue that Banner should report on its statement of earnings for 20X2?

A) $4,650,000.
B) $4,760,000.
C) $5,850,000.
D) $5,960,000.

Question 32

The primary purpose of the statement of cash flows is to report

A) a company's investing transactions.
B) a company's financing transactions.
C) information about cash receipts and cash payments of a company.
D) the net increase or decrease in cash.

Question 33

On the statement of financial position, assets may be presented

A) in order of liquidity
B) in order of reverse liquidity
C) either in order of liquidity or in order of reverse liquidity
D) in alphabetical order

Question 34

Which financial statement for a business would you look at to determine the company's performance during an accounting period?

A) Statement of financial position.
B) Statement of cash flows.
C) Statement of earnings.
D) Statement of changes in equity.

Question 35

Which of the following is not a principal type of business activity?

A) Operating
B) Investing
C) Financing
D) Delivering

Question 36

The statement of changes in equity is dependent on the results from

A) the statement of cash flows.
B) the statement of financial position.
C) the statement of earnings.
D) a company's share capital.

Question 37

Jameson & Johnson Inc., recorded $250,000 of depreciation expense in December 20X6. The most likely effect on the company's accounting equation is

A) no effect on assets.
B) a decrease in assets of $250,000.
C) an increase in liabilities of $250,000.
D) an increase in assets of $250,000.

Question 38

The statement of cash flows and the statement of financial position are interrelated because

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

Question 39

What are the two categories of shareholders' equity usually found on the statement of financial position of a corporation?

A) Share capital and long-term liabilities.
B) Share capital and property, plant, and equipment.
C) Retained earnings and notes payable.
D) Contributed capital and retained earnings.

Question 40

Kamil's Car Repair Shop Ltd. started the year with total assets of $70,000 and total liabilities of $40,000. During the year, the business recorded $100,000 in car repair revenues, $65,000 in expenses, and dividends of $5,000. Shareholders' equity at the end of the year was

A) $60,000.
B) $65,000.
C) $70,000.
D) $75,000.

Question 41

The ending retained earnings balance of the Brown Hat restaurant chain increased by $4.3 billion from the beginning of the year. The company had declared a dividend of $1.5 billion. What was the profit earned during the year?

A) $2.8 billion.
B) $3.0 billion.
C) $5.8 billion.
D) There is no way to determine net income as not enough information was given.

Question 42

On the statement of cash flows, how would a company report the purchase of machinery?

A) As cash used in operating activities.
B) As cash used in financing activities.
C) As cash used in purchasing activities.
D) As cash used in investing activities.

Question 43

Which of the following is the amount of rent expense reported on the statement of earnings?

A) The amount of cash paid for rent in the current period.
B) The amount of cash paid for rent in the current period less any unpaid rent at the end of the period.
C) The amount of rent used up in the current period to earn revenue.
D) The amount of cash paid for rent for the future period.

Question 44

Borrowing money is an example of a(n)

A) delivering activity.
B) financing activity.
C) investing activity.
D) operating activity.

Question 45

What events cause changes in a corporation's retained earnings?

A) Profit or loss and declaration of dividends.
B) Declaration of dividends and issuance of shares to new shareholders.
C) Profit issuance of shares, and borrowing from a bank.
D) Declaration of dividends and purchase of new machinery.

Question 46

What term is used for probable future economic bene?ts owned by an entity, and obtained as the result of past transactions?

A) Assets.
B) Liabilities.
C) Revenues.
D) Retained earnings.

Question 47

If you wanted to know how much of its profit a corporation distributed as dividends, which financial statement would you look at?

A) Statement of financial position.
B) Statement of earnings.
C) Statement of cash flows.
D) Statement of changes in equity.

Question 48

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 operating, production, and internal activities.
C) Cash flows from financing, production, and growth activities.
D) Cash flows from operating, investing, and financing activities.

Question 49

What results from the purchase of goods or services on credit and from borrowing?

A) Assets.
B) Liabilities.
C) Share capital.
D) Revenues.

Question 50

When would a company report a net loss?

A) When retained earnings decreased due to paying dividends to shareholders.
B) When its assets decreased during an accounting period.
C) When its liabilities increased during an accounting period.
D) When its expenses exceeded its revenues for an accounting period.

Question 51

In what order are assets are listed on a statement of financial position?

A) Dollar amount (largest first).
B) Date of acquisition (earliest first).
C) Ease of conversion to cash.
D) Importance to the operation of the business.

Question 52

If you wanted to know what accounting rules a company follows related to its inventory, where would you look?

A) The statement of financial position.
B) The statement of earnings.
C) The notes to the financial statements.
D) The headings to the financial statements.

Question 53

At the beginning of 20X2, Rodriguez Corporation had assets of $820,000 and liabilities of $340,000. During the year, assets increased by $40,000 and liabilities decreased by $8,000. What was total shareholders' equity at the end of 20X2?

A) $432,000.
B) $480,000.
C) $528,000.
D) $1,208,000.

Question 54

In what order, would the assets of Any Company be listed on their statement of financial position?

A) Cash, Trade Receivables, Inventory, Plant and Equipment.
B) Cash, Inventory, Trade Receivables, Plant and Equipment.
C) Cash, Trade Receivables, Marketable Securities, Inventory.
D) Cash, Trade Receivables, Plant and Equipment, Inventory.

Question 55

What section of the statement of cash ?ows do bankers consider to be the most important?

A) Investing.
B) Operating.
C) Financing.
D) All the sections are equally important.

Question 56

Which of the following statements is TRUE?

A) Publicly traded enterprises must use IFRS for external reporting purposes.
B) The Accounting Standards Board is a government body.
C) The SEC is the most infiuential Canadian regulator of the flow of financial information provided by publicly traded companies in Canada.
D) Publicly traded enterprises must use the accounting standards prescribed for private enterprises for external reporting.

Question 57

How are the differing claims of creditors and investors recognized by a corporation?

A) The claims of creditors are liabilities; those of investors are assets.
B) The claims of both creditors and investors are liabilities, but only the claims of investors are long term.
C) The claims of creditors are liabilities; the claims of investors are recorded as shareholders' equity.
D) The claims of creditors and investors are essentially equivalent.

Question 58

During 20X1, Burton Company delivered products to customers for which customers promised to pay $3,820,000. The company collected $3,670,000 in cash from customers during the year. Indicate which of these amounts will appear on the statement of earnings and which on the statement of cash flows.

A) $3,670,000 appears on both the statement of earnings and the statement of cash flows.
B) $3,670,000 appears on the statement of cash flows, and $3,820,000 appears on the statement of earnings.
C) $3,820,000 appears on both the statement of earnings and the statement of cash flows.
D) $3,820,000 appears on the statement of cash flows, and $3,670,000 appears on the statement of earnings.

Question 59

Why is the operating activities section often believed to be the most important part of a statement of cash flows?

A) It gives the most information about how operations have been financed.
B) It shows the dividends that have been paid to shareholders.
C) It indicates a company's ability to generate cash from sales to meet current cash needs.
D) It shows the net increase or decrease in cash during the period.

Question 60

The statement of financial position

A) reports the changes in assets, liabilities, and shareholders' equity over a period of time.
B) reports the assets, liabilities, and shareholders' equity at a specific date.
C) presents the revenues and expenses for a specific period of time.
D) summarizes the changes in retained earnings for a specific period of time.

Question 61

Accounting is a system that collects and processes financial information about an organization and reports that information to decision makers.

Question 62

Why do the managers of a corporation hire independent auditors?

A) To guarantee annual and quarterly financial statements.
B) To handle some personnel issues and problems.
C) To audit and report on the fairness of financial statement presentation.
D) To lobby the AcSB for changes in generally accepted accounting principles.

Question 63

A statement of financial position should be dated for a period (such as "For the year ended December 31, 20X1"), whereas a statement of earnings should be dated at a point in time (such as "At December 31, 20X1").

Question 64

Financial statements are prepared for the user. Which of the following best describes the responsibility for the preparation of financial statements?

A) It is the responsibility of external auditors.
B) It is the responsibility of shareholders.
C) It is the responsibility of management.
D) It is the responsibility of standard setters.

Question 65

Which of the following activities would cause investors to overpay for the acquisition of a company from its current owners?

A) Understated trade payables and overstated inventory.
B) Understated revenues and overstated expenses.
C) Understated assets and overstated expenses.
D) Understated assets and overstated revenues.

Question 66

With whom does primary responsibility for the information in a corporation's financial statements rest?

A) The shareholders of the corporation.
B) The managers of the corporation.
C) The Ontario Securities Commission.
D) The public accountant who audited the financial statements.

Question 67

Which government regulatory agency has the legal authority to prescribe ?nancial reporting requirements for corporations that sell their securities in Canadian stock exchanges in the province of Ontario?

A) AcSB.
B) CRA.
C) OSC.
D) CICA.

Question 68

For a business organized as a general partnership, which statement is true?

A) The owners and the business are separate legal entities.
B) Each partner is potentially responsible for the debts of the business.
C) Formation of a partnership requires getting a charter from the province of incorporation.
D) A partnership is not considered to be a separate accounting entity.

Question 69

Which of the following statements is true about the price earnings (P/E) ratio?

A) It is a ratio of importance to creditors.
B) A high P/E ratio indicates investors have little confidence in the future profit potential of the company.
C) The P/E ratio could be used to approximate the value investors would be willing to pay for the company's acquisition from existing owners.
D) The P/E ratio increases as profit increases.

Question 70

External users of accounting information include the managers who plan, organize, and run a business.

Question 71

Under IFRS, income includes increases in economic benefits from

A) increases in liabilities not related to owners' contributions
B) increases in owners' equity related to owners' contributions
C) All increases related to owners' contributions.
D) enhancements of assets not related to owners' contributions

Question 72

What is an examination of the ?nancial statements of a business to ensure that they conform with international ?nancial reporting standards called?

A) A certi?cation.
B) An audit.
C) A veri?cation.
D) A validation.

Question 73

For what reason might a group of people establishing a business prefer to set it up as a corporation rather than a partnership?

A) To have limited liability.
B) To avoid double taxation.
C) Because of ease of formation.
D) To avoid complex reporting procedure for government agencies

Question 74

Accounting communicates financial information about a business to both internal and external users.

Question 75

Why is the auditor's role in performing audits, important to our society?

A) Auditors provide direct financial advice to potential investors.
B) Auditors have the primary responsibility for the information contained in financial statements.
C) Auditors issue reports on the accuracy of each financial transaction.
D) An audit of financial statements helps investors and others to know that they can rely on the information presented in the financial statements.

Question 76

What is one of the disadvantages of a corporation, when compared to a partnership?

A) The shareholders have limited liability.
B) The shareholders are treated as a separate legal entity from the corporation.
C) The corporation and its shareholders are potentially subject to double taxation.
D) The corporation provides continuity of life.

Question 77

What is the purpose of an audit?

A) To prove the accuracy of an entity's financial statements.
B) To lend credibility to an entity's financial statements.
C) To endorse the quality of leadership that managers provide for a corporation.
D) To establish that a corporation's shares are a sound investment.

Question 78

Which of the following statements is true about a sole proprietorship?

A) The owner and the business are separate legal entities but not separate accounting entities.
B) The owner and the business are separate accounting entities but not separate legal entities.
C) The owner and the business are separate legal entities and separate accounting entities.
D) Most large businesses in this country are organized as sole proprietorships.

Question 79

Which securities regulator in the province of Ontario has broad powers to determine measurement rules for financial statements of publicly traded companies on the Toronto Stock Exchange?

A) The Canada Revenue Agency.
B) The Ontario Securities Commission.
C) The Federal Accounting Office.
D) The Supreme Court.

Question 80

In accounting and reporting for a business entity, the accounting and reporting for the business must be kept separate from other economic affairs of its owners.