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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Document preview page 1

Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 1

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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank

Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank helps you familiarize yourself with exam formats and key concepts.

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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 1 preview image1.TB01-01Thecost-benefittrade-offisbestsummarize...Thecost-benefittrade-offisbestsummarizedas:→theconceptofcomparingthebenefitsofanactionwiththecostsoftheaction.theconceptofmeasuringallcostsandbenefitsindollars.theconceptofrecordingallnecessarycoststoobtainthedesiredbenefits.thecostofensuringthatcostsarealwaysequaltobenefits.MultipleChoiceTB01-01Thecost-benefittrade-offisbestsummarize...2.TB01-02Youhavedecidedtospend$75onaGuideto...Youhavedecidedtospend$75ona"GuidetoCaribbeanCruises"beforebookingyourwintercruiseholiday.Thisisanexampleofwhichofthefollowingprinciples?RelevanceReliability→Cost/benefittrade-offComparabilityMultipleChoiceTB01-02Youhavedecidedtospend$75onaGuideto...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 2 preview image
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 3 preview image3.TB01-03Anewshareholderofasmallcompanyisconc...Anewshareholderofasmallcompanyisconcernedaboutbeingabletoadequatelymonitortheirinvestmentandhasaskedmanagementtoprovidethemwithweeklyfinancialstatements.Fromthecompany'spointofviewthiswouldviolatewhichofthefollowingconcepts?PrivacyReliabilityIFRS→Cost/benefittrade-offMultipleChoiceTB01-03Anewshareholderofasmallcompanyisconc...4.TB01-04Financialaccountingwouldbeusedtomakew...Financialaccountingwouldbeusedtomakewhichofthefollowingdecisions?Decidingifthecompanyshouldexpand.Determiningwhichproductsaresuccessful.Determiningthepriceofaproduct.→Decidingwhethertoinvestinthecompany.MultipleChoiceTB01-04Financialaccountingwouldbeusedtomakew...5.TB01-05Whichofthefollowinguserswouldrelyonm...Whichofthefollowinguserswouldrelyonmanagementaccountinginformation?Taxationauthorities→ManagersLendersInvestorsMultipleChoiceTB01-05Whichofthefollowinguserswouldrelyonm...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 4 preview image6.TB01-06Whichofthefollowingstatementsaboutuser...Whichofthefollowingstatementsaboutusersoffinancialaccountinginformationistrue?Usersoffinancialaccountinginformationarethesameasthepreparers.Usersoffinancialaccountinginformationnormallyworkfortheentity.→Usersoffinancialaccountinginformationarenormallyexternaltothefirm.Usersoffinancialaccountinginformationnormallyhavedirectaccesstotheinformationabouttheentity.MultipleChoiceTB01-06Whichofthefollowingstatementsaboutuser...7.TB01-07Whyisitimpossibleforasingleaccounting...Whyisitimpossibleforasingleaccountingreporttobeappropriateforallsituations?Duetothediversebackgroundsofthepeoplepreparingaccountingreports.→Duetothediverseaccountingenvironmentinwhichentitiesoperate.Duetotheconflictingobjectivesofpreparersandusers.Duetolackoflawsdefiningasingleaccountingreport.MultipleChoiceTB01-07Whyisitimpossibleforasingleaccounting...8.TB01-08Whatarethefourkeycomponentsoftheacco...Whatarethefourkeycomponentsoftheaccountingenvironment?→Entities,constraints,stakeholders,environmentalfactorsEntities,constraints,stakeholders,legalfactorsUsers,entities,constraints,environmentalfactorsUsers,entities,constraints,legalfactorsMultipleChoiceTB01-08Whatarethefourkeycomponentsoftheacco...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 5 preview image9.TB01-09Whichtypeoforganizationfilesabusiness...Whichtypeoforganizationfilesabusinesstaxreturn?ProprietorshipPartnership→CorporationGovernmentMultipleChoiceTB01-09Whichtypeoforganizationfilesabusiness...10.TB01-10Whichofthefollowingisthemostimportant...Whichofthefollowingisthemostimportantfeatureofacorporation?Itistaxable.→Itprovideslimitedliabilitytoitsshareholders.Itcanhavemorethanoneowner.Ithasalimitedlifespan.MultipleChoiceTB01-10Whichofthefollowingisthemostimportant...11.TB01-11Whichofthefollowingstatementsaboutpriv...Whichofthefollowingstatementsaboutprivatecorporationsistrue?Privatecorporationstradeonthestockexchange.Privatecorporationshaveonlyoneshareholder.Privatecorporationsarethesameasproprietorships.→Privatecorporations'sharesarenotavailableforsaleunlesstheshareholdersagree.MultipleChoiceTB01-11Whichofthefollowingstatementsaboutpriv...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 6 preview image12.TB01-12Anunincorporatedentityoperatedbytwoor...Anunincorporatedentityoperatedbytwoormorepeopleiswhatformofbusiness?Aproprietorship→ApartnershipAcorporationAnincometrustMultipleChoiceTB01-12Anunincorporatedentityoperatedbytwoor...13.TB01-13JamesandNicholasareroommatesatuniversi...JamesandNicholasareroommatesatuniversityandplantorunapaintingbusinessforthesummer.Whichisthemostlikelyformoforganizationoftheirbusiness?Aproprietorship→ApartnershipAcorporationAnincometrustMultipleChoiceTB01-13JamesandNicholasareroommatesatuniversi...14.TB01-14AftercompletinganaccountingcourseJessic...AftercompletinganaccountingcourseJessicadecidedtoofferherservicesasabookkeepertofriendsandneighbours.Whatisthemostlikelyformoforganizationofherbusiness?→AproprietorshipApartnershipAcorporationAnincometrustMultipleChoiceTB01-14AftercompletinganaccountingcourseJessic...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 7 preview image15.TB01-15Whattypeoforganizationtradesitsshares...WhattypeoforganizationtradesitssharesontheTorontoStockExchange?ApartnershipAprivatecorporation→ApubliccorporationAnot-for-profitorganizationMultipleChoiceTB01-15Whattypeoforganizationtradesitsshares...16.TB01-16Whichofthefollowingtypesoforganization...Whichofthefollowingtypesoforganizationincludesallofthebusiness'sincomeintheowner'spersonaltaxreturn?→AproprietorshipAprivatecorporationApubliccorporationAnincometrustMultipleChoiceTB01-16Whichofthefollowingtypesoforganization...17.TB01-17Whichofthefollowingisthemostattractiv...Whichofthefollowingisthemostattractivefeatureofaproprietorship?Theonlytaxreturnrequiredistheowner'spersonaltaxreturn.Theownercanpledgehis/herpersonalassetsagainstbankloans.Proprietorshipsarenotseparatelegalentities.→Proprietorshipsareeasyandinexpensivetosetup.MultipleChoiceTB01-17Whichofthefollowingisthemostattractiv...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 8 preview imageTB 01-20 What are the owners ofa corporation called?MultipleChoice7 of 6652/13/2014, 12:11 PM18.TB01-18TheCICAisthegoverningorganizationofch...TheCICAisthegoverningorganizationofcharteredaccountantsinCanada.WhatisthemostlikelyformoforganizationoftheCICA?PartnershipCorporationIncometrust→Not-for-profitMultipleChoiceTB01-18TheCICAisthegoverningorganizationofch...19.TB01-19Whichoneofthefollowingismostlikelyor...Whichoneofthefollowingismostlikelyorganizedasapubliccorporation?Jason'sComputerConsultingSmithandSmith,PartnersinLaw→InternationalTireInc.ManitobaHealthBoardMultipleChoiceTB01-19Whichoneofthefollowingismostlikelyor...20.TB01-20Whataretheownersofacorporationcalled?Whataretheownersofacorporationcalled?AuditorsStakeholders→ShareholdersManagers
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 9 preview image8 of 6652/13/2014, 12:11 PM21.TB01-21Whichofthefollowingstatementsaboutstak...Whichofthefollowingstatementsaboutstakeholdersistrue?→Stakeholdersareindividualsthathaveaninterestinanentity.Allstakeholdershavethesameperspectiveonanentity.Stakeholdersnormallyhaveunrestrictedaccesstoanentity'srecords.Everyentityhasthesamestakeholders.MultipleChoiceTB01-21Whichofthefollowingstatementsaboutstak...22.TB01-22Whoisresponsiblefordecidingwhat,howan...Whoisresponsiblefordecidingwhat,howandwheninformationispresentedinthefinancialstatements?StakeholdersAccountants→ManagementGovernmentMultipleChoiceTB01-22Whoisresponsiblefordecidingwhat,howan...23.TB01-23Whichofthefollowingstatementsaboutprep...Whichofthefollowingstatementsaboutpreparersistrue?Preparersareneutralprovidersofaccountinginformation.→Preparersmaynotbethepeoplewhophysicallypreparethefinancialstatements.Preparershavethesameperspectiveasstakeholders.Preparersdecidewhatinformationisgoingtobepresentedinthefinancialstatements,butnotwhenitispresented.MultipleChoiceTB01-23Whichofthefollowingstatementsaboutprep...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 10 preview image9 of 6652/13/2014, 12:11 PM24.TB01-24Sandy'sSandwichesisasmallbusinessownedandoperatedbySandySoutherlythatisnotpublicly...Sandy'sSandwichesisasmallbusinessownedandoperatedbySandySoutherlythatisnotpubliclytradedandhasneverborrowedanymoney.Whichofthefollowingwouldbeaconstraintinthepreparationofitsfinancialstatements?CanadaBusinessCorporationsActCICAIFRS→TheIncomeTaxActMultipleChoiceTB01-24Sandy'sSandwichesisasmallbusinessownedandoperatedbySandySoutherlythatisnotpublicly...25.TB01-25Whyaretheredifferentacceptablewaystoa...Whyaretheredifferentacceptablewaystoaccountforsimilartransactions?→Toallowflexibilitytodealwithdifferenteconomiccircumstances.Toallowmanagerstoenhancetheirbonuses.Toconfusethestakeholders.Becausetherulemakerscannotagreeononebestmethod.MultipleChoiceTB01-25Whyaretheredifferentacceptablewaystoa...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 11 preview image10 of 6652/13/2014, 12:11 PM26.TB01-26WhoarethepeoplewhoexamineanentitWhoarethepeoplewhoexamineanentity'sfinancialinformationonbehalfofexternalstakeholders?AccountantsInternalauditors→ExternalauditorsPreparersMultipleChoiceTB01-26Whoarethepeoplewhoexamineanentit27.TB01-27Whichofthefollowingisanimportantfeatu...Whichofthefollowingisanimportantfeatureofexternalauditors?→Theyareindependentoftheentity.Theyhavepreviousexperiencemanagingtheentity.Theyhaveanownershipinterestintheentity.Theyprovidemanyotherservicestotheentitywhileengagedasauditors.MultipleChoiceTB01-27Whichofthefollowingisanimportantfeatu...28.TB01-28Externalauditorsarehiredbywhichoneof...Externalauditorsarehiredbywhichoneofthefollowinggroups?ManagementInternalauditors→ShareholdersTaxauthoritiesMultipleChoiceTB01-28Externalauditorsarehiredbywhichoneof...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 12 preview image11 of 6652/13/2014, 12:11 PM29.TB01-29Becausemanagerscanexerciseprofessionalj...Becausemanagerscanexerciseprofessionaljudgmentwhenpreparingthefinancialstatementsfortheircompany,thestakeholdershould:readthereportoftheexternalauditor.placecompleteconfidenceinthefinancialdata.→understandthatmanagementcanbemotivatedtoactinitsownself-interests.placenoconfidenceinthefinancialdata.MultipleChoiceTB01-29Becausemanagerscanexerciseprofessionalj...30.TB01-30Inapubliccorporation,whichofthefollow...Inapubliccorporation,whichofthefollowingstakeholderswouldbethemostinterestedinthefinancialstatementsoftheentity?→ShareholdersManagersEmployeesAuditorsMultipleChoiceTB01-30Inapubliccorporation,whichofthefollow...31.TB01-31MCInapubliccorporation,whichofthefollow...Inapubliccorporation,whichofthefollowingstakeholderswouldhaveeasyaccesstootherfinancialinformationabouttheentity?Shareholders→ManagersEmployeesAuditorsMultipleChoiceTB01-31MCInapubliccorporation,whichofthefollow...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 13 preview image12 of 6652/13/2014, 12:11 PM32.TB01-32Youareconsideringbuyingahouseandhave...Youareconsideringbuyingahouseandhavefoundonethatmeetsallofyourcriteria.Whenyouaretryingtodecidehowmuchtopayforit,whichofthefollowingpartiesinvolvedintheprocesswouldgiveyouthemostreliableinformation?→Anindependentrealestateappraiser.Theownerofthehouseyouwanttobuy.Therealestateagenthiredbytheownertosellthehouse.Thebankthatisprovidingthemortgageloan.MultipleChoiceTB01-32Youareconsideringbuyingahouseandhave...33.TB01-33Whichofthefollowingbestdescribesthepu...Whichofthefollowingbestdescribesthepurposeofanaccountingsystem?Toaccumulatedata.Todeterminetheamountoftaxesowing.Todeterminethemarketvalueofanentity.→Toorganize,processandconvertdataintousefulinformation.MultipleChoiceTB01-33Whichofthefollowingbestdescribesthepu...34.TB01-34Whichofthefollowingbestdescribesthec...Whichofthefollowingbestdescribesthe"criticalapproach"toaccounting?Itisavaluabletoolforevaluatingexcessivemanagementcompensation.Itisasystemthatincludesvariouslevelsofauthorizationtoenhanceseparationofduties.→Itreferstotheapplicationofhigh-levelmentalskillsinanalyzing,evaluatingandinterpretingfinancialinformationfordecision-making.Acompany'sauditorsmayapplythecriticalapproachintheirauditprocedures.MultipleChoiceTB01-34Whichofthefollowingbestdescribesthec...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 14 preview image13 of 6652/13/2014, 12:11 PM35.TB01-35Thecriticalapproachtoaccountingisneces...Thecriticalapproachtoaccountingisnecessaryprimarilybecause:variouslevelsofauthorizationaredesirabletoenhanceseparationofduties.managementcompensationwouldbeevenmoreexcessivewithoutit.revenueCanadarequiresit.→acompany'sstakeholdersandmanagementhavedifferinginformationneedsandinterests.MultipleChoiceTB01-35Thecriticalapproachtoaccountingisneces...36.TB01-36WhatdoesASPEstandsfor?WhatdoesASPEstandsfor?AcceptableStandardsforPrivateEnterprisesAccountingforShareholdersofPrivateEntitiesAccountantsandShareholdersforPrivateEnterprises→AccountingStandardsforPrivateEnterprisesMultipleChoiceTB01-36WhatdoesASPEstandsfor?37.TB01-37WhatdoesIFRSstandsfor?WhatdoesIFRSstandsfor?InternationalFraudReportingStandardsIntegratedFinancialReportingStandardsInternationalForensicReportingStandards→InternationalFinancialReportingStandardsMultipleChoiceTB01-37WhatdoesIFRSstandsfor?
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 15 preview image14 of 6652/13/2014, 12:11 PM38.TB01-38WhichofthefollowingstatementsaboutIFRS...WhichofthefollowingstatementsaboutIFRSistrue?IFRSisaninternationalsetofaccountingpolicies.AllentitiesinCanadapreparetheirfinancialstatementsinaccordancewithIFRS.StatementspreparedaccordingtoIFRSarenoteasilycompared.→TheflexibilityofIFRSrequiresuserstoapplycriticalthinkingwhenusingfinancialstatements.MultipleChoiceTB01-38WhichofthefollowingstatementsaboutIFRS...39.TB01-39InternationalFinancialReportingStandards...InternationalFinancialReportingStandardsare:→mandatoryforpubliccompaniesonly.mandatoryforbothpublicandprivatecompanies.notmandatory,butrecommendedforbothpublicandprivatecompanies.notmandatory,butrecommendedforpubliccompaniesonly.MultipleChoiceTB01-39InternationalFinancialReportingStandards...40.TB01-40Whichofthefollowingisoneofthebenefit...WhichofthefollowingisoneofthebenefitsoftheflexibilityallowedbyIFRS?→Itallowsinformationtobepresentedinanappropriatewayforthesituation.Itmakesaccountingreportsmoreinterestingtoread.ItallowsallorganizationstoberequiredtofollowIFRS.ItallowspreparerstoreflecttheirownpersonalinterestsMultipleChoiceTB01-40Whichofthefollowingisoneofthebenefit...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 16 preview image15 of 6652/13/2014, 12:11 PM41.TB01-41Replacementcostisonewaytomeasurethev...Replacementcostisonewaytomeasurethevalueofanitem.Whichofthefollowingbestdescribesreplacementcost?Whatyoupaidfortheitem.→Whatitwouldcosttoreplacetheitemwithanidenticaliteminthesamecondition.Whatitwouldcosttoreplacetheitemwithanidenticalnewitem.Whattheitemcouldbesoldfornow.MultipleChoiceTB01-41Replacementcostisonewaytomeasurethev...42.TB01-42IfyouwantedtosellyourMP3playertobuy...IfyouwantedtosellyourMP3playertobuyanewonewithmorememory,whichofthefollowingmethodsofvaluinganitemwouldbethemostuseful?CostReplacementcostReplacementcostnew→NetrealizablevalueMultipleChoiceTB01-42IfyouwantedtosellyourMP3playertobuy...43.TB01-43IfyouwantedtoinsureyourbrandnewFerra...IfyouwantedtoinsureyourbrandnewFerrarisportscartoensurethatifanythinghappenedtoityoucouldreplaceit,whichofthefollowingmethodsofvaluinganitemwouldbethemostuseful?CostReplacementcost→ReplacementcostnewNetrealizablevalueMultipleChoiceTB01-43IfyouwantedtoinsureyourbrandnewFerra...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 17 preview image16 of 6652/13/2014, 12:11 PM44.TB01-44Youhaveacollectionof200internationals...Youhaveacollectionof200internationalstampsthatyouhavecollectedovertheyears.Mostofthemcostyounothing,asyoujusttookthemofflettersorpostcardsthatyouorfriendsandfamilyhadreceived.Ifyouaddupthefacevalue(theamountprintedonthestamp),yourcollectiontotals$125.37.Yourecentlysawastoryinalocalnewspaperthatsomeoneelsesoldasimilarcollectionof400stampsfor$500.Whichofthefollowingstatementsismostlikelytrue?→Thevalueofthecollectionis$250.00.Thesellingpriceofthecollectionis$125.37.Thereplacementcostofthecollectionis$250.00.Thereplacementcost-newofthestampsis$125.37.MultipleChoiceTB01-44Youhaveacollectionof200internationals...45.TB01-45Yourbrotherborrowedyour2010ToyotaCorol...Yourbrotherborrowedyour2010ToyotaCorollaandhadanaccident.Heisokay,butthecariswrite-off.Youpaid$5,000foritayearago,andyourbrotherhasofferedtogiveyou$3,000,thecostheestimatesofanother2010ToyotaCorolla.AnewToyotaCorollacosts$22,500.Whichofthefollowingstatementsistrue?→Thereplacementcostofthecaris$3,000.Thereplacementcostofthecaris$5,000.Thereplacementcost-newofthecaris$5,000.Thereplacementcostofthecaris$22,500.MultipleChoiceTB01-45Yourbrotherborrowedyour2010ToyotaCorol...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 18 preview image17 of 6652/13/2014, 12:11 PM46.TB01-46Youhavebeenapproachedtoinvestinareal...Youhavebeenapproachedtoinvestinarealestateventure.Asmallgroupisgoingtobuyapieceoflandandconstructsingle-familyhomesonitandthensellthem.Thegrouphasdonesimilardealsinthepast,butoneoftheparticipantshasleftthegroupandtheyarenowlookingfornewinvestors.Required:Explainhowaccountinginformationwouldhelpyoudecidewhetherornottoinvestintheproposedventure.Whatnon-accountinginformationwouldyoualsowant?Thereshouldbeaccountinginformationfromtheirpreviousventures.Youcouldseeifpreviousprojectshavebeenprofitable;thatis,didtheysellthehousesformorethanthecostofthelandandconstructioncosts?Youcouldcalculatetherateofreturnearnedinpreviousdeals.Thereisnoguaranteethatthecurrentdealwillearnasimilarreturn,buthistoricalinformationcanbeusedtopredictfutureperformance.Howmuchmoneyhavetheothersbeenabletowithdrawfromthebusiness?Youcoulddetermineifthecompanyhasanyotherwaytorepaythemoneytoinvestorsshouldtheybeunabletosellthehouses.Youcouldseewhoelsethecompanyowesmoneytoandfindoutiftheywouldbepaidbackbeforeorafteryourclaim.Iftheyneedadditionalmoney,wheredotheyplanongettingitfrom?Whatistheformoforganizationoftheventure?Ifitwereapartnership,youwouldhavepersonalliabilityforallobligationsofthepartnership.Whatdoyougetforyourinvestment?Willyoubegettingasalary?Willyouhaveanysayinthedecision-makingprocess?Non-accountinginformationmightincludeinformationabouthouseconstructionintheareaandrecenthousesales.Youwouldwanttodetermineifthereisamarketforthetypeofhousestheyareproposingandwhatpricetheyhavesoldat,orifthemarketiscurrentlyover-built;i.e.,doesthesupplyofhousesexceedthedemand?Youwouldwantinformationaboutcompetitorscurrentlyinthemarketorplanningtoenter.Youmightwantinformationaboutinterestrates—iftheygoup,traditionalhousingsalesfall.YoucouldcheckwithanorganizationliketheBetterBusinessBureautofindoutiftherehavebeenanycomplaintsagainstthegroup,theparticipantsandthehousesbuiltpreviously.Youwouldwanttofindoutaboutthebackground,skilllevelsandtrackrecordoftheothermembersofthegroup.EssayTB01-46Youhavebeenapproachedtoinvestinareal...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 19 preview image18 of 6652/13/2014, 12:11 PM47.TB01-47Explainwhatismeantbythecost/benefittr...Explainwhatismeantbythecost/benefittrade-offconceptinaccounting.Ahighschoolstudentisconsideringspending$500tospendtwodaysvisitingtwoout-of-townuniversitiesheisthinkingofattending.Evaluatethisdecisionusingthecost/benefittrade-offconcept.Gatheringandanalyzinginformationtakestimeandiscostly.Inaccountingyouwantthebenefitderivedfromusingtheinformationtoexceedthecostofcollectingandprocessingit.Asyoucollectadditionalinformationtheadditionalamountofbenefitsusuallydecreases.Theremaycomeapointwhereyouhaveenoughinformationtomakeadecisionwithoutneedingtoincuradditionalcosts.Attendinguniversityoutoftownisexpensiveandnormallyafour-yearcommitment.Thecostofchoosingpoorlymightbealostyearofuniversitywork,orhavingtopayrentortuitionforafullyearevenifthestudentisunhappyanddropsout.Sothe$500costtovisittheuniversitiesseemsareasonableapplicationofthecost/benefittrade-off.Itisworththe$500costtogetthebenefitofpickingtheuniversitythestudentwillbehappiestat.EssayTB01-47Explainwhatismeantbythecost/benefittr...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 20 preview image19 of 6652/13/2014, 12:11 PM48.TB01-48Identifythestakeholdersineachofthefol...Identifythestakeholdersineachofthefollowingentitiesandthedecisionstheymake.i)Aprivatelyownedsummercampforboysandgirls.ii)Alargepubliclyowneddonutstorechain.iii)Anationalcharitythatsupportsmedicalresearch.i)Owners:Howprofitableisthecamp?Howmuchshouldtheychargeinfees?Supplierstothecamp:Aretheygoingtogetpaid?Howlonguntiltheygetpaid?Staff:Willthecampbeabletopaythewagesallsummer?Campers'parents:Theynormallypaytheirfeesupfrontsowanttoknowthatthecampwillbeabletooperateallsummerandprovidetheservicespaidfor.Thatitisareputableandreliableorganization.Lendersandsuppliers:Hasthecampborrowedmoney?Willtheybeabletorepayit?Governmentregulators:Interestedincompliancewithhealthandsafetyregulations.Wanttoassessandcollecttaxes.ii)Shareholders:Howprofitableisthecompany?Willtheyreceiveanyoftheprofitsasdividendpayoutorasincreasesintheshareprice?Ismanagementdoingagoodjobrunningthecompany?Lendersandsuppliers:Canthecompanyrepayanyloansoramountsowingandinterest?Dotheyhaveanysecuritytoofferincasetheycannotpay?Management:Howwellhasthecompanydone?Whatcompensationshouldtheyexpect?Dotheyhavetheresourcesavailabletoexpand?Employees:Isthecompanyviableinthelong-term.Whatlevelofwagesandbenefitscantheyaffordtopay?Government:Compliancewithhealthandsafetyregulations.Wanttoassessandcollecttaxes.iii)Researchers:Doestheorganizationhavetheresourcestofundtheirresearch?Donors:Whataretheyusingthemoneyfor?Whatportionisgoingtoadministrativefunctions?Whatportiontotheresearch?Havetheyhadanyresults?Howdotheymeasuretheirresults?Howmuchshouldtheydonate?Government:Doesitmeetthecriteriaofanon-for-profitorganization?Isitmeetingitsobjectives?Patientsorfamiliesthatwillbenefitfromtheresearch.EssayTB01-48Identifythestakeholdersineachofthefol...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 21 preview image20 of 6652/13/2014, 12:11 PM49.TB01-49Identifythestakeholdersineachofthefol...Identifythestakeholdersineachofthefollowingentitiesandthedecisionstheymake.i)Anon-for-profitdaycarecentreoperatedbytheparentsofthechildren.ii)Asmallfamilyownedconveniencestore.iii)Alargepubliclyownedgrocerychain.i)Parents:Wanttoassesstheefficiencyofthecentre.Howaretheirfeesbeingspent?Willadditionalfundingberequired?Wherewoulditcomefrom?Arethereadequatefacilities/resourcesavailableordothingsneedtobeupgradedorreplaced?Willfeesbegoingup?Aretheymeetingminimumsafetystandards?Government:Arehealthandsafetystandardsbeingmet?Dotheyqualifyasanon-for-profitorganization?Suppliers:Willtheybepaid?When?Whatarethealternativesiftheycannotbepaid?Employees:Aretheyviableinthelongrun?Whatwagescantheyexpect?ii)Owners:Howisthestoreperforming?Canefficiencybeimproved?Doadditionalinvestmentsneedtobemade?Suppliersandlenders:Canthecompanyrepayanyloansoramountsowingandinterest?Dotheyhaveanysecuritytoofferincasetheycannotpay?Government:Wantstoassessandcollecttaxes.Ensurecompliancewithhealthandsafetyregulationsiii)Shareholders:Howprofitableisthecompany?Willtheyreceiveanyoftheprofitsasdividendpayoutorasincreasesintheshareprice?Ismanagementdoingagoodjobrunningthecompany?Lendersandsuppliers:Canthecompanyrepayanyloansoramountsowingandinterest?Dotheyhaveanysecuritytoofferincasetheycannotpay?Management:Howwellhasthecompanydone?Whatcompensationshouldtheyexpect?Dotheyhavetheresourcesavailabletoexpand?Employees:Isthecompanyviableinthelong-term.Whatlevelofwagesandbenefitscantheyaffordtopay?Government:Compliancewithhealthandsafetyregulations.WanttoassessandcollecttaxesEssayTB01-49Identifythestakeholdersineachofthefol...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 22 preview image21 of 6652/13/2014, 12:11 PM50.TB01-50Identifythreeexternalusersofanentity...Identifythreeexternalusersofanentity'sfinancialstatementsandgiveanexampleofonedecisionthateachofthemwouldrelyonthefinancialstatementsfor.Answerscouldvarysignificantly.Herearesomeoftheusualkeyexternalshareholders.Shareholders:Inmostlargercompaniesshareholdersareexternaltotherunningoftheorganization.Theyarelookingforinformationaboutmanagement'seffectivenessinrunningthecompanyandwhatreturnstheycouldexpect.Government:Areinterestedinassessingandcollectingtaxesowed.Insomeinstancesgovernmentagencieswouldbemonitoringforemployeehealthandsafety,consumersafetyorenvironmentalcontrols.Lenders:Areinterestedinassessingacompany'sabilitytorepayanyborrowingsoriftheyhaveassetsthelendercouldtakebacktosellintheeventthattheywereunabletorepay.Suppliers:Wanttoensurethatiftheyofferextendedcredittermstothecompanythatthecompanywillbeabletopaythem.Consumers:Iftheproductrequiresafter-salesserviceorhasthepotentialforbreak-downtheywanttoknowthatthecompanywillbeabletohonourthewarrantyorprovidetheservice.EssayTB01-50Identifythreeexternalusersofanentity...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 23 preview image22 of 6652/13/2014, 12:11 PM51.TB01-51Whatwouldbethemostlikelyformofbusine...Whatwouldbethemostlikelyformofbusinessorganizationforeachofthefollowing?i)Asmallbookkeepingbusinessrunbyanindividualfromhis/herhomeii)Anationalbankiii)Twobrothersoperatingalandscapebusinesstogetheriv)Afirmoftwentylawyersv)Afamilybusinessoperatingasmallchainofbookstoresi)Proprietorshipii)Corporationiii)Partnershipiv)Partnershipv)CorporationEssayTB01-51Whatwouldbethemostlikelyformofbusine...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 24 preview image23 of 6652/13/2014, 12:11 PM52.TB01-52DarniaDelawarehasbeenmakingpotteryasa...DarniaDelawarehasbeenmakingpotteryasahobbyandsellingitfromherhometofriendsforseveralyears.Shehasdecidedtoopenastoretosellherworkandtheworkofotherstothepublic.Sheishopingthatifthestoreissuccessfulshecouldexpandtoasecondlocationinayear'stime.Shehascometoyouforadviceabouthowsheshouldorganizethebusiness.Afriendrecommendedtoherthatshebecomeincorporated(operateasacorporation)butshelaughed,"IamnotgoingtogetsobigthatI take-overtheworld!"Required:CompareandcontrastforDarniatheadvantagesanddisadvantagesofoperatingasaproprietorshipversusacorporation.Whatwouldyourecommendtoher?Proprietorship:Advantages:easytosetup,inexpensivetooperate.Disadvantages:Notaseparatelegalentitysomustincludeallearningsinpersonalincomeandpaypersonaltaxratesonit.Unlimitedliabilitysonoprotectionofpersonalassets.Difficulttotransferownership.Maybemoredifficulttoborrowmoneyorraiseadditionalfunds.Corporation:Advantages:Limitedliability,personalassetsoftheownersareseparatefromthebusiness,butinthecaseofasmallcorporation,likethisonewouldbe,anycreditorswouldprobablyaskforpersonalguarantees.Businessincomecaneitherberetainedinthecorporationorpaidouttoshareholdersasdividends.Corporatetaxratesmaybelowerthanpersonaltaxrates,particularlyforsmallbusinesses.Itisaseparatelegalentityandthereforecanenterintocontracts.Maymakeiteasiertoborrowmoneyortoexpandthebusiness.Easytotransferownershipwithoutaffectingtherunningofthecompany.Disadvantage:Moreexpensivetooperate.Recommendation:AsDarniaisexpectingtogrowthebusinessandisoperatingalargeandmorecomplicatedbusinessthanbefore—nowshewillpayrent,dealwithsuppliersandunknowncustomers—sheshouldprobablyincorporate.Presumablyshewillmakemoremoneysothetaxadvantagesmayalsobeattractivetoher.Similarlyifshewantstosellthebusinesseventuallyitiseasiertosellasacorporation.Incorporationisnotonlyforlargeinternationalbusinesses;corporationscanbesmallprivatecorporationsthatstillhavealltheadvantagesofincorporation.EssayTB01-52DarniaDelawarehasbeenmakingpotteryasa...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 25 preview image24 of 6652/13/2014, 12:11 PM53.TB01-53Mathewhasrecentlygraduatedfromuniversit...Mathewhasrecentlygraduatedfromuniversityandstartedafull-timejob.Hehasusedtheinformationonhisbankstatementforthepasttwomonthstostartapersonalfinancialplanbecausehewantstofigureoutwhenhecanbuyacar.Thereporthepreparedforthepasttwomonthsisshownbelow.Mathewisfrustratedbecausehecan'tfigureouthowtheplanisgoingtohelphim."Iwastedtimeaddingupallmydepositsandwithdrawalsfornothing,"hecomplained."Accountingisjustnotworthit!"Mathew'sPersonalFinancialPlan:Goal—tobuyacar!Required:ExplaintoMathewhowanaccountingsystemcouldhelphimdeterminewhenhecanbuyacar.Whatsuggestionswouldyoumaketohimtoimprovehiscurrentsystem?Anaccountingsystemcollectsdata,thensummarizesitandorganizesittoproduceinformationthatisusefultothedecisionmaker.Differentdecisionmakersmayhavedifferentneedsandthereforemayrequiretheinformationindifferentformats.BytrackinghisinflowsandexpensesMathewwillbeabletodeterminewhathespendshismoneyonandhowmuchhecanputasideeachmonthtowardhisgoalofbuyingacar.Ifhehadmoredetailinhisexpenseshewouldhavebetterinformationabouthisspendinghabits.Hecouldidentifyareaswherehecouldreducehisspendinginordertosavemore.Perhapshecouldeatoutonelesstimeaweek,orjoinalibraryinsteadofbuyingnewbooksandnewspapers.InMathew'scurrentsystemtheinformationistoosummarizedtobeofmuchuse.Inadditiontojustreviewinghisbankstatementheneedstotrackwherehismoneyisgoing.Hecouldstartwithanotebookandwritedownwhathespendshiscashonandwhatthechequesarefor.Heshoulddecidehowmanydifferentcategoriesofspendingheneeds;forexample,doesheneedtoseparatehisentertainmentexpensesintomorethanonecategory(movies,pubnights,etc)?Howmuchdetailheneedswilldependonhowheexpectstousetheinformation.EssayTB01-53Mathewhasrecentlygraduatedfromuniversit...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 26 preview image25of6652/13/2014,12:11PM54.TB01-54Identifyfivepotentialstakeholdersinaco...Identifyfivepotentialstakeholdersinacompanyandbrieflydescribetheirspecificinformationneeds.Owners:Often,theownersofabusinessdon'tmanageitthemselvesand,thus,aren'tinvolvedinitsday-to-dayaffairs(e.g.,shareholdersofpubliccorporations).Whentheownersdon'tmanagethebusiness,theyneedinformationfromitforpurposesofevaluatinghowwelltheirinvestmentisdoing,determiningifmanagementisdoingagoodjob,assessingtheeffectivenessofbusinessstrategies,consideringwhethertheyshouldselltheirinterestintheentityordecidingifthemanagersshouldbereplaced.Creditors:Acreditorisastakeholderbecauseit'sowedmoney,goodsorservicesbyanentity.Creditorsneedinformationtodetermineifanentitywillbeabletopayamountsowedand,intheeventtheentitydoesn'tpay,whetherthereareassetsthatmightbetakenandsoldtorecoverthemoneyowed.Taxationauthorities:InCanada,mostindividualsandcorporationsmustfileataxreturneachyear.TheCanadaRevenueAgency(CRA)requirestaxpayerstocalculatetheirtaxesusingmethodsconsistentwiththeIncomeTaxAct,Canada'sfederaltaxlegislation.Provincesalsohavetaxrulesthatmustbefollowed.TheCRAusesaccountinginformationtoassessthetaxesowedbyabusinessorindividual.Governments:Governmentsuseaccountinginformationtodecidewhethercertainentitiesshouldreceivegovernmentsupportorsubsidies.Accountinginformationcanalsohaveapoliticalimpactif,forinstance,acompanyattractstheattentionofpoliticiansbymakingwhatthepublicperceivesas"toomuchmoney."Labourunions:Labourunionsareconcernedwiththeinterestsoftheirmembersandattempttonegotiategoodwageandbenefitspackageswithemployers.Accountinginformationcanprovideinsightstotheunionabouthowmuchanentitycanaffordtopayemployees.Communities/publicinterestgroups:Thelivesofpeopleareaffectedbytheentitiesintheircommunities.Forexample,entitiescanbeemployers,taxpayersorpolluters.Accountinginformationprovidescitizensandcommunityleaderswithinformationregardingtheentityanditsimpactinthecommunity.Donorstocharities:Donorswouldliketoknowthattheirdonationsarebeingusedmainlytoachievethegoalsofthecharityandnotexcessivelyforadministrationandfundraising.Accountinginformationcanbeusefulforassessingwhetherthemoneytheydonatewillbeputtogooduse.EssayTB01-54Identifyfivepotentialstakeholdersinaco...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 27 preview image26of6652/13/2014,12:11PM55.TB01-55Explainwhatismeantbythecriticalapproa...Explainwhatismeantbythecriticalapproachtoaccountingandwhyitisimportant.Thecriticalapproachtoaccountingreferstocriticalthinking,whichisapplyinghigh-levelmentalskillssuchasanalysis,application,evaluation,explanation,inference,interpretation,judgmentandsynthesisasaguidetodecisionmaking.Thisisimportantbecause:•Therearedifferentkindsofentitieswithawidevarietyofcharacteristics,andeachentitycanhavemanydifferentstakeholderswhohavedifferentinformationneedsandinterests.•Accountinginformationispreparedbyanentity'smanagers,andtheirinterestsareoftendifferentfromthoseofstakeholders.•Accountingrulesoftenallowdifferentwaysofmeasuringsimilartransactionsoreconomicevents.•Measuringeconomicactivitycanbeverychallenging,whichinturnmeansthatalotofjudgmentisrequiredbythepreparers.EssayTB01-55Explainwhatismeantbythecriticalapproa...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 28 preview image27of6652/13/2014,12:11PM56.TB01-56ArmandArsenaultowns--thatis,heisthe...ArmandArsenaultowns—thatis,heisthesoleshareholderof—andmanagesArsenaultHardware(AH),asmallchainofhardwarestores.HehasalwaysusedJoeSummers,anemployee-bookkeepertokeeptherecordsandpreparethefinancialstatements.Todatetheonlyotheronetoeverseeorusethefinancialstatementswasthetaxdepartment.Theopportunitytobuythebuildingwhereoneofthestoresoperateshascomeup,andAHhasapproachedthelocalbankforaloan.Thebankhassomequestionsaboutthepreparationofthefinancialstatements.Required:A)InthissituationwhoisresponsibleforselectingtheaccountingpoliciesusedbyAH?B)IsitlikelythatthestatementswerepreparedaccordingtoASPE?Whyorwhynot?C)DefineASPE.D)Whatotherinformationmightthebankwantbeforemakingitsdecision?A)Accountingpolicieschoicesarealwaystheresponsibilityofmanagement,inthiscase,ArmandArsenault.B)ThestatementsweremostlikelynotpreparedaccordingtoASPE.Althoughthebusinessisincorporated,itisaprivatecompanyandtheyarenotrequiredtouseASPE.Sincetheonlyotheruserwasthetaxdepartment,thestatementsmostlikelyusedpoliciesthatconformtotaxlaws.C)ASPEstandsforAccountingStandardsforPrivateEnterprisesandismadeupoftheconventions,principles,practices,proceduresandrulesthatdefineacceptableaccountingpracticesforprivatecompanies.D)Otherinformationthebankwouldwant:anappraisalofthemarketvalueofthebuilding,whetheranyoneelsehasanexistingclaimonthebuildingorotherassetsofAH.Theymaywanttohaveanindependentaccountantreviewthefinancialstatementstoimprovetheirreliability.EssayTB01-56ArmandArsenaultowns--thatis,heisthe...
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 29 preview image28of6652/13/2014,12:11PM57.TB01-57Zhangrecentlypurchasedaladderandsomep...Zhangrecentlypurchasedaladderandsomepaintingsuppliestohelphismotherrepaintherhouse.Heisnowthinkingofpaintinghousesforthesummertoearnmoneyforschool.Hehasthefollowinginformationfromhisworkathismother's,plushehasgivenyousomeestimatesoftheamounttoworkheexpectstodointheremainderofthesummer.Costofladder:$300Costofpaintsupplies(brushes,rollersandpans):$200.Zhangestimateshecanusehalfofthesuppliesagainbutwillneedtoreplaceanamountequaltotheresteveryjob.Cashpaidforpaint:$250.Hestillowesthestore$150.CostofrentingDVDstowatchwhenhewasfinishedfortheday:$30.Hismotheronlypaidhim$500,becausehestilllivesathome,andshepointedoutthathisrentisfree.Heestimatesthatforasimilarjobhecouldcharge$1,500.Hethinkshecouldcompleteonehouseofasimilarsizeperweekforthe10weeksremaininginthesummer.Required:A)IsalltheinformationZhanghasgivenyourelevantforhisdecision?Ifnot,whichone(s)arenotrelevant?B)Isalloftheinformationreliable?Whyorwhynot?C)Organizetheinformationtoprovidehimwithsomefeedbackabouthowmuchmoneyhehasmadesofarthissummer.D)Organizetheinformationtoallowhimtopredicthowmuchmoneyhewillmakeintheremainderofthesummer.E)DoyourecommendZhangpainthousesforthesummer?Whyorwhynot?A)No.TheDVDrentalcostisnotrelevant;it'snotabusinessexpense.Thecostoftheladderandsuppliestodatearealsonotrelevant;itwillnotchangebasedonhisdecision.B)Theinformationaboutwhathasbeenspenttodateisreliable,asthoseareknowncosts.Theinformationaboutfuturerevenuesandcostsisnotasreliable,astheyareonlyestimatesatthispoint.Ifhehadalreadyreceivedsignedcontractsforthejobsorfirmestimatesforthepaintandsupplies,thatwouldimprovethereliabilityoftheinformationC)
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 30 preview image29of6652/13/2014,12:11PMAssignmentPrintViewhttp:I/ezto.mhecloud.mcgraw-hill.com/hm.tpxD)Yes,Zhangshouldpainthousesforthesummer;althoughhelostmoneyworkingforhismother,hewouldmorethanmakeupforthatintheremainderofthesummer.EssayTB01-57Zhangrecentlypurchasedaladderandsomep..
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Financial Accounting: A Critical Approach 2013, 4th Edition Test Bank - Page 31 preview image30of6652/13/2014,12:11PM58.TB01-58Chrishasjustfinishedhisfirstmonthatc...Chrishasjustfinishedhisfirstmonthatcollegeandwantstoestimatehiscostsfortherestoftheyeartoensurethatthemoneyhemakesathispart-timejobwillcoverallofhisexpenses.Hehasrecordedallhiscashinflowsandoutflowsforthemonthasfollows:Required:PrepareastatementthatorganizesChris'informationisausefulway.SummaryofEarningsandExpensesforChrisforSeptember:EssayTB01-58Chrishasjustfinishedhisfirstmonthatc...
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