Financial Accounting 4th Canadian Edition Test Bank

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ExamName___________________________________MULTIPLE CHOICE.Choose the one alternative that best completes the statement oranswers the question.1)Which of the following wouldnotrepresent a financing activity?1)_______A)Paying dividends to shareholders.B)Borrowing money from a bank to finance the purchase ofnew 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 whomis 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 stockexchange.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 financialstatements.B)a company's financial statements reflect only the businessactivities of that company and not that of the shareholders.C)each separate owner's finances must be revealed in thefinancial statements.D)each separate entity that has a claim on a company's assetsmust be shown in the financial statements.6)Which of the following are thedisadvantagesof setting acorporation?6)_______A)Legal fees can be high and separate tax returns have to befiled for owners and the business.B)Owners must be involved in day to day running of thebusiness.C)Owners are legally responsible for the liabilities of the

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corporation.D)The business and owners are considered as separate legalentities.7)Which of the following is the reason a new start up could have anegative investing cash flow?7)_______A)Company has borrowed money from banks/investors and ishaving problems paying them back.B)Company needs cash to buy to purchase new equipment/plantand 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 legalauthority and duty to make decisions regarding financial mattersconcerning that party is:9)_______A)fiduciary.B)manager.C)accountant.D)attorney.10)The three main types of business activities measured by financialstatements are:10)______A)selling goods, selling services, and obtaining financing.B)hiring, producing, and advertising.C)operating activities, investing activities, and financingactivities.D)generating revenues, paying expenses, and incurringdividends.11)Financing that individuals or institutions have provided to acompany is:11)______A)always classified as liabilities.B)classified as liabilities when provided by creditors andshareholders' equity when provided by owners.C)classified as shareholders' equity when provided by creditorsand 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,

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September30, 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 theirfiscal 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 balancesheet?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 ofinsecticide supplies on hand that cost $300,000; a bill from thevendor for $100,000 of these supplies has not yet been paid. Thecompany expects to earn $800,000 for its services when it uses theinsecticide supplies. The company would report:16)______A)$800,000 in assets under supplies and $100,000 in liabilitiesunder accounts payable.B)$300,000 in assets under supplies and $100,000 in liabilitiesunder 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 toshareholders. 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 = 0B)Liabilities-Shareholders' Equity = AssetsC)Assets = Liabilities + Shareholders' EquityD)Liabilities = Assets-Shareholders' Equity19)Which of the following would affect shareholders' equity?19)______A)A company receives payment for $100 million in accountsreceivable.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 inequipment.

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20)At the end of last year, the company's assets totalled $860,000 andits liabilities totalled $740,000. During the current year, thecompany's total assets increased by $58,000 and its total liabilitiesincreased 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 balancesheet: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 reportedsales revenue of $386,000 but collected only $303,000 fromcustomers. The amount to be reported as accounts receivable atthe 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 ofcomputer games in its first year of operations. The companyreceived payments of $7.5 million for these computer games. Thecompany'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.

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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 incomestatement for 2005?27)______A)Dividends that were paid in 2005.B)Supplies that were purchased and used in 2004 but paid for in2005.C)Supplies that were purchased and used in 2005 but paid for in2004.D)All of the choices are correct.28)Find the missing data.28)______A)Total revenues are $3,810,200, other selling andadministrative expenses are $364,600, and net income is$7,255,800.B)Total revenues are $3,810,200, other selling andadministrative expenses are $1,051,500, and net income is$364,600.C)Total revenues are $364,600, other selling and administrativeexpenses are $3,081,000, and net income is $7,255,800.D)Total revenues are $2,495,300, other selling andadministrative expenses are $1,051,500, and net income is

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($950,300).29)Which of the following isnottrue?29)______A)The net income in the statement came from the incomestatement for the year ended December 31, 2008.B)Retained earnings of $350,500 will appear on the balancesheet as of December 31, 2008.C)Dividends are shown in parenthesis because they arepayments made by a company to its shareholders as a returnon their investment.D)Retained earnings are the amount of distributions made to theshareholders since the company started.30)Which of the following statements is true?30)______A)The "net change in cash" reported on the statement of cashflows is also reported on the statement of retained earnings.B)The statement of cash flows is for a period of time while theincome statement is at a point in time.C)The statement of cash flows is at a point of time while theincome statement is for a period of time.D)Both the income statement and the statement of cash flowsshow the results of a company's operating activities.

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31)In the statement of cash flows which letters represent cashoutflows?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 the statement of cash flows which letters represent cashinflows?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 $1,900electric 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)areestabli

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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 toshareholders or retained in the business.C)estimate the current value of a company's assets.D)explain the specific revenues and expenses arising during theperiod.37)Which of the following is a publicly accountable profit-orientedenterprise?37)______A)A crown corporationB)A partnershipC)A sole proprietorshipD)A publicly traded corporation38)In which of the following business organization the owners couldonly 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 liabilitiesrise $38,000. If no dividend is paid and no further capital iscontributed, 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 isnotan 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 isincorrectabout the notes to thefinancial statements:42)______A)provide additional information about financial matters thatare not included in the financial statements.B)explain what accounting policies were used to prepare thefinancial statements.

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C)provide additional information about what is included in thefinancial statements.D)certify to the fact that the statements have been audited.43)Every financial statement should have "who, what, and when" inits heading. These are:43)______A)the name of the company, the type of financial statement, andthe time period from which the data were taken.B)the name of the company, the purpose of the statement, andwhen the financial statement was reported to the CanadaRevenue Agency.C)the name of the person preparing the statement, the type offinancial statement, and when the financial statement wasreported to the Stock Exchange.D)the name of the person preparing the statement, the name ofthe company, and the date the statement was prepared.44)Notes payable are like accounts payableexceptthat 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 whilenotes payables are.45)On the balance sheet, inventories are reported as:45)______A)a liability, because goods in inventory are tying up acompany's money without earning income.B)a revenue, because goods in inventory will be sold in thefuture.C)an expense, because goods in inventory have been paid forbut not yet sold.D)an asset, because goods in inventories are owned by thecompany.46)The WC Company borrowed $26,500 from a bank during 2007.46)______A)This would be listed as $26,500 under financing activities onthe statement of cash flows.B)This would be listed as $26,500 under investing activities onthe statement of cash flows.C)This would be listed as ($26,500) under investing activitieson the statement of cash flows.D)This would be listed as ($26,500) under operating activitieson the statement of cash flows.47)Which of the following isnotan alternative term used for theincome statement?47)______A)Statement of Financial Position.B)Statement of Earnings.C)Statement of Income.D)Profit and Loss Statement.

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48)A investor might look at a company's financial statements todetermine if the:48)______A)company's stock is likely to rise, signalling a good time tobuy.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 tosell.49)An creditor might look at a company's financial statements todetermine 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 theauditors' report?50)______A)Whether the financial statements are not prepared inaccordance with GAAP.B)Whether the financial statements are accurate picture of thecompany's financial results.C)Whether the financial statements are prepared in accordancewith GAAP.D)Whether the financial statements present a fair picture of thecompany's financial results.51)In which of the following business organization the business isconsidered 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 incomedistributed as dividends. In which section of the financialstatements 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 lastthree quarters both sales revenue and net income have beengrowing. Which of the following statements isnottrue?54)______A)Investors are likely to conclude that the stock price is likelyto rise, making the company more attractive as a potential

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investment.B)Investors are likely to conclude that the company will bebetter able to pay dividends in the future, making it moreattractive as a potential investment.C)Creditors are likely to conclude that the risk of lending to thecompany is falling and be willing to accept a lower interestrate on loans.D)Creditors are likely to conclude that the risk of lending to thecompany is rising and higher interest rate is needed.55)Investors and creditors look at the balance sheet to see whether thecompany: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 Canadawere 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 Principleswere followed in the preparation of financial statements, anexamination of:57)______A)tax documents would be examined by the Revenue CanadaAgency.B)the financial statements and related documents would beexamined by the CICA.C)the financial statements and related documents would beexamined by an independent auditor.D)the annual report would be examined by the Toronto StockExchange.58)Which of the following statements isfalse?58)______A)When choosing between a company that pays steadydividends and one that retains its earnings to support futuregrowth, investors will always choose the company that payssteady dividends.B)Companies can develop reputations for honest financialreporting even when conveying bad news.C)Information in the notes to the financial statements caninfluence a user's interpretation of balance sheet and incomestatement information.D)Trends in a company's net income from year to year canprovide clues about its future earnings, which can helpinvestors to decide whether to buy stock in the company.59)Which of the following isnotrequired to use IFRS?59)______A)All businesses are required to use IFRSB)Publically traded company

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C)Crown corporationD)Private enterprise60)Which of the following are the two fundamentalcharacteristicsfinancial information must possess to be judged useful to decisionmakers?60)______A)Complete and relevantB)Truthful and clarityC)Relevance and faithful representationD)Elaborate and faithful representation61)When is the financial informationrelevant?61)______A)If it allows management the discretion when to release it toinvestors and general public.B)If it fully depicts the economic substance of businessactivities.C)If it makes a difference in decision making.D)Meets the requirement of Toronto Stock Exchange.62)When is the financial information afaithfulrepresentation?62)______A)Meets the requirements of the stock exchangesB)If it fully depicts the economic substance of businessactivitiesC)If it makes a difference in decision makingD)If it allows management to be faithful to its shareholders63)Which one of the following isnotan accounting assumption?63)______A)Time periodB)IntegrityC)Separate entityD)Unit of measure64)Which of the following is a principle of accounting?64)______A)MatchingB)Time periodC)IntegrityD)Separate entity65)Which of the following areassumptionsof accounting?65)______A)Unit of measure, separate entity, going concern, time periodB)Unit of measure, cost-benefit, materiality, industry practicesC)Cost-benefit, materiality, industry practicesD)Cost, revenue recognition, matching, full disclosure66)Which of the following are theprinciplesof accounting?66)______A)Unit of measure, separate entity, going concern, time periodB)Cost-benefit, materiality, industry practicesC)Unit of measure, cost-benefit, materiality, industry practicesD)Cost, revenue recognition, expense recognition, fulldisclosure67)Which of the following areelementsto be measure and reported?67)______A)Cost, revenue recognition, matching, full disclosureB)Unit of measure, separate entity, going concern, time periodC)Cost-benefit, materiality, industry practices

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D)Assets, liabilities, shareholders equity, revenues, expenses,dividends68)To make sure that managers have followed GAAP rules inproducing financial statements, all public companies must:68)______A)let the government regulators scrutinize their financialrecords.B)Hire independent detectives to scrutinize the background ofall their accountants.C)Hire independent auditors to scrutinize their financialrecords.D)let their shareholders check their financial records.69)Auditors while examining the financial records must follow:69)______A)International Auditing standardsB)International Financial Reporting StandardsC)Canadian Accounting standards for auditingD)Canadian Auditing standards70)The effects of net income and its distribution on the financialposition of the company is reported in:70)______A)Balance sheetB)Income statementC)Statement of cash flowsD)Statement of retained earnings71)Which of the following enhance the usefulness of financialinformation with reference to financial statements?71)______A)Clarity, integrity, relevance and faithfulness.B)Integrity, relevance, faithfulness and comparability to priorperiods 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 ofaccounting in Canada.C)an independent body to develop and establish standards andguidance than govern financial accounting and reporting inCanada.D)is an examination of a company's financial statements by anindependent 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 ofaccounting in Canada.C)is an examination of a company's financial statements by anindependent auditor.

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D)an independent body to develop and establish standards andguidance than govern financial accounting and reporting inCanada.74)A company is involved infinancingactivities when these:74)______A)activities involve buying and selling resources such aspurchasing investments and lending to others.B)activities involve borrowing from banks, repaying bankloans, receiving contributions from shareholders, or payingdividends to shareholdersC)activities are directly related to running the core business toearn profits.D)activities involve buying and selling productive resourceswith long lives (such as buildings, land, equipment, andtools).75)A company is involved inoperatingactivities when these:75)______A)activities involve buying and selling productive resourceswith long lives (such as buildings, land, equipment, andtools).B)activities involve buying and selling resources such aspurchasing investments and lending to others.C)activities are directly related to running the core business toearn profits.D)activities involve borrowing from banks, repaying bankloans, receiving contributions from shareholders, or payingdividends to shareholders76)A company is involved ininvestingactivities when these:76)______A)activities are directly related to running the core business toearn profits.B)activities involve borrowing from banks and repaying bankloansC)activities involve buying and selling productive resourceswith long lives (such as buildings, land, equipment, andtools), purchasing investments, and lending to others.D)activities involve borrowing from receiving contributionsfrom shareholders, or paying dividends to shareholders77)Under C-Sox requirements,:77)______A)only major Canadian public companies are required to havefully independent and financially literate audit committees.B)all companies are required to have fully independent andfinancially literate audit committees.C)all publicly listed Canadian companies are required to havefully independent and financially literate audit committees.D)None of the choices are correct.78)The statement of cash flows is divided into three activities. Theyare, activities related to,78)______A)assets, liabilities and equity.

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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 thefollowing effect,79)______A)An increase in retained earnings.B)Assets > Liabilities + Shareholders Equity in the interimperiod.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 equityB)ending retained earnings-beginning retained earnings = netincome-dividendsC)net income-expenses = revenuesD)none of the choices are correctTRUE/FALSE.Write 'T' if the statement is true and 'F' if the statement is false.81)Financial accounting reports provide detailed internal records ofthe 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 buyingsupplies and paying wages are operating activities.84)______85)Financing activities include borrowing and obtaining money byissuing 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 hasnow gone bankrupt. The company owes $10 million dollars tocreditors. As a result of the bankruptcy, you will lose $100,000.88)______89)The shareholders' equity in a company is the difference betweenassets and liabilities.89)______90)A company owes $200,000 on a bank loan. If this loan isdocumented using a formal written debt contract, it will bereported as a liability called Notes Payable.90)______91)The accounting decisions that were made when preparing acompany's financial statements are explained in the auditor'sreport.91)

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