Question 1

The Canadian Institute of Chartered Accountants, part of the Accounting Standards Board, is the accounting profession's rule-setting body that authorizes accounting practices and principles.

Accepted Answer

The Canadian Institute of Chartered Accountants (CICA) was replaced by the Chartered Professional Accountants of Canada (CPA Canada) in 2013, and the Accounting Standards Board (AcSB) is the body responsible for setting accounting standards in Canada.

Question 2

Given the financial manager's preference for faster receipt of cash flows, a longer depreciable life is preferred to a shorter one.

Accepted Answer

A shorter depreciable life would result in higher depreciation expenses in the earlier years, which would decrease taxable income and result in a faster receipt of tax savings. This would be preferred by the financial manager who wants faster receipt of cash flows.

Question 3

In the statement of cash flow, the financing flows are cash flows that result from debt and equity financing transactions, including incurrence and repayment of debt, cash inflow from the sale of stock, and cash outflows to repurchase stock or pay cash dividends.

Accepted Answer

Financing flows in the statement of cash flow include debt and equity financing transactions, such as borrowing money, issuing stocks, repaying debt, buying back stocks, or paying dividends.

Question 4

Earnings per share represents the amount earned during the period on each outstanding share ofcommon stock.

Accepted Answer

Earnings per share (EPS) is a financial ratio that represents the amount of net income earned per outstanding share of common stock during a period. This calculation is important for investors and analysts to understand the profitability of a company on a per-share basis.

Question 5

Dividends paid to shareholders requires an outflow of cash.

Accepted Answer

Dividends are payments made by a company to its shareholders as a share of profits. As such, it requires an outflow of cash from the company to the shareholders.

Question 6

Noncash charges are expenses that involve an actual outlay of cash during the period but are notdeducted on the income statement.

Accepted Answer

Noncash charges are expenses that do not involve an actual outlay of cash during the period and are reflected in the income statement as deductions. Examples of noncash charges include depreciation and amortization.

Question 7

The statement of cash flows allows the financial manager and other interested parties to analyzethe firm's past and possibly future profitability.

Accepted Answer

The answer of The statement of cash flows allows the...

Question 8

Earnings per share results from dividing earnings available for common stockholders by the number of shares of common stock authorized.

Accepted Answer

Earnings per share (EPS) is calculated by dividing the earnings available for common stockholders by the number of shares of common stock outstanding, not the number authorized.

Question 9

The manufacturing and processing deduction allows manufacturing and processing businesses a 7 percent reduction from the effective general federal tax rate in 2001.

Accepted Answer

This deduction is also known as the "Section 199 deduction" and is available to qualified domestic production activities income (QPAI) from manufacturing, processing, construction, and other specified activities. As of 2021, the deduction has been reduced to 9 percent.

Question 10

A statement of cash flows reconciles the net income earned during a given year, and any cash dividends paid, with the change in retained earnings between the start and end of that year.

Accepted Answer

A statement of cash flows reconciles the changes in cash and cash equivalents during a given year, not the change in retained earnings. The statement of retained earnings reconciles the net income earned and any dividends paid with the change in retained earnings.

Question 11

A share of stock was purchased for $2 and sold 3 years later for $5. The $5 increase in value is taxed as a capital gain.

Accepted Answer

The increase in value is $3, not $5. The capital gain is the difference between the selling price and the purchase price, which is $5 - $2 = $3.

Question 12

A long-term government of Canada bond is considered a marketable security.

Accepted Answer

The answer of A long-term government of Canada bond is...

Question 13

The balance sheet is a statement which balances the firm's assets (what it owns) against its debt(what it owes).

Accepted Answer

A balance sheet balances a firm's assets against its liabilities and shareholders' equity, not just its debt.

Question 14

The finance definition of operating cash flow excludes interest as an operating flow, whereas the accounting definition includes it as an operating flow.

Accepted Answer

The finance definition of operating cash flow only includes cash flows directly related to operations, such as revenue and expenses, while excluding financing and investing activities. Interest expense is considered a financing activity and therefore excluded from the finance definition of operating cash flow. However, in accounting, interest expense is included as part of operating expenses and is thus included in the operating cash flow calculation.

Question 15

An increase in the firm's cash balance is a source of cash flow.

Accepted Answer

An increase in the firm's cash balance is a use of cash flow, as it indicates that cash is being retained rather than spent or invested.

Question 16

Unlike the United States, in Canada public corporations have no obligation to report their financial results through an annual report to shareholders.

Accepted Answer

In Canada, public corporations have an obligation to report their financial results through an annual report to shareholders.

Question 17

The income statement is a financial summary of the firm's operating results during a specified period, while the balance sheet is a summary statement of the firm's financial position at a given point in time.

Accepted Answer

The income statement reports revenues, expenses, and profits over a time period, while the balance sheet reports assets, liabilities, and equity at a specific point in time.

Question 18

The marginal tax rate represents the rate at which additional income is taxed.

Accepted Answer

The marginal tax rate is the tax rate that applies to the last dollar of income earned. It represents the rate at which additional income is taxed.

Question 19

Common stock consists of two components, contributed capital and retained earnings.

Accepted Answer

Common stock on a company's balance sheet has two components - contributed capital (the amount of money paid by investors to purchase stock) and retained earnings (the cumulative net income of the company that has not been distributed as dividends).

Question 20

The par value of common stock is an arbitrarily assigned per share value used primarily foraccounting purposes.

Accepted Answer

The par value of common stock is an arbitrary value used for accounting purposes and does not necessarily reflect the market value or worth of the stock.

Quiz 2: Financial Statements, Cash Flows, and Taxes