Deck 1: Business Decisions and Financial Accounting

Question 1

The shareholders' equity in a company is the difference between assets and liabilities.

Answer 1

True

Question 2

The $207,100 shown on the balance sheet has been distributed to shareholders as dividends.

Answer 2

False

Question 3

You paid $10,000 to buy 1% of the stock in a corporation that has now gone bankrupt.The company owes $10 million dollars to creditors.As a result of the bankruptcy,you will lose $100,000.

Answer 3

False

Question 4

The income statement shows the assets and liabilities of the company at a point in time.

Question 5

All corporations acquire financing by issuing shares of ownership (called stock certificates)for sale on public stock exchanges.

Question 6

The payment of dividends is a financing activity.

Question 7

Daily activities involved in running a business such as buying supplies and paying wages are operating activities.

Question 8

Anonymous,Inc.is owed $310,500 from customers who have purchased goods or services from the company,but have not yet paid for them.

Question 9

Net income is the amount the company earned after expenses and dividends are subtracted from revenue.

Question 10

Building a new warehouse is an operating activity.

Question 11

A company owes $200,000 on a bank loan.If this loan is documented using a formal written debt contract,it will be reported as a liability called Notes Payable.

Question 12

The accounting decisions that were made when preparing a company's financial statements are explained in the auditor's report.

Question 13

In the Statement of Cash Flows,cash inflows are positive numbers while cash outflows are negative.

Question 14

The total net income from the income statement is always included in the Statement of Retained Earnings.

Question 15

Notes Payable would equal $437,800 and Total Liabilities would equal $1,877,000 on the balance sheet.

Question 16

Under the unit of measure concept,a Canadian company would report the data on the financial statements in Canadian dollars.

Question 17

Shareholders are creditors of a company.

Question 18

Expenses are shown on the income statement only in the time period in which they are paid.

Question 19

Financing activities include borrowing and obtaining money by issuing shares of ownership (called stock certificates).

Question 20

The income statement primarily shows whether a business made a profit from selling goods or providing services after subtracting the costs of doing business.

Question 21

Investors analyze the income statement to identify trends in a company's net income,which can provide clues about the company's future earnings.

Question 22

When a company goes bankrupt,assets are divided equally between creditors and investors.

Question 23

Managerial accounting reports include detailed financial plans and continually updated reports about the operating performance of the company.

Question 24

Under modern accounting standards,it is more important for larger companies to behave ethically,than it is for smaller ones.

Question 25

The balance sheets at the beginning and end of a time period are linked by the income statement,the statement of cash flows,and the statement of retained earnings for the time period.

Question 26

External financial statement users are not given access to detailed internal records of the company,so they rely extensively on the financial statements.

Question 27

It is not possible for a receivable to ever be considered a liability.

Question 28

Within shareholders equity,the contributed capital and retained earnings accounts must balance each other out.

Question 29

Questionable ethical practices can make it harder for a company to attract lenders and investors in the future.

Question 30

According to the cost principle of accounting,assets are initially reported on the balance sheet based on their original cost to the company.

Question 31

Just like footnotes in some articles and books,notes to the financial statements (also known as footnotes)report extra information that is not relevant to the financial statements.

Question 32

Under IFRS it is possible for a payable to be recorded as an asset.

Question 33

Private enterprises in Canada are required by law to follow ASPE,if they earn a profit.

Question 34

The separate entity assumption requires that a business's financial reports include only the activities of the business and its shareholders.

Question 35

Statement of retained earnings is prepared before the income statement.

Question 36

Notes to the financial statements (also known as footnotes)immediately follow the four individual financial statements,and include descriptions of accounting decisions made when preparing the financial statements.

Question 37

Shareholders in a corporation are personally liable for the company's obligations.

Question 38

Cash at the end of the year is the sum of cash at the beginning of the year and the net change in cash during the year.

Question 39

Resources owed to banks and other creditors must equate to total assets.

Question 40

Cash flow from investing activities includes money received from a company's shareholders.

Question 41

The separate entity assumption means:

A)a company's financial statements reflect only the business activities of that company and not that of the shareholders.
B)each shareholders' activities must be revealed in the financial statements.
C)each separate owner's finances must be revealed in the financial statements.
D)each separate entity that has a claim on a company's assets must be shown in the financial statements.

Question 42

Which of the following would affect shareholders' equity?

A)A company borrows $100 million and buys $100 million in equipment.
B)A company pays $100 million to shareholders as a dividend.
C)A company sells $100 million in assets for $100 million cash.
D)A company receives payment for $100 million in accounts receivable.

Question 43

At the end of last year,the company's assets totalled $860,000 and its liabilities totalled $740,000.During the current year,the company's total assets increased by $58,000 and its total liabilities increased by $24,000.At the end of the current year:

A)shareholders' equity was $154,000.
B)shareholders' equity was $120,000.
C)shareholders' equity was $34,000.
D)shareholders' equity was $178,000.

Question 44

Investing activities:

A)involve day to day events like selling goods and services,which occur when running a business.
B)involve the buying or selling of land,buildings,equipment,and other longer-term investments.
C)only involve financial exchanges.
D)buying the company's office supplies.

Question 45

Financial statements are most commonly prepared:

A)semi-monthly.
B)monthly,quarterly and annually.
C)whenever management feels like it.
D)weekly.

Question 46

Which of the following would not represent a financing activity?

A)Paying dividends to shareholders.
B)An investment of financial capital by the owners.
C)Borrowing money from a bank to finance the purchase of new equipment.
D)Collecting cash from customers.

Question 47

Which of the following is one reason a new start up could have a negative investing cash flow?

A)Company needs cash to buy to purchase new equipment/plant and expand business.
B)Company is having problems generating profits.
C)Company needs to pay dividends to its shareholders.
D)Company has borrowed money from banks/investors and is having problems paying them back.

Question 48

Which of the following are the three basic elements of the balance sheet?

A)Assets,liabilities,and retained earnings.
B)Assets,liabilities,and contributed capital.
C)Assets,liabilities,and revenues.
D)Assets,liabilities,and shareholders' equity.

Question 49

Creditors are:

A)people or organizations who owe money to a business.
B)people or organizations to whom a business owes money.
C)shareholders of a business.
D)customers of a business.

Question 50

Assets:

A)represent the amounts earned by a company.
B)must equal the liabilities of a company.
C)must equal the shareholders' equity of the company.
D)represent the resources controlled by a company.

Question 51

The three main types of business activities measured by financial statements are:

A)selling goods,selling services,and obtaining financing.
B)operating activities,investing activities,and financing activities.
C)hiring,producing,and advertising.
D)generating revenues,paying expenses,and incurring dividends.

Question 52

Public corporations:

A)are businesses owned by two or more people,each of whom is personally liable for the debts of the business.
B)are businesses whose stock is bought and sold on a stock exchange.
C)are businesses whose stock is bought and sold privately.
D)are setup for non-profit purposes.

Question 53

Financing that individuals or institutions have provided to a company is:

A)always classified as liabilities.
B)classified as liabilities when provided by creditors and shareholders' equity when provided by owners.
C)always classified as shareholders' equity.
D)classified as shareholders' equity when provided by creditors and liabilities when provided by owners.

Question 54

Which of the following are the disadvantages of setting a corporation?

A)Legal fees can be high and separate tax returns have to be filed for owners and the business.
B)Owners are legally responsible for the liabilities of the corporation.
C)Owners must be involved in day to day running of the business.
D)The business and owners are considered as separate legal entities.

Question 55

The Don't Bite Me pest control company has 10,000 gallons of insecticide supplies on hand that cost $300,000; a bill from the vendor for $100,000 of these supplies has not yet been paid.The company expects to earn $800,000 for its services when it uses the insecticide supplies.The company would report:

A)$300,000 in assets under supplies and no accounts payable.
B)$200,000 in assets under supplies and no accounts payable.
C)$300,000 in assets under supplies and $100,000 in liabilities under accounts payable.
D)$800,000 in assets under supplies and $100,000 in liabilities under accounts payable.

Question 56

The Publish or Perish Printing Company paid a dividend to shareholders.This will be reported on the:

A)audit report.
B)income statement.
C)balance sheet.
D)statement of retained earnings.

Question 57

Which of the following would represent an operating activity?

A)Purchasing equipment with money borrowed from creditors.
B)An investment of financial capital by the owners.
C)Buying the company's office supplies.
D)Repaying a loan the company had taken out.

Question 58

An entity that is holding assets for another party and has legal authority and duty to make decisions regarding financial matters concerning that party is:

A)fiduciary.
B)accountant.
C)attorney.
D)manager.

Question 59

Which of the following is true?

A)Companies are allowed to choose their fiscal year-end date.
B)Companies must end their fiscal year on March 31,June 30,September 30,or December 31.
C)Companies can select any date except a holiday to end their fiscal year.
D)Companies must end their fiscal year on December 31.

Question 60

Which of the following is not true?

A)Assets = Liabilities + Shareholders' Equity
B)Liabilities = Assets - Shareholders' Equity
C)Shareholders' Equity + Liabilities - Assets = 0
D)Liabilities - Shareholders' Equity = Assets

Question 61

Which of the following is $\bold{not}$ true? $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ HOOPER'S HOPS
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ Statement d Retained Eamings
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ For the Year Ended December 31, 2008
$\begin{array}{|l|r|}\hline \text { Retained Earnings, January 1, 2008 } & \$ 167,800 \\\hline \text { Net Income for 2008 } & 219,100 \\\hline \text { Dividends for } 2008 & \underline{(36,400)} \\\hline \text { Retained Earnings, December 31,2008 } & \underline{\$ 350,500} \\\hline \end{array}$

A)Retained earnings of $350,500 will appear on the balance sheet as of December 31,2008.
B)The net income in the statement came from the income statement for the year ended December 31,2008.
C)Dividends are shown in parenthesis because they are payments made by a company to its shareholders as a return on their investment.
D)Retained earnings are the amount of distributions made to the shareholders since the company started.

Question 62

Which of the following is a publicly accountable profit-oriented enterprise?

A)A publicly traded corporation
B)A crown corporation
C)A sole proprietorship
D)A partnership

Question 63

The Whackem-Smackem Software Company sold $11 million of computer games in its first year of operations.The company received payments of $7.5 million for these computer games.The company's income statement would report:

A)sales revenue of $7.5 million.
B)accounts receivable of $3.5 million.
C)expenses of $3.5 million.
D)sales revenue of $11 million.

Question 64

Find the missing data. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ CINNAMON AND SPICE, INC.
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ Income Statement
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ For the Year Ended December 31, 2008
$\begin{array}{l}\begin{array}{|c|r|}\hline\text { Revenues }&\\ \hline \text { Sales Revenue } & \$ 3,810,200 \\\hline \text { Total Revenues } & ? \\\hline & \\\hline \text { Expenses } & ? \\\hline \text { Wages Expense } & 1,314,900 \\\hline \text { Advertising and Promotion Expenses } & 482,200 \\\hline \begin{array}{c}\text { Other Selling and Administrative } \\\text { Expenses }\end{array} & ? \\\hline \text { Interest Expense } & 225,600 \\\hline \text { Income Tax Expense } & 117,700 \\\hline \text { Other Expenses } & 253,700 \\\hline \text { Total Expenses } & \underline{3,445,600} \\\hline & \$?\\\hline\end{array}\end{array}$

A)Total revenues are $3,810,200,other selling and administrative expenses are $1,051,500,and net income is $364,600.
B)Total revenues are $2,495,300,other selling and administrative expenses are $1,051,500,and net income is ($950,300).
C)Total revenues are $364,600,other selling and administrative expenses are $3,081,000,and net income is $7,255,800.
D)Total revenues are $3,810,200,other selling and administrative expenses are $364,600,and net income is $7,255,800.

Question 65

Which of the following statements is true?

A)The "net change in cash" reported on the statement of cash flows is also reported on the statement of retained earnings.
B)Both the income statement and the statement of cash flows show the results of a company's operating activities.
C)The statement of cash flows is for a period of time while the income statement is at a point in time.
D)The statement of cash flows is at a point of time while the income statement is for a period of time.

Question 66

During its first year of operations,Widgets Incorporated reported sales revenue of $386,000 but collected only $303,000 from customers.The amount to be reported as accounts receivable at the end of the year is:

A)$689,000.
B)$386,000.
C)$303,000.
D)$83,000.

Question 67

Dividends are reported on the:

A)Income statement.
B)Balance sheet.
C)Statement of retained earnings.
D)Income statement and balance sheet.

Question 68

A company's balance sheet contained the following information: $$\begin{array} { | l | r | l | r | } \hline \text { Contributed Capital } & \$ 12,000 & \text { Total Assets } & \$ 176,000 \\\hline \text { Accourts Payable } & \$ 64,000 & \text { Retained Earrings } & \$ 28,000 \\\hline\end{array}$$ Assuming Notes Payable is the only other item on the balance sheet:

A)Notes Payable must equal $200,000.
B)Notes Payable must equal $8,000.
C)Notes Payable must equal $72,000.
D)Notes Payable must equal $344,000.

Question 69

In which of the following business organization the owners could only lose the money they invested in the business?

A)A Crown corporation.
B)A sole proprietorship.
C)A corporation.
D)A partnership.

Question 70

$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ GIL'S FISHING EQUIPMENT, INC.
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ Statement of Cash Flows
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ For the Year Ended December 31, 2008
$\begin{array}{l}\begin{array}{|c|c|}\hline\text { Cash flows from operating activities }\\\hline \text { Cash collected from customers } & \text { A } \\\hline \text { Cash paid to suppliers and employees } & \text { B } \\\hline \text { Cash paid for other operating activities } & \text { C } \\\hline \text { Net cash flow from operating activities } & \\\hline \text { Cash flows from investing activities } & \\\hline \text { Cash paid to purchase equipment and other assets } & \text { D } \\\hline \begin{array}{c}\text { Cash received from selling equipment and other } \\\text { assets }\end{array} & \underline{E} \\\hline \text { Net cash flow from investing activities } & \\\hline \text { Cash flows from financing activities } & \\\hline \text { Cash paid on notes payable } & \text { F } \\\hline \text { Cash paid for dividends } & \underline{G} \\\hline \text { Net cash flow from financing activities } & \\\hline \text { Net change in cash duringthe year } & \\\hline \text { Cash at beginning of year } & \\\hline \text { Cash at end of year } &\\\hline\end{array}\end{array}$

-Refer to the above table.In the statement of cash flows which letters represent cash outflows?

A)B,C,D,F and G.
B)A,E and G.
C)B,C,E and F.
D)A,E,F and G.

Question 71

In the statement of cash flows,the company's payment of a $1,900 electric bill would be classified as:

A)an operating cash outflow.
B)a financing cash outflow.
C)an investing cash inflow.
D)an operating cash inflow.

Question 72

Which of the following would not affect a company's net income?

A)A change in the company's income taxes.
B)Changing the selling price of a company's product.
C)Paying a dividend to shareholders.
D)Advertising a new product.

Question 73

The purpose of a statement of retained earnings is to:

A)estimate the current value of a company's assets.
B)report how the profits of a company have been distributed to shareholders or retained in the business.
C)show where the money is flowing into and out of a company.
D)explain the specific revenues and expenses arising during the period.

Question 74

$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ GIL'S FISHING EQUIPMENT, INC.
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ Statement of Cash Flows
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ For the Year Ended December 31, 2008
$\begin{array}{l}\begin{array}{|c|c|}\hline\text { Cash flows from operating activities }\\\hline \text { Cash collected from customers } & \text { A } \\\hline \text { Cash paid to suppliers and employees } & \text { B } \\\hline \text { Cash paid for other operating activities } & \text { C } \\\hline \text { Net cash flow from operating activities } & \\\hline \text { Cash flows from investing activities } & \\\hline \text { Cash paid to purchase equipment and other assets } & \text { D } \\\hline \begin{array}{c}\text { Cash received from selling equipment and other } \\\text { assets }\end{array} & \underline{E} \\\hline \text { Net cash flow from investing activities } & \\\hline \text { Cash flows from financing activities } & \\\hline \text { Cash paid on notes payable } & \text { F } \\\hline \text { Cash paid for dividends } & \underline{G} \\\hline \text { Net cash flow from financing activities } & \\\hline \text { Net change in cash duringthe year } & \\\hline \text { Cash at beginning of year } & \\\hline \text { Cash at end of year } &\\\hline\end{array}\end{array}$

-Refer to the above table.In the statement of cash flows which letters represent cash inflows?

A)B,C,D,F and G.
B)A,E and G.
C)B,C,E and F.
D)A and E.

Question 75

If XYZ Company had $12 million in revenue and net income of $3 million then its:

A)expenses must have been $15 million.
B)expenses must have been $9 million.
C)assets must have been $12 million.
D)assets must have been $3 million.

Question 76

Assets are listed on the balance sheet in order of:

A)date acquired.
B)liquidity.
C)estimated replacement date.
D)value.

Question 77

If a company uses $50,000 of its cash to buy an asset then:

A)assets and liabilities will be unchanged.
B)assets will rise $50,000 as will liabilities.
C)assets will rise $50,000 as will shareholders' equity.
D)assets will fall $50,000 and liabilities will rise $50,000.

Question 78

In Canada,Generally Accepted Accounting Principles (GAAP)are established:

A)by the Chartered Professional Accountants of Canada (CPA Canada)
B)by the Public Company Accounting Oversight Board.
C)by the Financial Accounting Standards Board.
D)by the International Accounting Standards Board

Question 79

During 2007,a company's assets rise $56,000 and its liabilities rise $38,000.If no dividend is paid and no further capital is contributed,shareholders' equity would:

A)rise $56,000.
B)rise $18,000.
C)fall $38,000.
D)fall $94,000.

Question 80

Which of the following would be reported on the income statement for 2005?

A)Supplies that were purchased and used in 2004 but paid for in 2005.
B)Dividends that were paid in 2005.
C)Supplies that were purchased and used in 2005 but paid for in 2004.
D)All of the choices are correct.