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Financial Accounting 5th Canadian Edition Test Bank

Financial Accounting 5th Canadian Edition Test Bank enhances learning with well-structured notes, key formulas, and exam-style problems.

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    1 Student: ___________________________________________________________________________ 1. What is the primary purpose of the statement of financial position? A. To measure the profit of a business up to a particular point in time. B. To report the difference between cash inflows and cash outflows for the period. C. To report the financial position of the reporting entity at a particular point in time. D. To report assets at their current market value at a particular point in time. 2. On January 1, 20A, two individuals invested $150,000 each to form Hornbeck Corporation. Hornbeck had total revenues of $15,000 during 20A and $40,000 during 20B. Total expenses for the same periods were $8,000 and $22,000, respectively. Cash dividends paid out to shareholders totalled $6,000 in 20A and $12,000 in 20B. What was the ending balance in Hornbeck's retained earnings account at the end of 20A and 20B? A. $1,000 and $6,000 respectively. B. $1,000 and $7,000, respectively. C. $7,000 and $19,000 respectively. D. $301,000 and $306,000 respectively. 3. The BAT Corporation had revenues of $110,000, expenses of $85,000, and an income tax rate of 20 percent in 20B. What would profit after taxes be? A. $5,000. B. $15,000. C. $20,000. D. $25,000. 4. Brown Corporation reported the following amounts at the end of the first year of operations, December 31, 20A: share capital $20,000; sales revenue $95,000; total assets $85,000, no dividends, and total liabilities $35,000. What would shareholders' equity and total expenses be? A. Shareholders' equity, $50,000 and expenses $65,000. B. Shareholders' equity, $60,000 and expenses $75,000. C. Shareholders' equity, $80,000 and expenses $40,000. D. Shareholders' equity, $80,000 and expenses $85,000.

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    5. Which of the following would not be considered an internal user of accounting data? A. The president of a company. B. The controller of a company. C. A creditor of a company. D. A salesperson of a company. 6. If total liabilities increased by $25,000 and shareholders' equity increased by $5,000 during a period of time, then total assets must change by what amount and direction during that same period? A. $20,000 decrease. B. $20,000 increase. C. $25,000 increase. D. $30,000 increase. 7. Which of the following activities involves raising the necessary funds to support the business? A. Operating. B. Investing. C. Financing. D. Marketing. 8. Buying assets needed to operate a business is an example of a(n) A. purchasing activity. B. financing activity. C. investing activity. D. operating activity. 9. The common characteristic possessed by all assets is A. long life. B. great monetary value. C. tangible nature. D. future economic benefit.

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    10. Expenses are incurred A. only on rare occasions. B. to produce assets. C. to produce liabilities. D. to generate revenues. 11. The financial statement that summarizes the changes in contributed capital and retained earnings for a specific period of time is the A. statement of financial position. B. statement of earnings. C. statement of cash flows. D. statement of changes in equity. 12. Retained earnings at the end of the period is equal to A. retained earnings at the beginning of the period plus net earnings minus liabilities. B. retained earnings at the beginning of the period plus net earnings minus dividends. C. net earnings for the period D. assets plus liabilities. 13. What form does financial accounting information provided by an entity to decision makers generally take? A. Financial statements. B. Various forecasts and performance reports. C. An analysis of changes in the price of a corporation's shares. D. Comparisons between the company and its competitors. 14. If the retained earnings account increases from the beginning of the year to the end of the year, then A. profit is greater than dividends. B. a loss is less than dividends. C. additional investments are less than reported losses. D. dividends were paid.

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    15. Shareholders' equity can be described as claims of A. creditors on total assets. B. owners on total assets. C. customers on total assets. D. debtors on total assets. 16. Which financial statement would indicate whether the company relies more on debt or shareholders' equity to finance its assets? A. Statement of cash flows. B. Statement of changes in equity. C. Statement of earnings. D. Statement of financial position. 17. The statement of financial position and statement of changes in equity are related because A. the total assets on the statement of financial position is reported on the statement of changes in equity. B. the ending amount on the statement of changes in equity is reported on the statement of financial position. C. the ending amount on the statement of changes in equity is transferred to the statement of cash flows. D. both contain information for the corporation. 18. Carrington Company owes you $500 on account due within 15 days. Which of the following amounts on its statement of financial position would help you to determine the likelihood that you will be paid in full and on time? A. Cash and trade receivables. B. Cash and property and equipment. C. Cash and inventory. D. Contributed capital and retained earnings.

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    19. The statement of cash flows and the statement of financial position are interrelated because A. the ending amount of cash on the statement of cash flows must agree with the amount on the statement of earnings. B. the ending amount of cash on the statement of cash flows must agree with the amount in the statement of changes in equity. C. the ending amount of cash on the statement of cash flows must agree with the amount in the statement of financial position. D. both disclose the corporation's profit. 20. The statement of changes in equity is dependent on the results from A. the statement of cash flows. B. the statement of financial position. C. the statement of earnings. D. a company's share capital. 21. The primary purpose of the statement of cash flows is to report A. a company's investing transactions. B. a company's financing transactions. C. information about cash receipts and cash payments of a company. D. the net increase or decrease in cash. 22. Kamil's Car Repair Shop Ltd. started the year with total assets of $70,000 and total liabilities of $40,000. During the year, the business recorded $100,000 in car repair revenues, $65,000 in expenses, and dividends of $5,000. Shareholders' equity at the end of the year was A. $60,000. B. $65,000. C. $70,000. D. $75,000.

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    23. Retained earnings are A. the shareholders' claim on total assets. B. equal to cash. C. equal to revenues. D. the amount of profit kept in the corporation for future use. 24. What are business liabilities? A. Amounts it expects to collect in the future from customers. B. Debts or obligations resulting from past business events. C. The amounts that owners have invested in the business. D. The increases in assets that result from profitable operations. 25. Why would Parker Bank, in deciding whether to make a loan to Davis Company, be interested in the amount of liabilities, Davis has on its statement of financial position? A. The liabilities represent resources that could be used to repay the loan. B. If Davis already has many other obligations, it might not be able to repay the loan. C. Existing liabilities give an indication of how profitable Davis has been in the past. D. Parker would be interested in the amount of Davis's assets but not the amount of liabilities. 26. What are the two categories of shareholders' equity usually found on the statement of financial position of a corporation? A. Share capital and long - term liabilities. B. Share capital and property, plant, and equipment. C. Retained earnings and notes payable. D. Contributed capital and retained earnings.

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    27. Allentown Corporation has on its statement of financial position the following amounts: Total assets of $3,500,000 and total liabilities of $500,000. Contributed capital had a balance of $1,000,000. What is the amount of retained earnings that should appear on Allentown's statement of financial position? A. $2,000,000. B. $3,000,000. C. $4,000,000. D. $5,000,000. 28. Which financial statement for a business would you look at to determine the company's performance during an accounting period? A. Statement of financial position. B. Statement of cash flows. C. Statement of earnings. D. Statement of changes in equity. 29. Which of the following is not a principal type of business activity? A. Operating B. Investing C. Financing D. Delivering 30. How do most businesses earn revenues? A. When they collect trade receivables. B. Through sales of goods or services to customers. C. By borrowing money from a bank. D. By selling shares to shareholders.

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    31. During 20B, its second year in operation, Banner Company delivered goods to customers for which customers paid or promised to pay $5,850,000. The amount of cash collected from customers was $5,960,000. The amount of trade receivables at the beginning of 20B was $1,200,000.What is the amount of sales revenue that Banner should report on its statement of earnings for 20B? A. $4,650,000. B. $4,760,000. C. $5,850,000. D. $5,960,000. 32. During 20B, its second year in operation, Banner Company delivered goods to customers for which customers paid or promised to pay $5,850,000. Assume all sales were on account and the amount of cash collected from customers was $5,960,000. The amount of trade receivables at the beginning of 20B was $1,200,000. Based on this information, what is the amount of trade receivables that Banner would report at the end of 20B? A. $110,000. B. $1,090,000. C. $1,310,000. D. $5,850,000. 33. What is the amount of revenue recognized in the statement of earnings by a company that sells goods to customers? A. The cash collected from customers during the current period. B. Total sales, both cash and credit sales, for the period. C. Total sales minus beginning amount of trade receivables. D. The amount of cash collected plus the beginning amount of trade receivables. 34. The statement of cash flows and the statement of financial position are interrelated because A. the ending amount of cash on the statement of cash flows must agree with the amount in the statement of changes in equity. B. the ending amount of cash on the statement of cash flows must agree with the amount in the statement of financial position. C. both disclose the corporation's profit. D. the ending amount of cash on the statement of cash flows must agree with the amount on the statement of earnings.

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    35. On January 1, 20A, Taylor Corporation had retained earnings of $6,500,000. During 20A, Taylor had profit of $1,050,000 and dividends of $450,000. What is the amount of Taylor's retained earnings at the end of 20A? A. $6,050,000. B. $6,950,000. C. $7,100,000. D. $7,550,000. 36. What are the categories of cash flows that appear on a statement of cash flows? A. Cash flows from investing, financing, and service activities. B. Cash flows from operating, production, and internal activities. C. Cash flows from financing, production, and growth activities. D. Cash flows from operating, investing, and financing activities. 37. Borrowing money is an example of a(n) A. delivering activity. B. financing activity. C. investing activity. D. operating activity. 38. On the statement of cash flows, how would a company report the purchase of machinery? A. As cash used in operating activities. B. As cash used in financing activities. C. As cash used in purchasing activities. D. As cash used in investing activities. 39. When would a company report a net loss? A. When retained earnings decreased due to paying dividends to shareholders. B. When its assets decreased during an accounting period. C. When its liabilities increased during an accounting period. D. When its expenses exceeded its revenues for an accounting period.

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    40. Which of the following is the amount of rent expense reported on the statement of earnings? A. The amount of cash paid for rent in the current period. B. The amount of cash paid for rent in the current period less any unpaid rent at the end of the period. C. The amount of rent used up in the current period to earn revenue. D. The amount of cash paid for rent for the future period. 41. What events cause changes in a corporation's retained earnings? A. Profit or loss and declaration of dividends. B. Declaration of dividends and issuance of shares to new shareholders. C. Profit issuance of shares, and borrowing from a bank. D. Declaration of dividends and purchase of new machinery. 42. The statement of financial position A. reports the changes in assets, liabilities, and shareholders' equity over a period of time. B. reports the assets, liabilities, and shareholders' equity at a specific date. C. presents the revenues and expenses for a specific period of time. D. summarizes the changes in retained earnings for a specific period of time. 43. If you wanted to know how much of its profit a corporation distributed as dividends, which financial statement would you look at? A. Statement of financial position. B. Statement of earnings. C. Statement of cash flows. D. Statement of changes in equity. 44. Why is the operating activities section often believed to be the most important part of a statement of cash flows? A. It gives the most information about how operations have been financed. B. It shows the dividends that have been paid to shareholders. C. It indicates a company's ability to generate cash from sales to meet current cash needs. D. It shows the net increase or decrease in cash during the period.

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    45. If you wanted to know what accounting rules a company follows related to its inventory, where would you look? A. The statement of financial position. B. The statement of earnings. C. The notes to the financial statements. D. The headings to the financial statements. 46. During 20A, Burton Company delivered products to customers for which customers paid or promised to pay $3,820,000. The company collected $3,670,000 in cash from customers during the year. Indicate which of these amounts will appear on the statement of earnings and which on the statement of cash flows. A. $3,670,000 appears on both the statement of earnings and the statement of cash flows. B. $3,670,000 appears on the statement of cash flows, and $3,820,000 appears on the statement of earnings. C. $3,820,000 appears on both the statement of earnings and the statement of cash flows. D. $3,820,000 appears on the statement of cash flows, and $3,670,000 appears on the statement of earnings. 47. At the beginning of 20B, Rodriguez Corporation had assets of $820,000 and liabilities of $340,000. During the year, assets increased by $40,000 and liabilities decreased by $8,000. What was the total amount of shareholders' equity at the end of 20B? A. $432,000. B. $480,000. C. $528,000. D. $1,208,000. 48. What term is used for probable future economic benefits owned by an entity as a result of past transactions? A. Assets. B. Liabilities. C. Revenues. D. Retained earnings.

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    49. What results from the purchase of goods or services on credit and from borrowing? A. Assets. B. Liabilities. C. Share capital. D. Revenues. 50. How are the differing claims of creditors and investors recognized by a corporation? A. The claims of creditors are liabilities; those of investors are assets. B. The claims of both creditors and investors are liabilities, but only the claims of investors are considered to be long term. C. The claims of creditors are liabilities; the claims of investors are recorded as shareholders' equity. D. The claims of creditors and investors are considered to be essentially equivalent. 51. In what order are assets are listed on a statement of financial position? A. Dollar amount (largest first). B. Date of acquisition (earliest first). C. Ease of conversion to cash. D. Importance to the operation of the business. 52. In what order would the assets of Mertz Company be listed on their statement of financial position? A. Cash, Trade Receivables, Inventory, Plant and Equipment. B. Cash, Inventory, Trade Receivables, Plant and Equipment. C. Cash, Trade Receivables, Marketable Securities, Inventory. D. Cash, Trade Receivables, Plant and Equipment, Inventory.

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    53. The ending retained earnings balance of the Brown Hat restaurant chain increased by $4.3 billion from the beginning of the year. The company had declared a dividend of $1.5 billion. What was the profit earned during the year? A. $2.8 billion. B. $3.0 billion. C. $5.8 billion. D. There is no way to determine net income as not enough information was given. 54. What section of the statement of cash flows do bankers consider to be the most important? A. Investing. B. Operating. C. Financing. D. All the sections are equally important. 55. Which of the following statements is TRUE? A. Publicly traded enterprises must use IFRS for external reporting for fiscal years that start on or after January 1, 2011. B. The Accounting Standards Board is a government body. C. The SEC is the most influential Canadian regulator of the flow of financial information provided by publicly traded companies in Canada. D. Publicly traded enterprises must use the accounting standards prescribed for private enterprises for external reporting. 56. Which of the following activities would cause investors to overpay for the acquisition of a company from its current owners? A. Understated trade payables and overstated inventory. B. Understated revenues and overstated expenses. C. Understated assets and overstated expenses. D. Understated assets and overstated revenues.

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    57. Which of the following statements is true about the price earnings (P/E) ratio? A. It is a ratio of importance to creditors. B. A high P/E ratio indicates investors have little confidence in the future profit potential of the company. C. The P/E ratio could be used to approximate the value investors would be willing to pay for the company's acquisition from existing owners. D. The P/E ratio increases as profit increases. 58. 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? A. AcSB. B. CRA. C. OSC. D. CICA. 59. 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? A. The Canada Revenue Agency. B. The Ontario Securities Commission. C. The Federal Accounting Office. D. The Supreme Court. 60. With whom does primary responsibility for the information in a corporation's financial statements rest? A. The shareholders of the corporation. B. The managers of the corporation. C. The Ontario Securities Commission. D. The public accountant who audited the financial statements.

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    61. What is an examination of the financial statements of a business to ensure that they conform with international financial reporting standards called? A. A certification. B. An audit. C. A verification. D. A validation. 62. What is the purpose of an audit? A. To prove the accuracy of an entity's financial statements. B. To lend credibility to an entity's financial statements. C. To endorse the quality of leadership that managers provide for a corporation. D. To establish that a corporation's shares are a sound investment. 63. Why do the managers of a corporation hire independent auditors? A. To guarantee annual and quarterly financial statements. B. To handle some personnel issues and problems. C. To audit and report on the fairness of financial statement presentation. D. To lobby the AcSB for changes in generally accepted accounting principles. 64. Why is the auditor's role in performing audits, important to our society? A. Auditors provide direct financial advice to potential investors. B. Auditors have the primary responsibility for the information contained in financial statements. C. Auditors issue reports on the accuracy of each financial transaction. D. An audit of financial statements helps investors and others to know that they can rely on the information presented in the financial statements. 65. What is one of the disadvantages of a corporation, when compared to a partnership? A. The shareholders have limited liability. B. The shareholders are treated as a separate legal entity from the corporation. C. The corporation and its shareholders are potentially subject to double taxation. D. The corporation provides continuity of life.

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