Question 1

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

Accepted Answer

Accounting is indeed a system that collects, processes, and reports financial information to aid decision-making.

Question 2

Why do the managers of a corporation hire independent auditors?

Accepted Answer

Independent auditors are hired by the managers of a corporation to audit and report on the fairness of the financial statement presentation. This helps ensure that the financial statements accurately reflect the company's financial position and operations, providing credibility and trust for investors, creditors, and other stakeholders.

Question 3

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").

Accepted Answer

A statement of financial position is dated at a specific point in time (e.g., "At December 31, 20X1") because it represents the financial position of a company at that exact date. In contrast, a statement of earnings covers a period of time (e.g., "For the year ended December 31, 20X1") because it shows the company's financial performance over that period.

Question 4

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

Accepted Answer

It is the responsibility of the company's management to prepare and present financial statements. Management is tasked with ensuring that these statements accurately reflect the financial position and performance of the company in accordance with applicable accounting standards and regulations. External auditors, on the other hand, are responsible for auditing these statements to provide assurance that they are free from material misstatement. Shareholders are the users of the financial statements, not preparers, and standard setters are responsible for establishing the accounting rules and standards that guide the preparation of financial statements, not for preparing the statements themselves.

Question 5

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

Accepted Answer

Understated trade payables and overstated inventory would lead to an inflated view of the company's financial health, causing investors to potentially overpay for the acquisition.

Question 6

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

Accepted Answer

The primary responsibility for the information in a corporation's financial statements rests with the managers of the corporation, as they are directly involved in the day-to-day operations and financial reporting.

Question 7

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

Accepted Answer

The Ontario Securities Commission (OSC) is the regulatory agency that has the legal authority to prescribe financial reporting requirements for corporations that sell their securities in Canadian stock exchanges in the province of Ontario.

Question 8

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

Accepted Answer

In a general partnership, each partner is personally liable for the debts of the business, meaning they can be held responsible for more than their individual share of the partnership's debts. This is a key characteristic that distinguishes partnerships from corporations, where owners (shareholders) typically have limited liability.

Question 9

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

Accepted Answer

The P/E ratio is a valuation metric used by investors to evaluate the market value of a company relative to its earnings. A higher P/E ratio suggests that investors are willing to pay more for each dollar of earnings, indicating optimism about the company's future growth prospects. It reflects the price investors are willing to pay for a share relative to the earnings per share, which can be used to gauge the market's valuation of the company for potential acquisition scenarios.

Question 10

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

Accepted Answer

External users are individuals or organizations outside of the business who use accounting information for decision-making purposes, such as investors, creditors, and regulatory agencies. Managers are considered internal users.

Question 11

Under IFRS, income includes increases in economic bene&#64257;ts from

Accepted Answer

Under IFRS, income includes increases in economic benefits from enhancements of assets not related to owners' contributions. This means that income is recognized when there is an increase in assets or a decrease in liabilities that results in an increase in equity, excluding transactions with owners.

Question 12

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

Accepted Answer

An audit is the examination of the financial statements of a business to ensure they conform with international financial reporting standards.

Question 13

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

Accepted Answer

Corporations offer the advantage of limited liability to their owners, meaning that the personal assets of the shareholders are protected from the company's debts and liabilities. This is a key reason why people might prefer to establish a business as a corporation rather than a partnership, where partners can be personally liable for business debts.

Question 14

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

Accepted Answer

Accounting is a means of communicating financial information about a business to both internal users (such as management and employees) and external users (such as investors and lenders). This information is used by these users to make informed decisions about the business.

Question 15

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

Accepted Answer

Auditors play a crucial role in enhancing the reliability and credibility of financial statements. By conducting audits, they provide assurance to investors, creditors, and other stakeholders that the financial statements of a company are free from material misstatement, whether due to fraud or error. This assurance helps stakeholders make informed decisions based on the financial information presented. Auditors do not provide direct financial advice to investors (A), are not primarily responsible for the information in the financial statements (B), and do not issue reports on the accuracy of each financial transaction (C), but rather on the financial statements as a whole.

Question 16

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

Accepted Answer

Corporations are subject to double taxation because profits are taxed at the corporate level and dividends distributed to shareholders are taxed again at the individual level. This does not occur in partnerships, where income is only taxed once as it passes through to the partners.

Question 17

What is the purpose of an audit?

Accepted Answer

The primary purpose of an audit is to lend credibility to an entity's financial statements by providing an independent assessment of whether they present a true and fair view of the entity's financial position and performance. This helps stakeholders, such as investors and creditors, make informed decisions.

Question 18

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

Accepted Answer

The owner and the business in a sole proprietorship are not separate legal entities, meaning the owner is personally liable for the business's debts. However, for accounting purposes, the business's financial records are kept separate from the owner's personal finances.

Question 19

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?

Accepted Answer

The Ontario Securities Commission (OSC) is the regulatory body responsible for overseeing the capital markets in Ontario, including the Toronto Stock Exchange. It has the authority to set rules and guidelines for financial reporting and disclosure for publicly traded companies.

Question 20

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.

Accepted Answer

This is known as the principle of entity or business entity concept, which assumes that the business has a separate existence from its owners and should be accounted for and reported on its own.

Quiz 1: Business Decisions and Financial Accounting