Financial Accounting 4th Canadian Edition Test Bank

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

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

September 30, or December 31.
B) Companies are allowed to choose their fiscal year-end date.
C) Companies can select any date except a holiday to end their
fiscal year.
D) Companies must end their fiscal year on December 31.
14) Assets: 14) ______
A) must equal the shareholders' equity of the company.
B) must equal the liabilities of a company.
C) represent the amounts earned by a company.
D) represent the resources controlled by a company.
15) Which of the following are the three basic elements of the balance
sheet?
15) ______
A) Assets, liabilities, and revenues.
B) Assets, liabilities, and contributed capital.
C) Assets, liabilities, and retained earnings.
D) Assets, liabilities, and shareholders' equity.
16) The Don't Bite Me pest control company has 10,000 gallons of
insecticide supplies on hand that cost $300,000; a bill from the
vendor for $100,000 of these supplies has not yet been paid. The
company expects to earn $800,000 for its services when it uses the
insecticide supplies. The company would report:
16) ______
A) $800,000 in assets under supplies and $100,000 in liabilities
under accounts payable.
B) $300,000 in assets under supplies and $100,000 in liabilities
under accounts payable.
C) $200,000 in assets under supplies and no accounts payable.
D) $300,000 in assets under supplies and no accounts payable.
17) The Publish or Perish Printing Company paid a dividend to
shareholders. This will be reported on the:
17) ______
A) balance sheet.
B) audit report.
C) income statement.
D) statement of retained earnings.
18) Which of the following is not true? 18) ______
A) Shareholders' Equity + Liabilities - Assets = 0
B) Liabilities - Shareholders' Equity = Assets
C) Assets = Liabilities + Shareholders' Equity
D) Liabilities = Assets - Shareholders' Equity
19) Which of the following would affect shareholders' equity? 19) ______
A) A company receives payment for $100 million in accounts
receivable.
B) A company pays $100 million to shareholders as a dividend.
C) A company sells $100 million in assets for $100 million cash.
D) A company borrows $100 million and buys $100 million in
equipment.

20) At the end of last year, the company's assets totalled $860,000 and
its liabilities totalled $740,000. During the current year, the
company's total assets increased by $58,000 and its total liabilities
increased by $24,000. At the end of the current year:
20) ______
A) shareholders' equity was $120,000.
B) shareholders' equity was $34,000.
C) shareholders' equity was $154,000.
D) shareholders' equity was $178,000.
21) A company's balance sheet contained the following information:
Assuming Notes Payable is the only other item on the balance
sheet:
21) ______
A) Notes Payable must equal $72,000.
B) Notes Payable must equal $200,000.
C) Notes Payable must equal $344,000.
D) Notes Payable must equal $8,000.
22) During its first year of operations, Widgets Incorporated reported
sales revenue of $386,000 but collected only $303,000 from
customers. The amount to be reported as accounts receivable at
the end of the year is:
22) ______
A) $386,000. B) $83,000.
C) $303,000. D) $689,000.
23) If XYZ Company had $12 million in revenue and net income of
$3 million then its:
23) ______
A) expenses must have been $9 million.
B) assets must have been $12 million.
C) expenses must have been $15 million.
D) assets must have been $3 million.
24) The Whackem-Smackem Software Company sold $11 million of
computer games in its first year of operations. The company
received payments of $7.5 million for these computer games. The
company's income statement would report:
24) ______
A) sales revenue of $11 million.
B) sales revenue of $7.5 million.
C) accounts receivable of $3.5 million.
D) expenses of $3.5 million.
25) Dividends are reported on the: 25) ______
A) Statement of retained earnings.
B) Income statement and balance sheet.
C) Balance sheet.

D) Income statement.
26) Which of the following would not affect a company's net income? 26) ______
A) Advertising a new product.
B) Changing the selling price of a company's product.
C) Paying a dividend to shareholders.
D) A change in the company's income taxes.
27) Which of the following would be reported on the income
statement for 2005?
27) ______
A) Dividends that were paid in 2005.
B) Supplies that were purchased and used in 2004 but paid for in
2005.
C) Supplies that were purchased and used in 2005 but paid for in
2004.
D) All of the choices are correct.
28) Find the missing data. 28) ______
A) Total revenues are $3,810,200, other selling and
administrative expenses are $364,600, and net income is
$7,255,800.
B) Total revenues are $3,810,200, other selling and
administrative expenses are $1,051,500, and net income is
$364,600.
C) Total revenues are $364,600, other selling and administrative
expenses are $3,081,000, and net income is $7,255,800.
D) Total revenues are $2,495,300, other selling and
administrative expenses are $1,051,500, and net income is

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($950,300).
29) Which of the following is not true? 29) ______
A) The net income in the statement came from the income
statement for the year ended December 31, 2008.
B) Retained earnings of $350,500 will appear on the balance
sheet as of December 31, 2008.
C) Dividends are shown in parenthesis because they are
payments made by a company to its shareholders as a return
on their investment.
D) Retained earnings are the amount of distributions made to the
shareholders since the company started.
30) Which of the following statements is true? 30) ______
A) The "net change in cash" reported on the statement of cash
flows is also reported on the statement of retained earnings.
B) The statement of cash flows is for a period of time while the
income statement is at a point in time.
C) The statement of cash flows is at a point of time while the
income statement is for a period of time.
D) Both the income statement and the statement of cash flows
show the results of a company's operating activities.

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

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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 to
shareholders or retained in the business.
C) estimate the current value of a company's assets.
D) explain the specific revenues and expenses arising during the
period.
37) Which of the following is a publicly accountable profit-oriented
enterprise?
37) ______
A) A crown corporation
B) A partnership
C) A sole proprietorship
D) A publicly traded corporation
38) In which of the following business organization the owners could
only lose the money they invested in the business?
38) ______
A) A Crown corporation. B) A sole proprietorship.
C) A partnership. D) A corporation.
39) If a company uses $50,000 of its cash to buy an asset then: 39) ______
A) assets and liabilities will be unchanged.
B) assets will fall $50,000 and liabilities will rise $50,000.
C) assets will rise $50,000 as will liabilities.
D) assets will rise $50,000 as will shareholders' equity.
40) During 2007, a company's assets rise $56,000 and its liabilities
rise $38,000. If no dividend is paid and no further capital is
contributed, shareholders' equity would:
40) ______
A) rise $56,000. B) fall $94,000.
C) rise $18,000. D) fall $38,000.

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

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48) A investor might look at a company's financial statements to
determine if the:
48) ______
A) company's stock is likely to rise, signalling a good time to
buy.
B) company is likely to have the resources to repay its debts.
C) company is likely to pay a good dividend.
D) company's stock is likely to fall, signalling a good time to
sell.
49) An creditor might look at a company's financial statements to
determine if the company's:
49) ______
A) stock is likely to fall, signalling a good time to sell.
B) stock is likely to rise, signalling a good time to buy.
C) earnings are rising or falling.
D) company has enough assets to cover its liabilities.
50) What would a financial statement user learn from reading the
auditors' report?
50) ______
A) Whether the financial statements are not prepared in
accordance with GAAP.
B) Whether the financial statements are accurate picture of the
company's financial results.
C) Whether the financial statements are prepared in accordance
with GAAP.
D) Whether the financial statements present a fair picture of the
company's financial results.
51) In which of the following business organization the business is
considered separate from the owner/s:
51) ______
A) A corporation. B) A partnership.

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investment.
B) Investors are likely to conclude that the company will be
better able to pay dividends in the future, making it more
attractive as a potential investment.
C) Creditors are likely to conclude that the risk of lending to the
company is falling and be willing to accept a lower interest
rate on loans.
D) Creditors are likely to conclude that the risk of lending to the
company is rising and higher interest rate is needed.
55) Investors and creditors look at the balance sheet to see whether the
company:
55) ______
A) has had a positive cash flow from operations.
B) is paying sufficient dividends to shareholders.
C) owns enough assets to pay what it owes to creditors.
D) is profitable.
56) Generally Accepted Accounting Principles (GAAP) in Canada
were established by:
56) ______
A) the Canadian Parliament. B) the CICA.
C) IFRS. D) an Italian monk in 1494.
57) To determine whether Generally Accepted Accounting Principles
were followed in the preparation of financial statements, an
examination of:
57) ______
A) tax documents would be examined by the Revenue Canada
Agency.
B) the financial statements and related documents would be
examined by the CICA.
C) the financial statements and related documents would be
examined by an independent auditor.
D) the annual report would be examined by the Toronto Stock
Exchange.

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C) Crown corporation
D) Private enterprise
60) Which of the following are the two fundamental characteristics
financial information must possess to be judged useful to decision
makers?
60) ______
A) Complete and relevant
B) Truthful and clarity
C) Relevance and faithful representation
D) Elaborate and faithful representation
61) When is the financial information relevant? 61) ______
A) If it allows management the discretion when to release it to
investors and general public.

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D) Assets, liabilities, shareholders equity, revenues, expenses,
dividends
68) To make sure that managers have followed GAAP rules in
producing financial statements, all public companies must:
68) ______
A) let the government regulators scrutinize their financial
records.
B) Hire independent detectives to scrutinize the background of
all their accountants.
C) Hire independent auditors to scrutinize their financial
records.
D) let their shareholders check their financial records.
69) Auditors while examining the financial records must follow: 69) ______
A) International Auditing standards
B) International Financial Reporting Standards
C) Canadian Accounting standards for auditing
D) Canadian Auditing standards
70) The effects of net income and its distribution on the financial
position of the company is reported in:
70) ______
A) Balance sheet
B) Income statement
C) Statement of cash flows
D) Statement of retained earnings
71) Which of the following enhance the usefulness of financial
information with reference to financial statements?
71) ______
A) Clarity, integrity, relevance and faithfulness.
B)

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D) an independent body to develop and establish standards and
guidance than govern financial accounting and reporting in
Canada.
74) A company is involved in financing activities when these: 74) ______
A) activities involve buying and selling resources such as
purchasing investments and lending to others.
B) activities involve borrowing from banks, repaying bank
loans, receiving contributions from shareholders, or paying
dividends to shareholders
C) activities are directly related to running the core business to
earn profits.
D) activities involve buying and selling productive resources
with long lives (such as buildings, land, equipment, and
tools).
75) A company is involved in operating activities when these: 75) ______
A) activities involve buying and selling productive resources
with long lives (such as buildings, land, equipment, and
tools).
B) activities involve buying and selling resources such as
purchasing investments and lending to others.
C) activities are directly related to running the core business to
earn profits.
D) activities involve borrowing from banks, repaying bank
loans, receiving contributions from shareholders, or paying
dividends to shareholders
76) A company is involved in investing activities when these: 76) ______
A) activities are directly related to running the core business to
earn profits.
B) activities involve borrowing from banks and repaying bank
loans
C) activities involve buying and selling productive resources
with long lives (such as buildings, land, equipment, and
tools), purchasing investments, and lending to others.
D) activities involve borrowing from receiving contributions
from shareholders, or paying dividends to shareholders

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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 the
following effect,
79) ______
A) An increase in retained earnings.
B) Assets > Liabilities + Shareholders Equity in the interim
period.
C) A reduction in net income.
D) None of the choices are correct.
80) Which of the following equations is correct? 80) ______
A) asset = liabilities - shareholders equity
B) ending retained earnings - beginning retained earnings = net
income - dividends
C) net income - expenses = revenues
D) none of the choices are correct
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
81) Financial accounting reports provide detailed internal records of
the company.
81) ______
82) Building a new warehouse is an operating activity. 82) ______
83) The payment of dividends is a financing activity. 83)

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Financial Accounting 4th Canadian Edition Test Bank

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