Deck 1: Business Decisions and Financial Accounting

Question 1

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.

Answer 1

Buying the company's office supplies.

Question 2

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.

Answer 2

represent the resources controlled by a company.

Question 3

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.

Answer 3

involve the buying or selling of land,buildings,equipment,and other longer-term investments.

Question 4

Match the term and the explanation.(There are more explanations than terms.) _____ investors
_____ audit
_____ balance sheet
_____ operating activity
_____ unit of measure concept
_____ retained earnings
_____ investing activity
_____ income statement

A)An exchange of money between a company and its investors or creditors.
B)An example of an internal user of financial statements.
C)The idea that a company reports sales only after a payment has been received.
D)Share of a company's earnings given to owners as dividends.
E)A financial statement showing a company's assets,liabilities and shareholders' equity.
F)When a company acquires money from investors.
G)A financial statement that summarizes a company's past and current cash situation.
H)An external user of financial statements.
I)The idea that the financial statements of a company include the results of only that company's business activities.
J)Day to day events involved in the production and sales of a company's goods or services.
K)A financial statement that shows a company's revenues and expenses.
L)Borrowing money from lenders.
M)The total amount of profits that are held by the company since its inception.
N)Companies should report financial data in the relevant currency.
O)A procedure by which independent evaluators assess the accounting procedures and financial reports of a company.
P)Purchase or sale of long-term assets,like property and equipment used in production process.

Question 5

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 6

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 7

Financial statements are most commonly prepared:

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

Question 8

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 9

Which of the following is the 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 10

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 11

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 12

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 13

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 14

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 15

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 16

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 separate owner's finances must be revealed in the financial statements.
C)each separate entity that has a claim on a company's assets must be shown in the financial statements
D)all of the above.

Question 17

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 18

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 19

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 20

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 21

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 22

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 23

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 24

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 25

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 26

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 27

Dividends are reported on the:

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

Question 28

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 29

Assets are listed on the balance sheet in order of:

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

Question 30

In the above 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 31

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 32

A company's balance sheet contained the following information: 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 33

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 34

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 35

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

A)by the Canadian Institute of Chartered Accountants.
B)by the Public Company Accounting Oversight Board.
C)by the Financial Accounting Standards Board.
D)by the Society of Management Accounting.

Question 36

Find the missing data.

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 37

In the above 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 38

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 above.

Question 39

Which of the following is not true?

A)Retained earnings of $350,500 will appear on the balance sheet as of December 31,2008.
B)The net income in the above 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 40

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 41

To determine whether Generally Accepted Accounting Principles were followed in the preparation of financial statements,an examination of:

A)tax documents would be examined by the Revenue Canada Agency.
B)the annual report would be examined by the Toronto Stock Exchange.
C)the financial statements and related documents would be examined by an independent auditor.
D)the financial statements and related documents would be examined by the CICA.

Question 42

The WC Company borrowed $26,500 from a bank during 2007.

A)This would be listed as ($26,500)under investing activities on the statement of cash flows.
B)This would be listed as ($26,500)under operating activities on the statement of cash flows.
C)This would be listed as $26,500 under investing activities on the statement of cash flows.
D)This would be listed as $26,500 under financing activities on the statement of cash flows.

Question 43

Which of the following is not an expense?

A)Wages of employees.
B)Interest incurred on a loan the company had taken out.
C)Dividends.
D)Corporate income tax.

Question 44

Which of the following is not required to use IFRS?

A)Private enterprise
B)Publically traded company
C)Crown corporation
D)All businesses are required to use IFRS

Question 45

In which of the following business organization the business is considered separate from the owner/s:

A)A state-owned entity.
B)A sole proprietorship.
C)A corporation.
D)A partnership.

Question 46

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 47

Generally Accepted Accounting Principles (GAAP)in Canada were established by:

A)an Italian monk in 1494.
B)the Canadian Parliament.
C)the CICA.
D)IFRS.

Question 48

Notes payable are like accounts payable except that notes payable:

A)are not interest free.
B)can remain unpaid longer than accounts payable.
C)are documented using formal written debt contracts.
D)Accounts payables are not reported in the balance sheet while notes payables are.

Question 49

A investor might look at a company's financial statements to determine if the:

A)company is likely to have the resources to repay its debts.
B)company's stock is likely to fall,signalling a good time to sell.
C)company's stock is likely to rise,signalling a good time to buy.
D)company is likely to pay a good dividend.

Question 50

Every financial statement should have "who,what,and when" in its heading.These are:

A)the name of the person preparing the statement,the type of financial statement,and when the financial statement was reported to the Stock Exchange.
B)the name of the person preparing the statement,the name of the company,and the date the statement was prepared.
C)the name of the company,the type of financial statement,and the time period from which the data were taken.
D)the name of the company,the purpose of the statement,and when the financial statement was reported to the Canada Revenue Agency.

Question 51

On the balance sheet,inventories are reported as:

A)a liability,because goods in inventory are tying up a company's money without earning income.
B)an asset,because goods in inventories are owned by the company.
C)an expense,because goods in inventory have been paid for but not yet sold.
D)a revenue,because goods in inventory will be sold in the future.

Question 52

Which of the following is incorrect about the notes to the financial statements:

A)explain what accounting policies were used to prepare the financial statements.
B)provide additional information about what is included in the financial statements.
C)provide additional information about financial matters that are not included in the financial statements.
D)certify to the fact that the statements have been audited.

Question 53

A company's quarterly income statements show that in the last three quarters both sales revenue and net income have been growing.Which of the following statements is then true?

A)Creditors are likely to conclude that the risk of lending to the company is falling and be willing to accept a lower interest rate on loans.
B)Investors are likely to conclude that the stock price is likely to rise,making the company more attractive as a potential investment.
C)Investors are likely to conclude that the company will be better able to pay dividends in the future,making it more attractive as a potential investment.
D)All of the above.

Question 54

Investors are often interested in the amount of net income distributed as dividends.In which section of the financial statements would investors look to find this amount?

A)Statement of retained earnings.
B)Balance sheet.
C)Notes to the financial statements.
D)Income statement.

Question 55

What would a financial statement user learn from reading the auditors' report?

A)Whether the financial statements present a fair picture of the company's financial results.
B)Whether the financial statements are prepared in accordance with GAAP.
C)Both of the above.
D)None of the above.

Question 56

An creditor might look at a company's financial statements to determine if the company's:

A)earnings are rising or falling.
B)stock is likely to fall,signalling a good time to sell.
C)stock is likely to rise,signalling a good time to buy.
D)company has enough assets to cover its liabilities.

Question 57

Which of the following is not an alternative term used for the income statement?

A)Statement of Income.
B)Statement of Financial Position.
C)Statement of Earnings.
D)Profit and Loss Statement.

Question 58

Investors and creditors look at the balance sheet to see whether the company:

A)is profitable.
B)owns enough assets to pay what it owes to creditors.
C)has had a positive cash flow from operations.
D)is paying sufficient dividends to shareholders.

Question 59

Internal financial statement users include:

A)investors interested in the company.
B)creditors of the company.
C)management of the company.
D)stock exchanges.

Question 60

Which of the following statements is false?

A)When choosing between a company that pays steady dividends and one that retains its earnings to support future growth,investors will always choose the company that pays steady dividends.
B)Companies can develop reputations for honest financial reporting even when conveying bad news.
C)Trends in a company's net income from year to year can provide clues about its future earnings,which can help investors to decide whether to buy stock in the company.
D)Information in the notes to the financial statements can influence a user's interpretation of balance sheet and income statement information.

Question 61

A company is involved in financing activities when these:

A)activities are directly related to running the core business to earn profits.
B)activities involve buying and selling productive resources with long lives (such as buildings,land,equipment,and tools),purchasing investments,and lending to others.
C)activities involve borrowing from banks,repaying bank loans,receiving contributions from shareholders,or paying dividends to shareholders
D)All of the above

Question 62

Which of the following are elements to be measure and reported?

A)Assets,liabilities,shareholders equity,revenues,expenses,dividends
B)Unit of measure,separate entity,going concern,time period
C)Cost,revenue recognition,matching,full disclosure
D)Cost-benefit,materiality,industry practices

Question 63

The effects of net income and its distribution on the financial position of the company is reported in:

A)Balance sheet
B)Income statement
C)Statement of retained earnings
D)Statement of cash flows

Question 64

A company is involved in operating activities when these:

A)activities are directly related to running the core business to earn profits.
B)activities involve buying and selling productive resources with long lives (such as buildings,land,equipment,and tools),purchasing investments,and lending to others.
C)activities involve borrowing from banks,repaying bank loans,receiving contributions from shareholders,or paying dividends to shareholders
D)All of the above

Question 65

A company is involved in investing activities when these:

A)activities are directly related to running the core business to earn profits.
B)activities involve buying and selling productive resources with long lives (such as buildings,land,equipment,and tools),purchasing investments,and lending to others.
C)activities involve borrowing from banks,repaying bank loans,receiving contributions from shareholders,or paying dividends to shareholders
D)All of the above

Question 66

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

Question 67

Which of the following are the principles of accounting?

A)Unit of measure,cost-benefit,materiality,industry practices
B)Unit of measure,separate entity,going concern,time period
C)Cost,revenue recognition,matching,full disclosure
D)Cost-benefit,materiality,industry practices

Question 68

The AcSB:

A)has primary responsibility for setting the underlying rules of accounting in Canada.
B)is an entity that regulates issuance of securities in Ontario.
C)an independent body to develop and establish standards and guidance than govern financial accounting and reporting in Canada.
D)is an examination of a company's financial statements by an independent auditor.

Question 69

Which of the following is a principle of accounting?

A)Matching
B)Separate entity
C)Integrity
D)Time period

Question 70

Which one of the following is not an accounting assumption?

A)Separate entity
B)Time period
C)Integrity
D)Unit of measure

Question 71

The payment of dividends is a financing activity.
BT: Comprehension

Question 72

Which of the following enhance the usefulness of financial information with reference to financial statements?

A)Comparability to prior periods and other companies,verifiability,timeliness,and understandability.
B)Integrity,relevance,faithfulness and comparability to prior periods and other companies
C)Clarity,integrity,relevance and faithfulness
D)Verifiability,relevance and faithfulness

Question 73

When is the financial information a faithful representation?

A)If it fully depicts the economic substance of business activities
B)If it allows management to be faithful to its shareholders
C)Meets the requirements of the stock exchanges
D)If it makes a difference in decision making

Question 74

Which of the following are the two fundamental characteristics financial information must possess to be judged useful to decision makers?

A)Relevance and faithful representation
B)Truthful and clarity
C)Complete and relevant
D)Elaborate and faithful representation

Question 75

When is the financial information relevant?

A)If it makes a difference in decision making.
B)Meets the requirement of Toronto Stock Exchange.
C)If it fully depicts the economic substance of business activities.
D)If it allows management the discretion when to release it to investors and general public.

Question 76

Which of the following are assumptions of accounting?

A)Unit of measure,separate entity,going concern,time period
B)Cost,revenue recognition,matching,full disclosure
C)Cost-benefit,materiality,industry practices
D)Unit of measure,cost-benefit,materiality,industry practices

Question 77

Auditors while examining the financial records must follow:

A)International Financial Reporting Standards
B)Canadian Auditing standards
C)Canadian Accounting standards for auditing
D)International Auditing standards

Question 78

To make sure that managers have followed GAAP rules in producing financial statements,all public companies must:

A)Hire independent auditors to scrutinize their financial records.
B)Hire independent detectives to scrutinize the background of all their accountants.
C)let the government regulators scrutinize their financial records.
D)let their shareholders check their financial records.

Question 79

Building a new warehouse is an operating activity.
BT: Comprehension

Question 80

The CICA:

A)has primary responsibility for setting the underlying rules of accounting in Canada.
B)is an entity that regulates issuance of securities in Ontario.
C)an independent body to develop and establish standards and guidance than govern financial accounting and reporting in Canada.
D)is an examination of a company's financial statements by an independent auditor.