Question 1

A Canadian-controlled private corporation's first $500,000 of taxable income qualifies for the small business deduction.

Accepted Answer

The answer of A Canadian-controlled private corporation's first $500,000 of...

Question 2

A benefit of holding cash is the liquidity it gives the firm.

Accepted Answer

Holding cash provides quick and easy access to funds, allowing for ease of transactions and financial flexibility.

Question 3

The original price per share received by the firm on a single issue of common stock is equal to thethe contributed capital divided by the number of shares outstanding.

Accepted Answer

The original price per share received by the firm on a single issue of common stock is calculated by dividing the contributed capital (the total amount received from investors) by the number of shares issued. This gives the price per share at the time of the initial public offering (IPO) or stock issuance.

Question 4

Capital cost allowance is simply the tax version of amortization.

Accepted Answer

Capital cost allowance (CCA) is a tax deduction related to the declining value of capital assets over time. It is similar to amortization in accounting, but it is specific to tax purposes.

Question 5

The net fixed asset investment is defined as the change in net fixed assets plus amortization expense for the period.

Accepted Answer

The net fixed asset investment formula is correct. It measures the amount of money a company has invested in long-term assets for the period after accounting for depreciation expenses.

Question 6

Because amortization is treated as a separate source of cash, only net rather than gross changes in fixed assets appear on the statement of cash flows.

Accepted Answer

Amortization is a non-cash expense, and it is added back to net income in the operating activities section of the cash flow statement, not treated as a separate source of cash. Gross changes in fixed assets are reflected in the investing activities section.

Question 7

The CCA depreciation method requires use of the half-year convention. Assets are assumed to be acquired in the middle of the year and only one-half of the first year's depreciation is recovered in the first year.

Accepted Answer

The statement accurately describes the CCA depreciation method and the half-year convention.

Question 8

The ordinary income of a corporation is income earned through the sale of a firm's goods and services and is currently taxed subject to the individual income tax rates.

Accepted Answer

The ordinary income of a corporation is subject to corporate income tax rates, not individual income tax rates.

Question 9

Under the capital cost allowance (CCA) procedures, the depreciable value of a fixed asset is its full cost, including outlays for installation.

Accepted Answer

The capital cost allowance (CCA) procedures allow for the full cost of a fixed asset, including installation costs, to be claimed as a depreciable expense.

Question 10

To assess whether any developments have occurred that are contrary to the company's financial policies, the financial manager should pay special attention to both the major categories of cash flow and the individual items of cash inflow and outflow.

Accepted Answer

This statement is true, as monitoring cash flow is an important aspect of the financial manager's job in maintaining the company's financial policies. By examining the major categories of cash flow (operating, investing, and financing) and analyzing the individual items of cash inflow and outflow within each category, the financial manager can identify any changes or inconsistencies that may go against the company's established financial policies.

Question 11

Capital cost allowance is

Accepted Answer

Capital cost allowance is amortized using a pre-established CCA rate, calculated in the year of acquisition using the half-year rule, and amortized on a declining balance basis.

Question 12

The depreciable life of an asset can significantly affect the pattern of cash flows. The shorter the depreciable life of an asset, the more quickly the cash flow created by the depreciation write-off will be received.

Accepted Answer

This is because a shorter depreciable life means a higher annual depreciation expense, which results in higher tax savings and therefore more immediate cash flow benefits.

Question 13

Cash flow from operations is equal to the firm's net income after taxes minus all noncash charges.

Accepted Answer

Cash flow from operations is equal to the firm's net income after taxes plus all noncash charges, not minus.

Question 14

An investor receives a $500 dividend cheque from Bell Canada; this is considered passive income.

Accepted Answer

Dividend income is considered passive income.

Question 15

Publicly owned corporations are required by the provincial securities commissions and stock exchanges to provide their stockholders with an annual stockholders' report.

Accepted Answer

Publicly owned corporations are required to provide their stockholders with an annual stockholders' report by the provincial securities commissions and stock exchanges.

Question 16

Retained earnings represents the cumulative total of all earnings retained and reinvested in thefirm since its inception.

Accepted Answer

Retained earnings accumulate over time as a result of profits not paid out as dividends, and are reinvested in the firm for growth and development.

Question 17

Publicly owned corporations are those which are financed by proceeds from government treasury securities.

Accepted Answer

Publicly owned corporations are those which are owned and operated by the general public through the purchase of stocks on the stock market. They are not financed by proceeds from government treasury securities.

Question 18

Both present and prospective shareholders are interested in the firm's current and future level of risk and return. These two dimensions directly affect share price.

Accepted Answer

Share price is directly affected by the level of risk and return of a firm, making both present and prospective shareholders interested in these factors.

Question 19

Common stock dividends paid to stockholders are equal to the earnings available for common stockholders divided by the number of shares of common stock outstanding.

Accepted Answer

Common stock dividends paid to stockholders are determined by the board of directors and are not necessarily equal to the earnings available for common stockholders divided by the number of shares of common stock outstanding.

Question 20

RUFF 5ANDPAPER CO.
Balance Sheets
For the Years Ended 2002 and 2003

$\begin{array}{lrr}&2003&2002\\hline
\text { Assets }
\text { Cash } & 800 & 600 \
\text { Marketable securities } & 200 & 200 \
\text { Accounts receivable } & 1,200 & 1,000 \
\text { Inventories } & 2,000 & 1,800 \
\text { Gross fixed asset } & 3,000 & 2,800\
\text { Less Accumulated amortization }&1,000&800\
\text { Net fixed assets }&2,000&2,000\&---&---\\text { Total assets }&6,200&5,600\\
\text { Liabilities }\\text { Accounts payable } & 200 & 100 \
\text { Notes payable } & 800 & 900 \
\text { Accruals } & 100 & 100 \
\text { Long-term debt } & 2,000 & 1,500\\text { Stockholders' equity }\\text { Common stock } & 2,500 & 2,500 \
\text { Retained eamings } & 600 & 500\&---&----\\text { Total liabilities and equity }&6,200&5,600
\end{array}$
-Common stock dividends paid in 2003 amounted to

Accepted Answer

The answer of RUFF 5ANDPAPER CO.
Balance Sheets
For the Years Ended...

Quiz 2: Financial Statements, Cash Flows, and Taxes