Skip to content
Exam Guides

Financial Accounting 4th Canadian Edition Test Bank

Develop a deep understanding of exam topics with Financial Accounting 4th Canadian Edition Test Bank, a complete study and practice guide.

Preview 16 of 372 pages

See the first 16 pages exactly as they appear in the document.

  1. Page 1
    Read page 1 as text

    Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following would not represent a financing activity? 1) _______ A) Paying dividends to shareholders. B) Borrowing money from a bank to finance the purchase of new equipment. C) An investment of financial capital by the owners. D) Collecting cash from customers. 2) Investing activities: 2) _______ 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) buying the company's office supplies. D) only involve financial exchanges. 3) Public corporations: 3) _______ A) are businesses owned by two or more people, each of whom is personally liable for the debts of the business. B) are setup for non - profit purposes. C) are businesses whose stock is bought and sold privately. D) are businesses whose stock is bought and sold on a stock exchange. 4) Which of the following would represent an operating activity? 4) _______ A) An investment of financial capital by the owners. B) Purchasing equipment with money borrowed from creditors. C) Repaying a loan the company had taken out. D) Buying the company's office supplies. 5) The separate entity assumption means: 5) _______ A) each shareholders' activities must be revealed in the financial statements. B) a company's financial statements reflect only the business activities of that company and not that of the shareholders. C) each separate owner's finances must be revealed in the financial statements. D) each separate entity that has a claim on a company's assets must be shown in the financial statements. 6) Which of the following are the disadvantages of setting a corporation? 6) _______ A) Legal fees can be high and separate tax returns have to be filed for owners and the business. B) Owners must be involved in day to day running of the business. C) Owners are legally responsible for the liabilities of the

  2. Page 2
  3. Page 3
    Read page 3 as text

    corporation. D) The business and owners are considered as separate legal entities. 7) Which of the following is the reason a new start up could have a negative investing cash flow? 7) _______ A) Company has borrowed money from banks/investors and is having problems paying them back. B) Company needs cash to buy to purchase new equipment/plant and expand business. C) Company is having problems generating profits. D) Company needs to pay dividends to its shareholders. 8) Creditors are: 8) _______ A) people or organizations to whom a business owes money. B) shareholders of a business. C) customers of a business. D) people or organizations who owe money to a business. 9) 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: 9) _______ A) fiduciary. B) manager. C) accountant. D) attorney. 10) The three main types of business activities measured by financial statements are: 10) ______ A) selling goods, selling services, and obtaining financing. B) hiring, producing, and advertising. C) operating activities, investing activities, and financing activities. D) generating revenues, paying expenses, and incurring dividends. 11) Financing that individuals or institutions have provided to a company is: 11) ______ A) always classified as liabilities. B) classified as liabilities when provided by creditors and shareholders' equity when provided by owners. C) classified as shareholders' equity when provided by creditors and liabilities when provided by owners. D) always classified as shareholders' equity. 12) Financial statements are most commonly prepared: 12) ______ A) whenever management feels like it. B) weekly. C) semi - monthly. D) monthly, quarterly and annually. 13) Which of the following is true? 13) ______ A) Companies must end their fiscal year on March 31, June 30,

  4. Page 4
    Read page 4 as text

    September 30, or December 31. B) Companies are allowed to choose their fiscal year - end date. C) Companies can select any date except a holiday to end their fiscal year. D) Companies must end their fiscal year on December 31. 14) Assets: 14) ______ A) must equal the shareholders' equity of the company. B) must equal the liabilities of a company. C) represent the amounts earned by a company. D) represent the resources controlled by a company. 15) Which of the following are the three basic elements of the balance sheet? 15) ______ A) Assets, liabilities, and revenues. B) Assets, liabilities, and contributed capital. C) Assets, liabilities, and retained earnings. D) Assets, liabilities, and shareholders' equity. 16) 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: 16) ______ A) $800,000 in assets under supplies and $100,000 in liabilities under accounts payable. B) $300,000 in assets under supplies and $100,000 in liabilities under accounts payable. C) $200,000 in assets under supplies and no accounts payable. D) $300,000 in assets under supplies and no accounts payable. 17) The Publish or Perish Printing Company paid a dividend to shareholders. This will be reported on the: 17) ______ A) balance sheet. B) audit report. C) income statement. D) statement of retained earnings. 18) Which of the following is not true? 18) ______ A) Shareholders' Equity + Liabilities - Assets = 0 B) Liabilities - Shareholders' Equity = Assets C) Assets = Liabilities + Shareholders' Equity D) Liabilities = Assets - Shareholders' Equity 19) Which of the following would affect shareholders' equity? 19) ______ A) A company receives payment for $100 million in accounts receivable. 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 borrows $100 million and buys $100 million in equipment.

  5. Page 5
    Read page 5 as text

    20) 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: 20) ______ A) shareholders' equity was $120,000. B) shareholders' equity was $34,000. C) shareholders' equity was $154,000. D) shareholders' equity was $178,000. 21) A company's balance sheet contained the following information: Assuming Notes Payable is the only other item on the balance sheet: 21) ______ A) Notes Payable must equal $72,000. B) Notes Payable must equal $200,000. C) Notes Payable must equal $344,000. D) Notes Payable must equal $8,000. 22) 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: 22) ______ A) $386,000. B) $83,000. C) $303,000. D) $689,000. 23) If XYZ Company had $12 million in revenue and net income of $3 million then its: 23) ______ A) expenses must have been $9 million. B) assets must have been $12 million. C) expenses must have been $15 million. D) assets must have been $3 million. 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: 24) ______ A) sales revenue of $11 million. B) sales revenue of $7.5 million. C) accounts receivable of $3.5 million. D) expenses of $3.5 million. 25) Dividends are reported on the: 25) ______ A) Statement of retained earnings. B) Income statement and balance sheet. C) Balance sheet.

  6. Page 6
    Read page 6 as text

    D) Income statement. 26) Which of the following would not affect a company's net income? 26) ______ A) Advertising a new product. B) Changing the selling price of a company's product. C) Paying a dividend to shareholders. D) A change in the company's income taxes. 27) Which of the following would be reported on the income statement for 2005? 27) ______ A) Dividends that were paid in 2005. B) Supplies that were purchased and used in 2004 but paid for in 2005. C) Supplies that were purchased and used in 2005 but paid for in 2004. D) All of the choices are correct. 28) Find the missing data. 28) ______ A) Total revenues are $3,810,200, other selling and administrative expenses are $364,600, and net income is $7,255,800. B) Total revenues are $3,810,200, other selling and administrative expenses are $1,051,500, and net income is $364,600. 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 $2,495,300, other selling and administrative expenses are $1,051,500, and net income is

  7. Page 7
    Read page 7 as text

    ($950,300). 29) Which of the following is not true? 29) ______ A) The net income in the statement came from the income statement for the year ended December 31, 2008. B) Retained earnings of $350,500 will appear on the balance sheet as of 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. 30) Which of the following statements is true? 30) ______ A) The "net change in cash" reported on the statement of cash flows is also reported on the statement of retained earnings. B) The statement of cash flows is for a period of time while the income statement is at a point in time. C) The statement of cash flows is at a point of time while the income statement is for a period of time. D) Both the income statement and the statement of cash flows show the results of a company's operating activities.

  8. Page 8
    Read page 8 as text

    31) In the statement of cash flows which letters represent cash outflows? 31) ______ A) A, E and G. B) B, C, E and F. C) A, E, F and G. D) B, C, D, F and G. 32) In th e statement of cash flows which letters represent cash inflows? 32) ______ A) B, C, E and F. B) A and E. C) A, E and G. D) B, C, D, F and G. 33) Assets are listed on the balance sheet in order of: 33) ______ A) date acquired. B) value. C) liquidity. D) estimated replacement date. 34) In the statement of cash flows, the company's payment of a $1,900 electric bill would be classified as: 34) ______ A) a financing cash outflow. B) an operating cash outflow. C) an operating cash inflow. D) an investing cash inflow. 35) In Canada, Generally Accepted Accounting Principles (GAAP) are establi

  9. Page 9
    Read page 9 as text

    shed: 35) ___ ___ A) by the Society of Management Accounting. B) by the Public Company Accounting Oversight Board. C) by the Canadian Institute of Chartered Accountants. D) by the Financial Accounting Standards Board. 36) The purpose of a statement of retained earnings is to: 36) ______ A) show where the money is flowing into and out of a company. B) report how the profits of a company have been distributed to shareholders or retained in the business. C) estimate the current value of a company's assets. D) explain the specific revenues and expenses arising during the period. 37) Which of the following is a publicly accountable profit - oriented enterprise? 37) ______ A) A crown corporation B) A partnership C) A sole proprietorship D) A publicly traded corporation 38) In which of the following business organization the owners could only lose the money they invested in the business? 38) ______ A) A Crown corporation. B) A sole proprietorship. C) A partnership. D) A corporation. 39) If a company uses $50,000 of its cash to buy an asset then: 39) ______ A) assets and liabilities will be unchanged. B) assets will fall $50,000 and liabilities will rise $50,000. C) assets will rise $50,000 as will liabilities. D) assets will rise $50,000 as will shareholders' equity. 40) 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: 40) ______ A) rise $56,000. B) fall $94,000. C) rise $18,000. D) fall $38,000. 41) Which of the following is not an expense? 41) ______ A) Wages of employees. B) Corporate income tax. C) Dividends. D) Interest incurred on a loan the company had taken out. 42) Which of the following is incorrect about the notes to the financial statements: 42) ______ A) provide additional information about financial matters that are not included in the financial statements. B) explain what accounting policies were used to prepare the financial statements.

  10. Page 10
    Read page 10 as text

    C) provide additional information about what is included in the financial statements. D) certify to the fact that the statements have been audited. 43) Every financial statement should have "who, what, and when" in its heading. These are: 43) ______ A) the name of the company, the type of financial statement, and the time period from which the data were taken. B) the name of the company, the purpose of the statement, and when the financial statement was reported to the Canada Revenue Agency. C) the name of the person preparing the statement, the type of financial statement, and when the financial statement was reported to the Stock Exchange. D) the name of the person preparing the statement, the name of the company, and the date the statement was prepared. 44) Notes payable are like accounts payable except that notes payable: 44) ______ A) can remain unpaid longer than accounts payable. B) are documented using formal written debt contracts. C) are not interest free. D) Accounts payables are not reported in the balance sheet while notes payables are. 45) On the balance sheet, inventories are reported as: 45) ______ A) a liability, because goods in inventory are tying up a company's money without earning income. B) a revenue, because goods in inventory will be sold in the future. C) an expense, because goods in inventory have been paid for but not yet sold. D) an asset, because goods in inventories are owned by the company. 46) The WC Company borrowed $26,500 from a bank during 2007. 46) ______ A) This would be listed as $26,500 under financing activities on the statement of cash flows. B) This would be listed as $26,500 under investing 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 operating activities on the statement of cash flows. 47) Which of the following is not an alternative term used for the income statement? 47) ______ A) Statement of Financial Position. B) Statement of Earnings. C) Statement of Income. D) Profit and Loss Statement.

  11. Page 11
    Read page 11 as text

    48) A investor might look at a company's financial statements to determine if the: 48) ______ A) company's stock is likely to rise, signalling a good time to buy. B) company is likely to have the resources to repay its debts. C) company is likely to pay a good dividend. D) company's stock is likely to fall, signalling a good time to sell. 49) An creditor might look at a company's financial statements to determine if the company's: 49) ______ A) stock is likely to fall, signalling a good time to sell. B) stock is likely to rise, signalling a good time to buy. C) earnings are rising or falling. D) company has enough assets to cover its liabilities. 50) What would a financial statement user learn from reading the auditors' report? 50) ______ A) Whether the financial statements are not prepared in accordance with GAAP. B) Whether the financial statements are accurate picture of the company's financial results. C) Whether the financial statements are prepared in accordance with GAAP. D) Whether the financial statements present a fair picture of the company's financial results. 51) In which of the following business organization the business is considered separate from the owner/s: 51) ______ A) A corporation. B) A partnership. C) A state - owned entity. D) A sole proprietorship. 52) Internal financial statement users include: 52) ______ A) creditors of the company. B) management of the company. C) stock exchanges. D) investors interested in the company. 53) 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? 53) ______ A) Statement of retained earnings. B) Income statement. C) Notes to the financial statements. D) Balance sheet. 54) 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 not true? 54) ______ A) Investors are likely to conclude that the stock price is likely to rise, making the company more attractive as a potential

  12. Page 12
    Read page 12 as text

    investment. B) 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. C) 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. D) Creditors are likely to conclude that the risk of lending to the company is rising and higher interest rate is needed. 55) Investors and creditors look at the balance sheet to see whether the company: 55) ______ A) has had a positive cash flow from operations. B) is paying sufficient dividends to shareholders. C) owns enough assets to pay what it owes to creditors. D) is profitable. 56) Generally Accepted Accounting Principles (GAAP) in Canada were established by: 56) ______ A) the Canadian Parliament. B) the CICA. C) IFRS. D) an Italian monk in 1494. 57) To determine whether Generally Accepted Accounting Principles were followed in the preparation of financial statements, an examination of: 57) ______ A) tax documents would be examined by the Revenue Canada Agency. B) the financial statements and related documents would be examined by the CICA. C) the financial statements and related documents would be examined by an independent auditor. D) the annual report would be examined by the Toronto Stock Exchange. 58) Which of the following statements is false ? 58) ______ 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) Information in the notes to the financial statements can influence a user's interpretation of balance sheet and income statement information. D) 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. 59) Which of the following is not required to use IFRS? 59) ______ A) All businesses are required to use IFRS B) Publically traded company

  13. Page 13
    Read page 13 as text

    C) Crown corporation D) Private enterprise 60) Which of the following are the two fundamental characteristics financial information must possess to be judged useful to decision makers? 60) ______ A) Complete and relevant B) Truthful and clarity C) Relevance and faithful representation D) Elaborate and faithful representation 61) When is the financial information relevant ? 61) ______ A) If it allows management the discretion when to release it to investors and general public. B) If it fully depicts the economic substance of business activities. C) If it makes a difference in decision making. D) Meets the requirement of Toronto Stock Exchange. 62) When is the financial information a faithful representation ? 62) ______ A) Meets the requirements of the stock exchanges B) If it fully depicts the economic substance of business activities C) If it makes a difference in decision making D) If it allows management to be faithful to its shareholders 63) Which one of the following is not an accounting assumption? 63) ______ A) Time period B) Integrity C) Separate entity D) Unit of measure 64) Which of the following is a principle of accounting? 64) ______ A) Matching B) Time period C) Integrity D) Separate entity 65) Which of the following are assumptions of accounting? 65) ______ A) Unit of measure, separate entity, going concern, time period B) Unit of measure, cost - benefit, materiality, industry practices C) Cost - benefit, materiality, industry practices D) Cost, revenue recognition, matching, full disclosure 66) Which of the following are the principles of accounting? 66) ______ A) Unit of measure, separate entity, going concern, time period B) Cost - benefit, materiality, industry practices C) Unit of measure, cost - benefit, materiality, industry practices D) Cost, revenue recognition, expense recognition, full disclosure 67) Which of the following are elements to be measure and reported? 67) ______ A) Cost, revenue recognition, matching, full disclosure B) Unit of measure, separate entity, going concern, time period C) Cost - benefit, materiality, industry practices

  14. Page 14
    Read page 14 as text

    D) Assets, liabilities, shareholders equity, revenues, expenses, dividends 68) To make sure that managers have followed GAAP rules in producing financial statements, all public companies must: 68) ______ A) let the government regulators scrutinize their financial records. B) Hire independent detectives to scrutinize the background of all their accountants. C) Hire independent auditors to scrutinize their financial records. D) let their shareholders check their financial records. 69) Auditors while examining the financial records must follow: 69) ______ A) International Auditing standards B) International Financial Reporting Standards C) Canadian Accounting standards for auditing D) Canadian Auditing standards 70) The effects of net income and its distribution on the financial position of the company is reported in: 70) ______ A) Balance sheet B) Income statement C) Statement of cash flows D) Statement of retained earnings 71) Which of the following enhance the usefulness of financial information with reference to financial statements? 71) ______ A) Clarity, integrity, relevance and faithfulness. B) Integrity, relevance, faithfulness and comparability to prior periods and other companies. C) Verifiability, relevance and faithfulness. D) Comparability to prior periods and other companies, verifiability, timeliness, and understandability. 72) The CICA: 72) ______ A) is an entity that regulates issuance of securities in Ontario. B) has primary responsibility for setting the underlying rules of accounting in Canada. 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. 73) The AcSB: 73) ______ A) is an entity that regulates issuance of securities in Ontario. B) has primary responsibility for setting the underlying rules of accounting in Canada. C) is an examination of a company's financial statements by an independent auditor.

  15. Page 15
    Read page 15 as text

    D) an independent body to develop and establish standards and guidance than govern financial accounting and reporting in Canada. 74) A company is involved in financing activities when these: 74) ______ A) activities involve buying and selling resources such as purchasing investments and lending to others. B) activities involve borrowing from banks, repaying bank loans, receiving contributions from shareholders, or paying dividends to shareholders C) activities are directly related to running the core business to earn profits. D) activities involve buying and selling productive resources with long lives (such as buildings, land, equipment, and tools). 75) A company is involved in operating activities when these: 75) ______ A) activities involve buying and selling productive resources with long lives (such as buildings, land, equipment, and tools). B) activities involve buying and selling resources such as purchasing investments and lending to others. C) activities are directly related to running the core business to earn profits. D) activities involve borrowing from banks, repaying bank loans, receiving contributions from shareholders, or paying dividends to shareholders 76) A company is involved in investing activities when these: 76) ______ A) activities are directly related to running the core business to earn profits. B) activities involve borrowing from banks and repaying bank loans C) activities involve buying and selling productive resources with long lives (such as buildings, land, equipment, and tools), purchasing investments, and lending to others. D) activities involve borrowing from receiving contributions from shareholders, or paying dividends to shareholders 77) Under C - Sox requirements,: 77) ______ A) only major Canadian public companies are required to have fully independent and financially literate audit committees. B) all companies are required to have fully independent and financially literate audit committees. C) all publicly listed Canadian companies are required to have fully independent and financially literate audit committees. D) None of the choices are correct. 78) The statement of cash flows is divided into three activities. They are, activities related to, 78) ______ A) assets, liabilities and equity.

  16. Page 16
    Read page 16 as text

    B) operating, equity and debt. C) operating, investing and financing. D) liquidity, liabilities and equity. 79) Under ASPE, an increase in cash dividends will have the following effect, 79) ______ A) An increase in retained earnings. B) Assets > Liabilities + Shareholders Equity in the interim period. C) A reduction in net income. D) None of the choices are correct. 80) Which of the following equations is correct? 80) ______ A) asset = liabilities - shareholders equity B) ending retained earnings - beginning retained earnings = net income - dividends C) net income - expenses = revenues D) none of the choices are correct TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 81) Financial accounting reports provide detailed internal records of the company. 81) ______ 82) Building a new warehouse is an operating activity. 82) ______ 83) The payment of dividends is a financing activity. 83) ______ 84) Daily activities involved in running a business such as buying supplies and paying wages are operating activities. 84) ______ 85) Financing activities include borrowing and obtaining money by issuing shares of ownership (called stock certificates). 85) ______ 86) Shareholders are creditors of a company. 86) ______ 87) All corporations acquire financing by issuing shares of ownership (called stock certificates) for sale on public stock exchanges. 87) ______ 88) You paid $10,000 to buy 1% of the stock in a corporation that has now gone bankrupt. The company owes $10 million dollars to creditors. As a result of the bankruptcy, you will lose $100,000. 88) ______ 89) The shareholders' equity in a company is the difference between assets and liabilities. 89) ______ 90) A company owes $200,000 on a bank loan. If this loan is documented using a formal written debt contract, it will be reported as a liability called Notes Payable. 90) ______ 91) The accounting decisions that were made when preparing a company's financial statements are explained in the auditor's rep ort. 91)

356 more pages in the full document

Unlock it once and it stays in your library, ready to chat with or turn into flashcards.

Unlock the full document

More Accounting study materials

See all

Study this document with CramX

Once it is in your library, every tool can work from it.