Question 1

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-What term refers to payments made for services that have NOT yet been received?
A) accrued liabilities
B) prepaid expenses
C) accrued expenses
D) prepaid liabilities

Accepted Answer

Prepaid expenses refer to payments made for services or goods that have not yet been received or used. These are considered assets on a balance sheet because they represent future economic benefits.

Question 2

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-What type of asset is goodwill?
A) a fixed asset
B) a current asset
C) an intangible asset
D) a prepaid asset

Accepted Answer

Goodwill is considered an intangible asset because it represents non-physical assets, such as brand name, customer relationships, and intellectual property, that a company acquires when it buys another company for more than the net fair value of its identifiable tangible and intangible assets.

Question 3

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-What do retained earnings represent?
A) the net profit generated by a business less the dividends declared
B) a non-current liability
C) the earnings paid to shareholders
D) a current liability

Accepted Answer

Retained earnings represent the portion of net profit that a company retains rather than distributing it to shareholders as dividends. It is essentially the cumulative amount of earnings not paid out as dividends but reinvested in the business or kept as a reserve for specific objectives.

Question 4

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-What does capital cost allowance represent?
A) an amount used to calculate the book value of capital assets
B) an amount used to calculate the residual value of fixed assets
C) Canada Revenue Agency's equivalent of accumulated depreciation
D) Canada Revenue Agency's equivalent of depreciation

Accepted Answer

Capital cost allowance (CCA) is the term used in Canada for tax purposes to represent the depreciation of assets, similar to how depreciation is used in accounting.

Question 5

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-What differences between accounting income and taxable income can lead to a future income tax liability?
A) revenue and accumulated earnings
B) accumulated depreciation and depreciation
C) CCA and accumulated depreciation
D) CCA and depreciation

Accepted Answer

The difference between CCA (Capital Cost Allowance) and depreciation can lead to a future income tax liability because CCA is used for tax purposes and may differ from the depreciation expense recorded in accounting, affecting taxable income.

Question 6

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-What is one of the adjustments required to calculate a company's cash flow?
A) adding accumulated depreciation to profit for the year
B) adding depreciation to profit for the year
C) adding depreciation to profit before taxes
D) adding profit from operations to interest income

Accepted Answer

Adding depreciation back to profit before taxes is necessary because depreciation is a non-cash expense that reduces taxable income, but it does not actually reduce the cash flow of the company.

Question 7

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-What is the opposite of a prepaid expense?
A) intangible asset
B) accounts receivable
C) capital asset
D) accrued liability

Accepted Answer

The opposite of a prepaid expense, which is an expense paid in advance and recorded as an asset until it is actually incurred, is an accrued liability. An accrued liability represents an expense that has been incurred but not yet paid.

Question 8

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-An entrepreneur invests $100,000 cash in a business. What is the effect on the financial statements?
A) Current liabilities increase and current assets increase.
B) Current liabilities decrease and current assets decrease.
C) Current assets decrease and equity decreases.
D) Current assets increase and equity increases.

Accepted Answer

Investing $100,000 cash in a business increases current assets (cash) and also increases equity, as the investment increases the owner's equity in the business.

Question 9

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-An entrepreneur borrows $50,000 from the bank for his business, to be repaid in one year. What is the effect on the financial statements?
A) Current assets increase and shareholder's equity increase.
B) Current assets decrease and current liabilities increase.
C) Current assets increase and current liabilities increase.
D) Current assets increase and long-term liabilities increase.

Accepted Answer

Borrowing $50,000 increases current assets (cash) and also increases current liabilities (the loan that must be repaid within a year).

Question 10

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-An entrepreneur purchases advertising on credit. What is the effect on the financial statements?
A) Expenses decrease and accounts payable increase.
B) Expenses increase and accounts payable decrease.
C) Expenses decrease and accounts payable decrease.
D) Expenses increase and accounts payable increase.

Accepted Answer

Purchasing advertising on credit increases expenses (advertising expense) and also increases accounts payable, as the service is received but payment is deferred to a future date.

Question 11

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-An entrepreneur buys office furniture to be paid for in 30 days. What is the effect on the financial statements?
A) Capital assets increase and long-term debt increases.
B) Capital assets increase and current liabilities increase.
C) Current assets increase and cash decreases.
D) Current assets increase and current liabilities increase.

Accepted Answer

When an entrepreneur buys office furniture on credit to be paid in 30 days, it increases capital assets (the office furniture itself) and increases current liabilities (the obligation to pay for the furniture in 30 days).

Question 12

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-An entrepreneur collects $13,000 cash for services previously rendered. What is the effect on the financial statements?
A) Current assets increase and revenue increases.
B) Current assets increase and current liabilities increase.
C) Current assets decrease and revenue increases.
D) Current assets increase and current assets decrease.

Accepted Answer

Collecting cash for services previously rendered increases current assets (cash) and also increases revenue, reflecting the income earned from the services.

Question 13

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-An entrepreneur pays $3,000 in cash for salaries. What is the effect on the financial statements?
A) Current assets decrease and expenses increase.
B) Revenues decrease and current assets decrease.
C) Expenses increase and current assets increase.
D) Current liabilities increase and expenses increase.

Accepted Answer

Paying salaries in cash decreases current assets (cash) and increases expenses (salaries expense), impacting the income statement and the balance sheet.

Question 14

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-An entrepreneur repays a $10,000 bank loan. What is the effect on the financial statements?
A) Current assets decrease and expenses increase.
B) Current assets increase and current liabilities decrease.
C) Current assets decrease and expenses decrease.
D) Current assets decrease and current liabilities decrease.

Accepted Answer

Repaying a bank loan decreases current assets (cash) and decreases current liabilities (the loan balance), with no effect on expenses.

Question 15

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-An entrepreneur pays $13,000 in cash for merchandise that was previously purchased on credit. What is the effect on the financial statements?
A) Current assets decrease and current liabilities increase.
B) Current liabilities decrease and expenses increases.
C) Current assets decrease and current liabilities decrease.
D) Current liabilities decrease and long-term debt increases.

Accepted Answer

Paying off merchandise previously purchased on credit decreases current assets (cash) and also decreases current liabilities (accounts payable).

Question 16

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-Which of the following is an administrative expense?
A) the cost of merchandise
B) depreciation
C) dividends
D) office salaries

Accepted Answer

Office salaries are considered administrative expenses as they are related to the general operation of a business rather than production or sales.

Question 17

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-What account is found on the statement of income?
A) taxes payable
B) accumulated amortization
C) bank loan
D) salaries

Accepted Answer

The answer of Cost of the asset$100,000 
Life of the...

Question 18

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-What account is found on the statement of financial position?
A) finance costs
B) office salaries
C) depreciation
D) cash

Accepted Answer

The answer of Cost of the asset$100,000 
Life of the...

Question 19

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-Which of the following is included in the statement of changes in equity?
A) bank loans
B) dividends payable
C) income taxes
D) profit for the year

Accepted Answer

Profit for the year is included in the statement of changes in equity as it impacts retained earnings, a component of equity.

Question 20

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-Which of the following is a current liability?
A) trade receivables
B) prepaid expenses
C) preferred shares
D) short-term borrowings

Accepted Answer

Short-term borrowings are considered a current liability because they are debts or obligations that are due within one year.

Quiz 2: Accounting and Financial Statements

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -What term refers to payments made for services that have NOT yet been received?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -What type of asset is goodwill?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -What do retained earnings represent?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -What does capital cost allowance represent?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -What differences between accounting income and taxable income can lead to a future income tax liability?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -What is one of the adjustments required to calculate a company's cash flow?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -What is the opposite of a prepaid expense?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -An entrepreneur invests $100,000 cash in a business. What is the effect on the financial statements?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -An entrepreneur borrows $50,000 from the bank for his business, to be repaid in one year. What is the effect on the financial statements?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -An entrepreneur purchases advertising on credit. What is the effect on the financial statements?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -An entrepreneur buys office furniture to be paid for in 30 days. What is the effect on the financial statements?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -An entrepreneur collects $13,000 cash for services previously rendered. What is the effect on the financial statements?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -An entrepreneur pays $3,000 in cash for salaries. What is the effect on the financial statements?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -An entrepreneur repays a $10,000 bank loan. What is the effect on the financial statements?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -An entrepreneur pays $13,000 in cash for merchandise that was previously purchased on credit. What is the effect on the financial statements?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -Which of the following is an administrative expense?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -What account is found on the statement of income?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -What account is found on the statement of financial position?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -Which of the following is included in the statement of changes in equity?

Cost of the asset$100,000 Life of the asset 5 years Depreciation rate20% Capital cost allowance rate 50% Residual value of the asset nil Income tax rate 50% -Which of the following is a current liability?