Deck 2: Nalyzing Transaction and Their Effect on Financial Statement

Question 1

Information has predictive value if it provides feedback to users on their previous assessments of the company.

Answer 1

False

Question 2

Dividends are an expense of doing business.

Answer 2

False

Question 3

The objective of both IFRS and ASPE is to allow financial reporting that is useful to the financial statement users.

Answer 3

True

Question 4

Information is considered to be material if it would impact the decisions of a financial statement user.

Question 5

Straight-line depreciation = (cost + residual value) ÷ estimated useful life.

Question 6

The return on assets = net income ÷ average total assets.

Question 7

Public companies are prohibited from being cross listed.

Question 8

Relevance, faithful representation and cost constraint are examples of the fundamental qualitative characteristics.

Question 9

Accumulated depreciation is deducted when calculating net income.

Question 10

The Classified Statement of Financial Position distinguishes between current and non current assets and liabilities.

Question 11

A significant limitation of the template method is the lack of specific retained earnings and dividends declared accounts.

Question 12

The sales of merchandise on credit will cause the retained earnings and long term liabilities accounts to increase.

Question 13

The template method can only be used by large companies.

Question 14

The issuance of common shares with a value of $9,000 to purchase land will increase the common share account.

Question 15

The purchase of equipment costing $19,500 for $1,500 down and the balance on account will increase both sides of the Statement of Financial Position Statement of Financial Position equation by $18,000.

Question 16

All public companies must follow IFRS.

Question 17

The purchase of a three-year insurance policy should be reflected on the Statement of Financial Position under current assets.

Question 18

Revenue recognition criteria are necessary to determine when to recognize revenue when using both accrual and cash accounting methods.

Question 19

NBV of an asset is the cost of the asset that has already been expensed.

Question 20

A declaration of dividends results in an increase in liabilities and a decrease in shareholders' equity.

Question 21

A piece of equipment was recently purchased for $10,600 on June 30. It is estimated that it will last for 10 years and have a residual value of $400. The depreciation expense to be recognized in the year of acquisition, assuming a December year-end, would be

A) $1,020.00.
B) $510.00.
C) $318.75.
D) $637.50.

Question 22

Cost of goods sold should be matched up with the revenue generated on each year's Statement of Income because of the

A) revenue recognition criteria.
B) cash basis of accounting.
C) actual basis of accounting.
D) accrual basis of accounting.

Question 23

A company sold available for resale inventory for cash. What is the effect of this sale?

A) increase in revenue, increase in COGS, decrease in inventory
B) increase in revenue, decrease in COGS, increase in inventory
C) increase in revenue, increase in COGS, increase in inventory
D) increase in revenue, decrease in COGS, decrease in inventory

Question 24

Use the following information for questions 27-28.
During a recent week, Emmy's Consulting received $25,000 cash from clients for services performed with a total value of $75,000. The balance is to be received within 30 days.
The effect on the Statement of Financial Position equation for this transaction would be

A) + $25,000 cash = - $50,000 accounts payable + $75,000 retained earnings.
B) + $25,000 cash - $50,000 accounts receivable = $75,000 retained earnings.
C) + $25,000 cash + $50,000 accounts receivable = + $75,000 retained earnings.
D) + $25,000 cash = + $25,000 retained earnings.

Question 25

The profit margin ratio = sales ÷ net income.

Question 26

Which of the following enhancing characteristics is achieved if a third party, with sufficient understanding, would arrive at a similar result to that used by the company?

A) comparability
B) understandability
C) timeliness
D) verifiability

Question 27

A new company signed a lease for office space during their first month of business. At that time they paid a total of $12,000 for first and last months' rent. At the end of the first month, the effect on the financial statements would be

A) $12,000 rent expense.
B) $6,000 rent expense and $6,000 prepaid rent on the Statement of Financial Position.
C) $12,000 prepaid rent on the Statement of Financial Position.
D) Nothing recorded because the company has not made any sales yet.

Question 28

On July 1, 2017 Albacore Company paid $5,200 for a 1-year insurance policy. To record this transaction Albacore Company should

A) decrease cash and increase insurance expense.
B) decrease cash and increase prepaid insurance.
C) increase accounts payable and increase insurance expense.
D) increase cash and increase prepaid insurance.

Question 29

If a vehicle was purchased for $6,500 and has a residual value of $500, the annual depreciation expense will be $1,000 if the estimated useful life is

A) 6 years.
B) 6.5 years.
C) 7 years.
D) 13 years.

Question 30

The asset that results when a customer buys goods or services on credit is

A) Accounts receivable.
B) Accounts payable.
C) Notes receivable.
D) Cash.

Question 31

How is cash invested by shareholders in exchange for shares initially recorded in the accounting records?

A) as an increase in retained earnings, and an increase in cash
B) as an increase in long-term investments, and a decrease in cash
C) as an increase in common shares, and a decrease in cash
D) as an increase in common shares, and an increase in cash

Question 32

On Oct. 1, 2017 Bonita, Inc. signed a 1-year $75,000 note payable from First National Bank. The loan plus 6% interest is to be repaid on Sept. 30, 2018. Bonita's year-end is December 31. In its 2017 financial statements Bonita will record interest expense of

A) $375.
B) $1,125.
C) $4,500.
D) $75,000.

Question 33

Information that has been determined based on the best information available using the correct process and with an adequate explanation provided is an example of which fundamental characteristic?

A) neutral
B) free from bias
C) timeliness
D) verifiability

Question 34

All of the following are examples of enhancing qualitative characteristics EXCEPT

A) verifiability.
B) understandability.
C) neutrality.
D) timeliness.

Question 35

The following costs are initially expressed as assets but are then reclassified as expenses when they are used up, EXCEPT for the following:

A) inventory.
B) prepaid insurance.
C) prepaid rent.
D) short term investments.

Question 36

A company paid $22,000 for goods it had purchased last month for resale. What is the effect of the payment?

A) a decrease in inventory
B) a decrease in accounts payable
C) an increase in cost of goods sold
D) an increase in inventory

Question 37

The asset that results from the payment of expenses in advance is

A) Accounts receivable.
B) Short term investments.
C) Inventory.
D) Prepaids.

Question 38

When $10,000 of inventory is purchased with a six-month note payable bearing 4% interest, the inventory has a total cost of

A) $10,400.
B) $10,000.
C) $10,200.
D) $9,800.

Question 39

A company received a $6,500 deposit from a customer for goods to be delivered the following month. Under the accrual and cash basis of accounting respectively, the deposit would be recorded as

Question 40

Use the following information for questions 27-28.
During a recent week, Emmy's Consulting received $25,000 cash from clients for services performed with a total value of $75,000. The balance is to be received within 30 days.
The effect of this transaction in the accounting records would be

A) + $75,000 revenue = + $25,000 cash + $50,000 accounts receivable.
B) + $50,000 net income = + $50,000 assets.
C) + $25,000 revenue = + $25,000 cash.
D) + $75,000 revenue = + $75,000 accounts receivable.

Question 41

Which of the following transactions would decrease the cash from operating activities?

A) the payment of dividends
B) the sale of goods on account
C) the purchase of goods on account
D) the payment of wages

Question 42

Which of the following assets is NEVER expensed on the Statement of Income?

A) land
B) building
C) inventory
D) equipment

Question 43

How are goods purchased for sale at a later date recorded in the financial statements?

A) as inventory
B) as prepaid expenses
C) as cost of goods sold
D) as operating expenses

Question 44

Which of the following would be the most useful in determining if a company has sufficient resources to continue operations in the short-term?

A) the profit margin ratio
B) the return on assets ratio
C) the cash from operating activities
D) the cash from financing activities

Question 45

When the board of directors declares a $500 dividend, which of the following would be included in recording the transaction?

A) increase in Retained Earnings, increase in Dividends Declared
B) decrease in Cash, decrease in Dividends Payable
C) increase in Dividends Declared, increase in Dividends Payable
D) decrease in Dividends Payable, increase in Cash

Question 46

The purchase of land for a combination of cash and issuance of shares would require which of the following?

A) increase in Land, increase in Common shares, increase in Cash
B) increase in Cash, decrease in Common shares, decrease in Land
C) increase in Land, increase in Common shares
D) increase in Land, increase in Common shares, decrease in Cash

Question 47

Which of the following will NOT appear on the Statement of Income?

A) depreciation
B) interest
C) cost of goods sold
D) dividends

Question 48

If the company had a loan outstanding, which of the following would be used to record accrued interest at the end of the accounting period?

A) increase Interest Expense, decrease Cash
B) increase Interest Expense, increase Interest Payable
C) decrease Interest Payable, increase Interest Income
D) decrease Interest Payable, decrease Cash

Question 49

Which of the following would be the effect of a transaction to expense prepaid rent for the period?

A) increase Prepaid Rent, decrease Rent Expense
B) increase Rent Expense, decrease Cash
C) increase Prepaid Rent, decrease Cash
D) increase Rent Expense, decrease Prepaid Rent

Question 50

The accounting basis that attempts to measure performance in the period in which it occurred is the

A) approval basis.
B) cash basis.
C) matching basis.
D) accrual basis.

Question 51

The sale of merchandise to a customer partly for cash and partly on account would require which of the following?

A) increase in Accounts receivable, increase in Cash, increase in Sales revenue
B) increase in Cash, decrease in Accounts payable, increase in Sales revenue
C) increase in Cash, increase in Sales revenue
D) decrease in Accounts payable, increase in Accounts receivable, increase in Sales revenue

Question 52

Which of the following expenses has NO effect on the cash flow of a firm?

A) salaries expense
B) interest expense
C) depreciation expense
D) cost of goods sold

Question 53

If dividends are declared and paid in the same accounting period, what is the net effect on the accounting equation?

A) a decrease in retained earnings and an increase in expenses
B) a decrease in cash and an increase expenses
C) a decrease in cash and an increase in retained earnings
D) a decrease in cash and a decrease in retained earnings