Deck 1: The Accounting Environment: What Is Accounting and Why Is It Done

Question 1

Which one of the following is most likely organized as a public corporation?

A)Jason's Computer Consulting
B)Smith and Smith, Partners in Law
C)International Tire Inc.
D)Manitoba Health Board

Answer 1

C

Question 2

You have decided to spend $75 on a "Guide to Caribbean Cruises" before booking your winter cruise holiday.This is an example of which of the following principles?

A)Relevance
B)Reliability
C)Cost/benefit trade-off
D)Comparability

Answer 2

C

Question 3

The cost-benefit trade-off is best summarized as:

A)the concept of comparing the benefits of an action with the costs of the action.
B)the concept of measuring all costs and benefits in dollars.
C)the concept of recording all necessary costs to obtain the desired benefits.
D)the cost of ensuring that costs are always equal to benefits.

Answer 3

A

Question 4

Which of the following is the most attractive feature of a proprietorship?

A)The only tax return required is the owner's personal tax return.
B)The owner can pledge his/her personal assets against bank loans.
C)Proprietorships are not separate legal entities.
D)Proprietorships are easy and inexpensive to set up.

Question 5

The CICA is the governing organization of chartered accountants in Canada.What is the most likely form of organization of the CICA?

A)Partnership
B)Corporation
C)Income trust
D)Not-for-profit

Question 6

Which of the following users would rely on management accounting information?

A)Taxation authorities
B)Managers
C)Lenders
D)Investors

Question 7

What are the owners of a corporation called?

A)Auditors
B)Stakeholders
C)Shareholders
D)Managers

Question 8

Why is it impossible for a single accounting report to be appropriate for all situations?

A)Due to the diverse backgrounds of the people preparing accounting reports.
B)Due to the diverse accounting environment in which entities operate.
C)Due to the conflicting objectives of preparers and users.
D)Due to lack of laws defining a single accounting report.

Question 9

Which type of organization files a business tax return?

A)Proprietorship
B)Partnership
C)Corporation
D)Government

Question 10

Which of the following is the most important feature of a corporation?

A)It is taxable.
B)It provides limited liability to its shareholders.
C)It can have more than one owner.
D)It has a limited life span.

Question 11

James and Nicholas are roommates at university and plan to run a painting business for the summer.Which is the most likely form of organization of their business?

A)A proprietorship
B)A partnership
C)A corporation
D)An income trust

Question 12

Which of the following statements about private corporations is true?

A)Private corporations trade on the stock exchange.
B)Private corporations have only one shareholder.
C)Private corporations are the same as proprietorships.
D)Private corporations' shares are not available for sale unless the shareholders agree.

Question 13

What type of organization trades its shares on the Toronto Stock Exchange?

A)A partnership
B)A private corporation
C)A public corporation
D)A not-for-profit organization

Question 14

What are the four key components of the accounting environment?

A)Entities, constraints, stakeholders, environmental factors
B)Entities, constraints, stakeholders, legal factors
C)Users, entities, constraints, environmental factors
D)Users, entities, constraints, legal factors

Question 15

An unincorporated entity operated by two or more people is what form of business?

A)A proprietorship
B)A partnership
C)A corporation
D)An income trust

Question 16

Which of the following statements about users of financial accounting information is true?

A)Users of financial accounting information are the same as the preparers.
B)Users of financial accounting information normally work for the entity.
C)Users of financial accounting information are normally external to the firm.
D)Users of financial accounting information normally have direct access to the information about the entity.

Question 17

A new shareholder of a small company is concerned about being able to adequately monitor their investment and has asked management to provide them with weekly financial statements.From the company's point of view this would violate which of the following concepts?

A)Privacy
B)Reliability
C)IFRS
D)Cost/benefit trade-off

Question 18

Financial accounting would be used to make which of the following decisions?

A)Deciding if the company should expand.
B)Determining which products are successful.
C)Determining the price of a product.
D)Deciding whether to invest in the company.

Question 19

After completing an accounting course Jessica decided to offer her services as a bookkeeper to friends and neighbours.What is the most likely form of organization of her business?

A)A proprietorship
B)A partnership
C)A corporation
D)An income trust

Question 20

Which of the following types of organization includes all of the business's income in the owner's personal tax return?

A)A proprietorship
B)A private corporation
C)A public corporation
D)An income trust

Question 21

The critical approach to accounting is necessary primarily because:

A)various levels of authorization are desirable to enhance separation of duties.
B)management compensation would be even more excessive without it.
C)revenue Canada requires it.
D)a company's stakeholders and management have differing information needs and interests.

Question 22

External auditors are hired by which one of the following groups?

A)Management
B)Internal auditors
C)Shareholders
D)Tax authorities

Question 23

Which of the following statements about preparers is true?

A)Preparers are neutral providers of accounting information.
B)Preparers may not be the people who physically prepare the financial statements.
C)Preparers have the same perspective as stakeholders.
D)Preparers decide what information is going to be presented in the financial statements, but not when it is presented.

Question 24

You are considering buying a house and have found one that meets all of your criteria.When you are trying to decide how much to pay for it, which of the following parties involved in the process would give you the most reliable information?

A)An independent real estate appraiser.
B)The owner of the house you want to buy.
C)The real estate agent hired by the owner to sell the house.
D)The bank that is providing the mortgage loan.

Question 25

Which of the following statements about IFRS is true?

A)IFRS is an international set of accounting policies.
B)All entities in Canada prepare their financial statements in accordance with IFRS.
C)Statements prepared according to IFRS are not easily compared.
D)The flexibility of IFRS requires users to apply critical thinking when using financial statements.

Question 26

Which of the following statements about stakeholders is true?

A)Stakeholders are individuals that have an interest in an entity.
B)All stakeholders have the same perspective on an entity.
C)Stakeholders normally have unrestricted access to an entity's records.
D)Every entity has the same stakeholders.

Question 27

Which of the following is one of the benefits of the flexibility allowed by IFRS?

A)It allows information to be presented in an appropriate way for the situation.
B)It makes accounting reports more interesting to read.
C)It allows all organizations to be required to follow IFRS.
D)It allows preparers to reflect their own personal interests

Question 28

Because managers can exercise professional judgment when preparing the financial statements for their company, the stakeholder should:

A)read the report of the external auditor.
B)place complete confidence in the financial data.
C)understand that management can be motivated to act in its own self-interests.
D)place no confidence in the financial data.

Question 29

Which of the following is an important feature of external auditors?

A)They are independent of the entity.
B)They have previous experience managing the entity.
C)They have an ownership interest in the entity.
D)They provide many other services to the entity while engaged as auditors.

Question 30

Who is responsible for deciding what, how and when information is presented in the financial statements?

A)Stakeholders
B)Accountants
C)Management
D)Government

Question 31

Sandy's Sandwiches is a small business owned and operated by Sandy Southerly that is not publicly traded and has never borrowed any money.Which of the following would be a constraint in the preparation of its financial statements?

A)Canada Business Corporations Act
B)CICA
C)IFRS
D)The Income Tax Act

Question 32

What does ASPE stands for?

A)Acceptable Standards for Private Enterprises
B)Accounting for Shareholders of Private Entities
C)Accountants and Shareholders for Private Enterprises
D)Accounting Standards for Private Enterprises

Question 33

Why are there different acceptable ways to account for similar transactions?

A)To allow flexibility to deal with different economic circumstances.
B)To allow managers to enhance their bonuses.
C)To confuse the stakeholders.
D)Because the rule makers cannot agree on one best method.

Question 34

International Financial Reporting Standards are:

A)mandatory for public companies only.
B)mandatory for both public and private companies.
C)not mandatory, but recommended for both public and private companies.
D)not mandatory, but recommended for public companies only.

Question 35

Which of the following best describes the purpose of an accounting system?

A)To accumulate data.
B)To determine the amount of taxes owing.
C)To determine the market value of an entity.
D)To organize, process and convert data into useful information.

Question 36

Which of the following best describes the "critical approach" to accounting?

A)It is a valuable tool for evaluating excessive management compensation.
B)It is a system that includes various levels of authorization to enhance separation of duties.
C)It refers to the application of high-level mental skills in analyzing, evaluating and interpreting financial information for decision-making.
D)A company's auditors may apply the critical approach in their audit procedures.

Question 37

In a public corporation, which of the following stakeholders would be the most interested in the financial statements of the entity?

A)Shareholders
B)Managers
C)Employees
D)Auditors

Question 38

What does IFRS stands for?

A)International Fraud Reporting Standards
B)Integrated Financial Reporting Standards
C)International Forensic Reporting Standards
D)International Financial Reporting Standards

Question 39

In a public corporation, which of the following stakeholders would have easy access to other financial information about the entity?

A)Shareholders
B)Managers
C)Employees
D)Auditors

Question 40

Who are the people who examine an entity's financial information on behalf of external stakeholders?

A)Accountants
B)Internal auditors
C)External auditors
D)Preparers

Question 41

Identify three external users of an entity's financial statements and give an example of one decision that each of them would rely on the financial statements for.

Question 42

Chris has just finished his first month at college and wants to estimate his costs for the rest of the year to ensure that the money he makes at his part-time job will cover all of his expenses.He has recorded all his cash inflows and outflows for the month as follows: Required:
Prepare a statement that organizes Chris' information is a useful way.

Question 43

Explain what is meant by the cost/benefit trade-off concept in accounting.A high school student is considering spending $500 to spend two days visiting two out-of-town universities he is thinking of attending.Evaluate this decision using the cost/benefit trade-off concept.

Question 44

If you wanted to insure your brand new Ferrari sports car to ensure that if anything happened to it you could replace it, which of the following methods of valuing an item would be the most useful?

A)Cost
B)Replacement cost
C)Replacement cost new
D)Net realizable value

Question 45

Identify the stakeholders in each of the following entities and the decisions they make.
i) A non-for-profit day care centre operated by the parents of the children.ii) A small family owned convenience store.
iii) A large publicly owned grocery chain.

Question 46

Katerina Slovenka decided to turn her love of movies into a small business and has just finished her first month operating a neighbourhood video store.She has kept a notebook of her financial transactions for the month and has approached you to help her decide if she should continue in business.She is discouraged, because although she thought she rented a lot of movies, her bank account has decreased instead of increased.She started the business by buying 100 DVDs; she estimates that the average video has a rental life of three months and that she will add 40 new and replacement titles every month.
Katrina's Notebook Required:

A) Prepare a statement that organizes the information collected in a useful way.B) Explain to Katerina why you organized it the way you did.
C) Should Katerina continue in business? Support your answer.

Question 47

If you wanted to sell your MP3 player to buy a new one with more memory, which of the following methods of valuing an item would be the most useful?

A)Cost
B)Replacement cost
C)Replacement cost new
D)Net realizable value

Question 48

Explain what is meant by the critical approach to accounting and why it is important.

Question 49

Armand Arsenault owns-that is, he is the sole shareholder of-and manages Arsenault Hardware (AH), a small chain of hardware stores.He has always used Joe Summers, an employee-bookkeeper to keep the records and prepare the financial statements.To date the only other one to ever see or use the financial statements was the tax department.The opportunity to buy the building where one of the stores operates has come up, and AH has approached the local bank for a loan.The bank has some questions about the preparation of the financial statements.
Required:

A) In this situation who is responsible for selecting the accounting policies used by AH? B) Is it likely that the statements were prepared according to ASPE? Why or why not?
C) Define ASPE.
D) What other information might the bank want before making its decision?

Question 50

Identify the stakeholders in each of the following entities and the decisions they make.
i) A privately owned summer camp for boys and girls.ii) A large publicly owned donut store chain.
iii) A national charity that supports medical research.

Question 51

You have a collection of 200 international stamps that you have collected over the years.Most of them cost you nothing, as you just took them off letters or postcards that you or friends and family had received.If you add up the face value (the amount printed on the stamp), your collection totals $125.37.You recently saw a story in a local newspaper that someone else sold a similar collection of 400 stamps for $500.Which of the following statements is most likely true?

A)The value of the collection is $250.00.
B)The selling price of the collection is $125.37.
C)The replacement cost of the collection is $250.00.
D)The replacement cost - new of the stamps is $125.37.

Question 52

Zhang recently purchased a ladder and some painting supplies to help his mother repaint her house.He is now thinking of painting houses for the summer to earn money for school.He has the following information from his work at his mother's, plus he has given you some estimates of the amount to work he expects to do in the remainder of the summer.
Cost of ladder: $300
Cost of paint supplies (brushes, rollers and pans): $200.
Zhang estimates he can use half of the supplies again but will need to replace an amount equal to the rest every job.
Cash paid for paint: $250.He still owes the store $150.
Cost of renting DVDs to watch when he was finished for the day: $30.
His mother only paid him $500, because he still lives at home, and she pointed out that his rent is free.He estimates that for a similar job he could charge $1,500.He thinks he could complete one house of a similar size per week for the 10 weeks remaining in the summer.
Required:

A) Is all the information Zhang has given you relevant for his decision? If not, which one(s) are not relevant? B) Is all of the information reliable? Why or why not?
C) Organize the information to provide him with some feedback about how much money he has made so far this summer.
D) Organize the information to allow him to predict how much money he will make in the remainder of the summer.
E) Do you recommend Zhang paint houses for the summer? Why or why not?

Question 53

In the summer of 2005, forty three rail cars from a Canadian National Rail (CN) train derailed near Wabamun Lake, a vacation area in Alberta, spilling 700,000 litres of oil into the scenic lake.The disaster, in addition to creating negative headlines for CN, created new stakeholders for the company, including the local Wabamun Lake residents' association.
Required:

A) Identify what information these new stakeholders would want.Where can they get the information?
B) How powerful a stakeholder are they? Are there any other stakeholders they could align themselves with?

Question 54

What would be the most likely form of business organization for each of the following?
i) A small bookkeeping business run by an individual from his/her home ii) A national bank
iii) Two brothers operating a landscape business together iv) A firm of twenty lawyers
v) A family business operating a small chain of bookstores

Question 55

Identify five potential stakeholders in a company and briefly describe their specific information needs.

Question 56

Replacement cost is one way to measure the value of an item.Which of the following best describes replacement cost?

A)What you paid for the item.
B)What it would cost to replace the item with an identical item in the same condition.
C)What it would cost to replace the item with an identical new item.
D)What the item could be sold for now.

Question 57

Darnia Delaware has been making pottery as a hobby and selling it from her home to friends for several years.She has decided to open a store to sell her work and the work of others to the public.She is
hoping that if the store is successful she could expand to a second location in a year's time.She has come to you for advice about how she should organize the business.A friend recommended to her that she become incorporated (operate as a corporation) but she laughed, "I am not going to get so big that I take-over the
world!"
Required:
Compare and contrast for Darnia the advantages and disadvantages of operating as a proprietorship versus a corporation.What would you recommend to her?

Question 58

Mathew has recently graduated from university and started a full-time job.He has used the information on his bank statement for the past two months to start a personal financial plan because he wants to figure out when he can buy a car.The report he prepared for the past two months is shown below.Mathew is frustrated because he can't figure out how the plan is going to help him."I wasted time adding up all my deposits and withdrawals for nothing," he complained."Accounting is just not worth it!"
Mathew's Personal Financial Plan: Goal-to buy a car! Required:
Explain to Mathew how an accounting system could help him determine when he can buy a car.What suggestions would you make to him to improve his current system?

Question 59

Your brother borrowed your 2010 Toyota Corolla and had an accident.He is okay, but the car is write-off.You paid $5,000 for it a year ago, and your brother has offered to give you $3,000, the cost he estimates of another 2010 Toyota Corolla.A new Toyota Corolla costs $22,500.Which of the following statements is true?

A)The replacement cost of the car is $3,000.
B)The replacement cost of the car is $5,000.
C)The replacement cost-new of the car is $5,000.
D)The replacement cost of the car is $22,500.

Question 60

You have been approached to invest in a real estate venture.A small group is going to buy a piece of land and construct single-family homes on it and then sell them.The group has done similar deals in the past, but one of the participants has left the group and they are now looking for new investors.
Required:
Explain how accounting information would help you decide whether or not to invest in the proposed venture.What non-accounting information would you also want?