127 test bank for financial accounting 5th canadian

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127 Test Bank for Financial Accounting 5th Canadian

True False Questions

Accounting is called an information system since it measures

business activities, processes data into reports, and

communicates results to decision makers

1 True

2 False

Generally accepted accounting principles, or GAAP, are the

rules and procedures established by the Canadian

Institute of Chartered Accountants (CICA Handbook)

Net earnings are calculated by taking a company's earnings

less their dividends paid out

1 True

2 False

Liabilities are often referred to as "outsider claims" and owners'

equity as "insider claims" to assets

Retained earnings represent cash that is available to a company

for future operations and expansion

Relevance and comparability are the two fundamental

qualitative characteristics of accounting

One benefit of organizing a business as a proprietorship is that

the proprietor is not required to pay income tax on the business' earnings

1 True

2 False

It would be unusual for the balance sheet of a proprietorship to

include the term "retained earnings."

1 True

2 False

From an accounting viewpoint, a proprietorship is a distinct and

separate entity from the proprietor

1 True

2 False

Since they are both the same activities, the terms "accounting"

and "bookkeeping" are synonymous and can be used interchangeably

1 True

2 False

The reliability principle states that assets and services should

be recorded at their actual cost, since cost is a reliable measure to use in financial accounting

From a legal perspective, sole proprietors, partners and

shareholders are personally liable for the debts of their businesses they invest in

1 True

2 False

In accounting, the word "net" means after a subtraction

1 True

2 False

The Cash Flow Statement is organized in terms of the

organization's operating, investing, and financing

activities

1 True

2 False

A form of the accounting equation can be stated as Assets -

Liabilities = Share capital + Retained earnings

1 True

2 False

The income statement measures the company's financial

position at the end of the year

The balance sheet measures how well the company performed

during the year

1 True

2 False

Financial statement information that reflects the economic

substance of a transaction is considered to be

representationally faithful

1 True

2 False

The basic component of share capital is retained earnings

1 True

2 False

The closing retained earnings balance as determined by

compiling the balance sheet is used to complete the

statement of retained earnings

1 True

2 False

The statement of cash flows categorizes the sources and uses

of the net cash flow generated by the company during the year

The statement of retained earning discloses the amount of

dividends declared during the year

Shareholders' equity is often referred to as "net assets" and

represents the residual amount of business assets that can be claimed by the owners

1 True

2 False

The CICA Handbook includes a section on ethical behaviour

1 True

2 False

The three forms of business organizations are sole

proprietorships, partnerships, and non-profit

organizations

1 True

2 False

Closing retained earnings as reported on the balance sheet

represent a company's net income from its formation, less the cumulative dividends declared to-date

Multiple Choice Questions - Page 1

Which of the following financial statements would a potential

investor most likely use to evaluate a company's financial performance for the current period?

1 A) balance sheet

2 B) income statement

3 C) cash flow statement

4 D) retained earnings statement

Revenues are:

1 A) increases in liabilities resulting from delivering goods or services to customers

2 B) increases in retained earnings resulting from delivering goods or services to

customers

3 C) decreases in assets resulting from delivering goods or services to customers

4 D) decreases in retained earnings resulting from delivering goods or services to

customers

Dividends:

1 A) always affect net income

2 B) are distributions to shareholders of assets (usually cash) generated by net income

3 C) are expenses

4 D) must be paid to shareholders when the company earns a profit

Common shares is a component of:

3 C) financing activities

4 D) investing activities

Expenses are:

1 A) increases in assets resulting from operations

2 B) increases in retained earnings resulting from operations

3 C) increases in liabilities resulting from purchasing assets

4 D) decreases in retained earnings resulting from operations

If liabilities increase $120,000 during a given period and

shareholders' equity decreases $25,000 during the same period, assets must:

3 C) retained earnings statement

4 D) cash flow statement

Gains and losses appear on which of the financial statements

listed below?

1 A) the balance sheet

2 B) the income statement

3 C) the retained earnings statement

4 D) the cash flow statement

How do revenues for a period relate to the beginning and

ending balances in retained earnings?

1 A) Revenues will increase the beginning balance of retained earnings for the period.

2 B) Revenues will decrease the beginning balance of retained earnings for the period.

3 C) Revenues less expenses will either increase or decrease the beginning balance of retained earnings for the period.

4 D) Revenues less expenses will either increase or decrease the ending balance of retained earnings for the period.

Which of the following persons or groups have the ultimate

control of a corporation?

1 A) the chief executive officer

2 B) the board of directors

3 C) the audit committee

4 D) the shareholders

The CEO of a business owns a home and two automobiles The

company the CEO works for also owns automobiles and a home in a remote area used for strategic planning

meetings by its executives Which principle or

assumption "draws a sharp boundary" around the

possessions of the CEO and the assets of the business for which he works?

1 A) the entity assumption

2 B) the stable-monetary-unit assumption

3 C) the going-concern assumption

4 D) the objectivity assumption

The balance sheet is sometimes also called the:

1 A) statement of operations

2 B) statement of cash position

3 C) statement of financial position

4 D) statement of income and expense

Shareholders' equity for Raisin Corporation on January 1, 2014

and December 31, 2014 were $60,000 and $75,000,

respectively Assets on January 1, 2014 and December 31,

2014 were $115,000 and $105,000, respectively Liabilities

on January 1, 2014 were $55,000 What is the amount of liabilities on December 31, 2014?

1 A) $40,000

2 B) $15,000

3 C) $30,000

4 D) indeterminable from the given information

The accounting concept that maintains that each organization

or section of an organization stands apart from other

organizations and individuals is known as the:

1 A) reliability principle

2 B) going-concern assumption

3 C) entity assumption

4 D) monetary unit assumption

The accounting equation can be stated as:

1 A) Assets + Liabilities = Shareholders' equity

2 B) Assets = Liabilities + Shareholders' equity

3 C) Assets = Liabilities - Shareholders' equity

4 D) Assets + Shareholders' equity = Liabilities

Claims held by the shareholders (owners) of a corporation are

referred to as:

1 A) retained earnings

2 B) share capital

3 C) share capital minus retained earnings

4 D) share capital plus retained earnings

On January 1, 2014, total assets for Liftoff Technologies were

$125,000; on December 31, 2014, total assets were

$145,000 On January 1, 2014, total liabilities were

$110,000; on December 31, 2014, total liabilities were

$115,000 What are the amount of the change and the

direction of the change in Liftoff Technologies

shareholders' equity for 2014?

1 A) decrease of $15,000

2 B) increase of $15,000

3 C) increase of $30,000

4 D) decrease of $30,000

Cash spent to purchase a new building would appear on the

cash flow statement as:

1 A) a financing activity

2 B) an operating activity

3 C) an investing activity

4 D) purchases of new equipment do not appear on a cash flow statement

Retained earnings appear on which of the following financial

4 D) statement of retained earnings and cash flow statement, but not the income

statement or balance sheet

The cash flow statement is divided into three categories relating

to cash flows from operating, investing, and:

1 A) management planning activities

The assumption assumes that the organization will

continue operating normally for the foreseeable future

1 A) cost

2 B) stable monetary unit

3 C) entity

4 D) going-concern

Financial statements are:

1 A) reports issued by outside consultants who are hired to analyze key operations of the business

2 B) reports created by management that states it is responsible for the acts of the corporation

3 C) standard documents that tell us how well a business is performing and where it stands in financial terms

4 D) standard documents issued by outside consultants who are hired to analyze key operations of the business in financial terms

Dividends appear on the:

1 A) retained earnings statement

2 B) income statement

3 C) balance sheet

4 D) both the retained earnings statement and the income statement

The date of the income statement:

1 A) covers one day in time

2 B) covers a period of time, usually for an accounting period

3 C) is not dated

4 D) may cover a period of time or only one day in time, like a snapshot photograph

Which financial statement is based on the accounting

To determine a company's gross margin for the period, an

investor would look on the:

1 A) balance sheet

2 B) cash flow statement

3 C) income statement

4 D) statement of retained earnings

Cost of goods sold is:

1 A) added to sales on the income statement

2 B) deducted from sales on the balance sheet

3 C) deducted from sales on the income statement

4 D) added to sales on the retained earnings statement

Which of the following best describes a liability?

1 A) Liabilities are a form of share capital.

2 B) Liabilities are future economic benefits to which a company is entitled.

3 C) Liabilities are accounts receivable of the company.

4 D) Liabilities are economic obligations to creditors to be paid at some future date by the company.

The relevant measure of value of the assets of a company that

is going out of business is its:

1 A) historical cost

2 B) recorded value

3 C) book value

4 D) Liquidation value

Operating expenses appear on the income statement:

1 A) directly after gross margin

2 B) directly after cost of goods sold

3 C) directly after revenue

4 D) do not appear on the income statement

If assets increase $120,000 during a given period and liabilities

decrease $25,000 during the same period, shareholders' equity must:

1 A) increase $95,000

2 B) decrease $145,000

3 C) decrease $95,000

4 D) increase $145,000

The stable-monetary-unit assumption is the basis for ignoring:

1 A) the possibility that the value of inventory might drop below its historical cost

2 B) fluctuations in the value of the Canadian dollar relative to foreign currencies

3 C) the effect of inflation in the accounting records

4 D) the difference between the appraised value and the actual cost when recording an asset at its historical cost

The owners' interest in the assets of a corporation is known as:

1 A) assets

2 B) shareholders' equity

3 C) expenses

4 D) revenues

The principle that states that assets acquired by the business

should be recorded at their actual price is the:

1 A) objectivity assumption

2 B) stable monetary unit assumption

3 C) cost assumption

4 D) reliability assumption

An investor wishes to assess a company's financial position at

the end of the period Which financial statement would the investor probably examine?

1 A) the cash flow statement

2 B) the income statement

3 C) the balance sheet

4 D) the statement of retained earnings

76 Free Test Bank for Financial Accounting 5th Canadian

Edition by Harrison Multiple Choice Questions - Page 2

The issuance of shares for cash would be classified as a(n):

1 A) investing activity on a cash flow statement

2 B) financing activity on a cash flow statement

3 C) operating activity on a cash flow statement

4 D) current asset on the balance sheet

Suppose The Fruit Group buys a kiwi for $.10 and sells the kiwi

for $.50 The cost of goods sold would be:

1 A) the Canadian Institute of Chartered Accountants

2 B) the Society of Management Accountants of Canada

3 C) the Certified General Accountants Association of Canada

4 D) the Canadian Institute of Chartered Accountants, the Society of Management Accountants of Canada, and the Certified General Accountants Association of Canada

Which financial statement must be prepared before the others?

1 A) income statement

2 B) balance sheet

3 C) cash flow statement

4 D) retained earnings statement

All of the following are considered standard financial

statements except the:

1 A) statement of earnings

2 B) statement of assets

3 C) statement of retained earnings

4 D) cash flow statement

What is one component of shareholders' equity?

1 A) common shares

2 B) notes payable

3 C) property, plant, and equipment

4 D) cash

Which of the following financial statements provides a

"snapshot photo" of one moment in time?

1 A) balance sheet

2 B) income statement

3 C) statement of retained earnings

4 D) cash flow statement

According to the Canadian Institute of Chartered Accountants

(CICA), the primary objective of financial reporting is to provide information:

1 A) to the federal government about tax matters

2 B) useful for making investment and lending decisions

3 C) regarding the cash flows of the business

4 D) about the profitability of the business

Assets are generally divided into:

1 A) current assets and solvent assets

2 B) current assets and reliable assets

3 C) non-current assets and solvent assets

4 D) current assets and non-current assets

The balance sheet contains:

1 A) the amount of net income

2 B) the beginning balance in retained earnings

3 C) the ending balance in retained earnings

4 D) the amount of dividends paid to shareholders

The repayment of a note payable would be classified as a(n):

1 A) investing activity on a cash flow statement

2 B) financing activity on a cash flow statement

3 C) operating activity on a cash flow statement

4 D) current asset on the balance sheet

The ending balance in retained earnings appears on the:

1 A) balance sheet only

2 B) balance sheet and statement of retained earnings

3 C) statement of retained earnings only

4 D) income statement

Net income is:

1 A) deducted from beginning retained earnings on the retained earnings statement

2 B) added to beginning retained earnings on the retained earnings statement

3 C) added to assets on the balance sheet

4 D) deducted from net sales on the income statement

The income statement presents a summary of the:

1 A) revenues and expenses of an entity for a specific time period

2 B) assets and liabilities of an entity

3 C) cash inflows and outflows of an entity

4 D) changes that occurred in the shareholders' equity of an entity

Which of the following financial statements shows the net

increase or decrease in cash during the period?

1 A) balance sheet

2 B) income statement

3 C) statement of retained earnings

4 D) cash flow statement