Deck 14: Understanding Accounting Issues

Question 1

David is a salaried accountant who has been hired by Lexar Corp.to carry out its day-to-day financial activities.David is a(n)

A) public accountant.
B) auditor.
C) controller.
D) private accountant.
E) advisor.

Answer 1

D
private accountant.

Question 2

LJD is a CA firm.What three services does it likely provide?

A) Ratio analysis,journal preparation,and ledger preparation
B) Tax services,budget preparation,and ratio analysis
C) Audit services,ratio analysis and tax collection
D) Tax services,audit services,and management services
E) Owners' equity analysis,journal and ledger preparation,and tax collection

Answer 2

D
Tax services,audit services,and management services

Question 3

David is an accountant who calls attention to problems and helps managers carry out the planning,decision making,and controlling functions.David is involved in ______ accounting.

A) budgeting
B) financial
C) auditing
D) managerial
E) generally accepted accounting principles

Answer 3

D
managerial

Question 4

Janice is a bookkeeper.Her primary function would be to

A) generate financial statements.
B) measure business performance.
C) record accounting transactions.
D) complete the same tasks as accountants do.
E) determine the value of the firm to investors.

Question 5

________ provides cost information for engineers making product or process improvements.

A) Government accounting
B) Minor accounting
C) Stock market accounting
D) Managerial accounting
E) Financial accounting

Question 6

What is bookkeeping?

A) The same as accounting
B) The recording of accounting transactions
C) The financial statements of a company
D) A system for measuring business performance
E) Internal procedures that alert managers to problems

Question 7

A lawn-care company that started five years ago now has 15 employees.Now it needs to decide how to ensure that its finances are managed because the company is growing.The owner is thinking about hiring a controller to ensure good financial management.If the following facts are known,which one would not strengthen the argument for hiring a controller?

A) The company must continuously monitor its cash flow.
B) The company needs to decide how to market its products so it can reach the largest number of potential customers.
C) The owner wants to have any excess funds invested in high-growth opportunities.
D) The company needs to map out financial goals.
E) The company needs to identify good sources of funding.

Question 8

David is preparing a statement of estimated profits and losses for a new product that has just been introduced by his company.The field of accounting that David is working in is

A) managerial accounting.
B) auditing.
C) public accounting.
D) financial accounting.
E) bookkeeping.

Question 9

An examination of a company's accounting system to determine whether its financial reports fairly present its operations is

A) public accounting.
B) bookkeeping.
C) managerial accounting.
D) financial accounting.
E) auditing.

Question 10

_____ is a comprehensive system for collecting,analyzing,and communicating financial information.

A) Bookkeeping
B) Accounting
C) Controlling
D) Auditing
E) Forensic accounting

Question 11

Managerial accounting is

A) the field of accounting that serves internal users of a company's financial information.
B) the rules and procedures governing the content and form of financial reports.
C) the field of accounting concerned with external users of a company's financial information.
D) a systematic examination of a company's accounting system to determine whether its financial reports fairly represent its operations.
E) a bookkeeping system that balances the accounting equation by recording the dual effects of every financial transaction.

Question 12

Government agencies would be most interested in the output of ___________ accountants,while company salespeople would be most interested in the output of ______________ accountants.

A) public; private
B) private; public
C) managerial; financial
D) financial; managerial
E) financial; financial

Question 13

The field of accounting that serves internal users of a company's financial information is

A) financial accounting.
B) auditing.
C) public accounting.
D) bookkeeping.
E) managerial accounting.

Question 14

____________ is the comprehensive information system for collecting,analyzing,and communicating financial information,while _____________ is the recording of financial transactions.

A) Financial accounting; managerial accounting
B) Managerial accounting; financial accounting
C) Bookkeeping; accounting
D) Accounting; bookkeeping
E) Controlling; accounting

Question 15

Rose is reviewing a company's accounting system,checking the ledgers and journals,and tracking some transactions to see how they were handled.Rose is engaged in

A) financial accounting.
B) managerial accounting.
C) auditing.
D) public accounting.
E) bookkeeping.

Question 16

Which of the following is correct with respect to generally accepted accounting principles?

A) Public and private businesses can no longer use generally accepted accounting principles.
B) They are used in many foreign countries but not in Canada.
C) Public companies in Canada have moved away from using generally accepted accounting principles and have adopted International Financial Reporting Standards (IFRS).
D) Private companies must use the new International Financial Reporting Standards (IFRS).
E) None of these statements in correct.

Question 17

Arthur's primary responsibility as an auditor is

A) publishing the audit report results in The Financial Post.
B) preparing budgets for the forthcoming year.
C) ensuring the firm's accounting practices adhere to generally accepted accounting principles.
D) collecting taxes.
E) determining that the company actually has the inventory that it says it has.

Question 18

The process of informing interested groups outside the firm about the financial condition of the firm is known as

A) budgeting.
B) financial accounting.
C) managerial accounting.
D) generally accepted accounting principles.
E) auditing.

Question 19

Laura is preparing annual income statements and balance sheets for her company.The field of accounting in which she is engaged is

A) auditing.
B) bookkeeping.
C) financial accounting.
D) public accounting.
E) managerial accounting.

Question 20

What is the primary purpose of accounting?

A) To determine when to sell the company
B) To determine the most effective plan to avoid a hostile takeover
C) To determine the value of the company before it is sold
D) To summarize the results of business transactions so that the resulting reports can be used in the decision-making process
E) To provide information for tax authorities

Question 21

________ is the amount of money owners would theoretically receive if they sold all of a firm's assets and paid all of its liabilities.

A) Gross revenue
B) Total assets
C) Earnings per share
D) Net revenue
E) Owners' equity

Question 22

Which of the following is correct with regard to private accountants?

A) They are hired by business firms who do not want to use the services of CAs or CGAs.
B) They are employed by business firms in areas such as marketing research,law,and production technology.
C) They are becoming less common as CAs,CGAs,and CMAs become more prominent and skilled.
D) They are almost exclusively found at the head office of business firms.
E) They are hired to deal with the day-to-day accounting needs of companies.

Question 23

Al Rosen works as a private investigator of white-collar crimes.He is

A) a GAAP accountant.
B) a financial scanner.
C) a whistleblower.
D) an auditor.
E) a forensic accountant.

Question 24

The accounting equation is

A) owners' equity - assets = liabilities.
B) owners' equity - liabilities = assets.
C) assets + liabilities = owners' equity.
D) assets + owners' equity = liabilities.
E) assets = liabilities + owners' equity.

Question 25

Jeremy identifies problems and helps managers carry out planning,decision making,and controlling functions.Jeremy works in the field of

A) managerial accounting.
B) generally accepted accounting principles.
C) financial accounting.
D) budgeting.
E) auditing.

Question 26

A(n)________ is any economic resource expected to benefit a firm or the individual who owns it.

A) owners' equity
B) asset
C) debit
D) liability
E) credit

Question 27

Under which condition is owners' equity positive?

A) Assets are greater than liabilities.
B) Assets and liabilities are equal.
C) Net profit is greater than 10 percent of sales.
D) Liabilities are greater than assets.
E) Debits exceed credits.

Question 28

Max Corp.has total assets of $100 million and total liabilities of $30 million.Last year it earned a profit of $3 million.What is owners' equity at Max Corp.?

A) $3 million
B) $100 million
C) $103 million
D) $73 million
E) $70 million

Question 29

Sheena is a private accountant who is working through the accounting cycle.She has completed transferring entries from the journal to a ledger.Her next step is to

A) record transactions in a journal.
B) do a trial balance.
C) prepare financial statements.
D) analyze the financial statements using ratio analysis.
E) transfer entries from the journal to the ledger.

Question 30

A(n)________ is a debt owed by a firm to an outside organization or individual.

A) liability
B) owners' equity
C) debit
D) asset
E) credit

Question 31

Janice is a private accountant.The first thing she must do when working through the accounting cycle is to

A) record transactions in a journal.
B) do a trial balance.
C) analyze transaction documents.
D) analyze the financial statements using ratio analysis.
E) transfer entries from the journal to the ledger.

Question 32

Tom is in charge of the entire accounting system at Lane Electronics.His job title is most likely

A) budget analyst.
B) controller.
C) top accounting manager.
D) chief accountant.
E) chief bookkeeper.

Question 33

An asset is

A) the amount of money originally invested in a business by its owners.
B) the amount of money that owners would receive if they sold all of a firm's assets and paid all of its liabilities.
C) the profits earned by and reinvested in the company.
D) any economic resource expected to benefit a firm or an individual who owns it.
E) a debt owed by a firm to an outside organization or individual.

Question 34

Owners' equity consists of two sources of capital.They are

A) The amount that the owners originally invested and profits earned by and reinvested in the company.
B) Bank loans and money received from factoring accounts receivable.
C) Bank loans and proceeds from the sale of shares of stock.
D) Trade credit and bank loans.
E) Dividends received by investors and bank loans.

Question 35

What is the formula for determining owners' equity?

A) Assets minus liablities
B) Assets plus liabilities
C) Assets minus goodwill
D) Current assets minus current liabilities
E) There is no formula for computing owners' equity

Question 36

Which of the following would be classified as an asset?

A) Goodwill
B) Accounts receivable
C) Land
D) Inventory
E) All of these

Question 37

Barry is a private accountant who is working through the accounting cycle.He has already analyzed transaction documents.His next step is to

A) record transactions in a journal.
B) do a trial balance.
C) prepare financial statements.
D) analyze the financial statements using ratio analysis.
E) transfer entries from the journal to the ledger.

Question 38

A liability is

A) the amount of money originally invested in a business by its owners.
B) any economic resource expected to benefit a firm or an individual who owns it.
C) the profits earned by and reinvested in the company.
D) the amount of money that owners would receive if they sold all of a firm's assets and paid all of its debts.
E) a debt owed by a firm to an outside organization or individual.

Question 39

Forensic accountants are sometimes used to

A) ensure the accounting system adheres to GAAP.
B) track down hidden funds in business firms.
C) ensure auditors follow auditing standards.
D) ensure businesses remain profitable.
E) all of these.

Question 40

Which of the following is true regarding CAs,CGAs,and CMAs?

A) Formerly,CGAs were not allowed to audit the financial statements of publicly held companies,but now they have the right to audit such companies in most provinces.
B) There are more CMAs than there are CAs or CGAs.
C) CGAs place more emphasis on strategic management than either CAs or CMAs.
D) CGAs are not allowed to work in CA firms.
E) The federal government feels that accounting designations no longer have any significance.

Question 41

Stephen is looking at a financial statement that shows detailed information about the accounting equation factors.He is looking at the company's

A) T-accounts.
B) income statement.
C) balance sheet.
D) statement of cash flows.
E) profit-and-loss statement.

Question 42

Which of the following is an intangible asset?

A) An inventory level of 1000 copies of a book
B) The copyright for a textbook
C) A printing press used in the publication of a book
D) A $1000 Canada Savings Bond
E) The building in which a book was printed

Question 43

Meredith recently bought a business,but she paid more for the business than the total of its current and fixed assets.What did she pay extra for?

A) Land the company owns
B) Equipment in the company's factory
C) Goodwill
D) The franchise fee
E) Accounts receivable that are on the company's books

Question 44

Accounts receivable represents

A) an asset with long-term use or value,such as land,buildings,and equipment.
B) an amount due from a customer who has purchased goods on credit.
C) an expense,such as rent,that is paid before the upcoming period in which it is due.
D) a nonphysical asset,such as a patent or trademark,that has economic value in the form of expected benefit.
E) an asset that can or will be converted to cash within the following year.

Question 45

A balance sheet would not be able to help a manager answer which question?

A) Is it a good time to try to grow the business?
B) Can the company survive if a period of low revenues happens?
C) Does the company have an excessive number of employees?
D) Is the company able to take on more debt?
E) What is the total value of all of the company's assets?

Question 46

Financial statements fall into three broad categories,which are

A) debits,credits,and loans.
B) income statements,balance sheets,and statements of cash flows.
C) assets,liabilities,and owners' equity.
D) cash,marketable securities,and goodwill.
E) budgets,income statements,and profit-and-loss statements.

Question 47

A prepaid expense is

A) an expense,such as rent,that is paid before the upcoming period in which it is due.
B) a nonphysical asset,such as a patent or trademark,that has economic value in the form of expected benefit.
C) an amount due from a customer who has purchased goods on credit.
D) an asset that can or will be converted to cash within the following year.
E) an asset with long-term use or value,such as land,buildings,and equipment.

Question 48

Peter,a private accountant,enters every transaction in a journal to reflect its impact on both assets and on liabilities and owners' equity.He is using

A) a double-entry accounting system.
B) a balance sheet.
C) a financial ratio.
D) an income statement.
E) a financial statement.

Question 49

Jerry's Harley-Davidson Specialty Shop owes money to Johnson's Bookkeeping Services.This money is a(n)________ to Jerry's business.

A) liability
B) debit
C) owners' equity
D) asset
E) credit

Question 50

________ are purchased as short-term investments and are only slightly less liquid than cash.

A) Prepaid expenses
B) Patents
C) Accounts receivable
D) Marketable securities
E) Futures

Question 51

________ are debts that must be paid within one year.

A) Long-term liabilities
B) Liabilities
C) Intermediate liabilities
D) Current liabilities
E) Short-term liabilities

Question 52

A current asset is

A) an expense,such as rent,that is paid before the upcoming period in which it is due.
B) a nonphysical asset,such as a patent or trademark,that has economic value in the form of an expected benefit.
C) an amount due from a customer who has purchased goods on credit.
D) an asset with long-term use or value,such as land,buildings,and equipment.
E) an asset that can or will be converted to cash within the following year.

Question 53

If the following facts were known,which one would strengthen the argument that a company will be able to meet its current financial obligations?

A) The level of accounts payable is high.
B) Liabilities exceed assets.
C) The company currently has a negative cash flow.
D) The company needs to increase the number of customers it serves.
E) Assets exceed liabilities.

Question 54

Which of the following is correct with respect to the issue of owners' equity?

A) Owners' equity is meaningful for investors,but not for lenders.
B) If a company's assets exceed its liabilities,owners' equity will be negative.
C) Owners' equity consists of two sources of capital: the amount the owners originally invested and the amount of government loans the company has received.
D) Even if a company operates profitably,its liabilities may increase faster than its assets.
E) The basic accounting equation can be rewritten as follows: owners' equity equals assets minus liabilities.

Question 55

The financial statement that summarizes a firm's assets,liabilities,and owners' equity is the

A) income statement.
B) statement of cash flows.
C) balance sheet.
D) manufacturing statement.
E) statement of retained earnings.

Question 56

________ are amounts due from customers who have purchased goods on credit.

A) Accounts owed
B) Accounts receivable
C) Accounts forwarded
D) Accounts payable
E) Account balances

Question 57

According to the accounting equation,if assets equal $4000 and liabilities equal $1500,then owner's equity would equal

A) $5500.
B) $2500.
C) $3500.
D) $8000.
E) It is not possible to tell with the information given.

Question 58

To record the dual effects of financial transactions,accountants use

A) automated calculators.
B) liabilities and equities.
C) debits and debts.
D) double-entry accounting.
E) all of these.

Question 59

What are the three types of assets that will normally be found on a balance sheet?

A) Local,national,and international
B) Positive,negative,and neutral
C) Land,buildings,and equipment
D) Current,fixed,and intangible
E) Short-term,long-term,and medium-term

Question 60

What does the balance sheet show?

A) It shows the share price of the firm during the last year and how much fluctuation there has been in the share price.
B) It shows short- and long-term liquidity ratios,profitability ratios,and activity ratios.
C) It shows a firm's financial condition on a particular date in terms of its assets,liabilities,and owners' equity.
D) It shows investors how much profit the firm made during the last year.
E) It shows a firm's sources and uses of cash.

Question 61

At Lexi Corp.,sales revenue is $20 million,the cost of goods sold is $14 million,operating expenses are $3 million,and income taxes are $1 million.What is the company's operating income?

A) $6 million
B) $17 million
C) $3 million
D) $2 million
E) None of these

Question 62

Jerry wants to calculate gross profit.Which formula should he use?

A) Operating expenses minus income taxes
B) Sales revenue minus income taxes
C) Sales revenue minus operating expenses
D) Sales revenue minus cost of goods sold
E) Sales revenue plus operating expenses.

Question 63

A long-term liability is

A) additional money,above proceeds from a sale of shares,paid directly to a firm by its owners.
B) a debt that must be paid within the year.
C) the amount paid for an existing business above the value of its other assets.
D) the process of distributing the cost of an asset over its useful life.
E) a debt that is not due for at least one year.

Question 64

Prahbat is looking at a financial statement produced by Iron Corp.The statement lists the company's annual revenues,its expenses,and its profit.Prahbat is looking at a(n)

A) cash flow statement.
B) revenue-expense statement.
C) balance sheet.
D) budget.
E) income statement.

Question 65

One manager (Adam)says that the income statement should be strong this year because the company has achieved a high level of sales revenue.Another manager (Eve)says that even with strong sales revenue,the income statement might not look particularly good.If the following facts were known,which one would strengthen Adam's argument?

A) Total operating expenses were high this year.
B) Rent expenses were 30 percent higher than last year.
C) Compared to gross sales,the cost of goods sold was low.
D) The company is smaller than its competitors.
E) The company has valuable fixed assets.

Question 66

The total cost of obtaining materials for making products sold by a firm during the year is

A) cost of goods sold.
B) operating expense.
C) merchandise inventory.
D) net merchandise inventory.
E) administrative expense.

Question 67

One manager (Adam)says that the income statement should be strong this year because the company has achieved a high level of sales revenue.Another manager (Eve)says that even with strong sales revenue,the income statement might not look particularly good.What is Adam assuming?

A) That high revenues equate to a healthy income statement
B) That various factors besides sales revenue must be taken into account to calculate the income statement
C) That sales revenue next year will likely be as good as this year's
D) That operating expenses have been relatively high this year
E) That gross profit is much lower than gross sales

Question 68

A fixed asset is

A) an amount due from a customer who has purchased goods on credit.
B) an asset with long-term use or value,such as land,buildings,and equipment.
C) an expense,such as rent,that is paid before the upcoming period in which it is due.
D) an asset that can or will be converted to cash within the following year.
E) a nonphysical asset,such as a patent or trademark,that has economic value in the form of an expected benefit.

Question 69

Paid-in capital is

A) a debt that must be paid within the year.
B) the process of distributing the cost of an asset over its useful life.
C) the amount paid for an existing business above the value of its other assets.
D) a debt that is not due for at least one year.
E) additional money,above proceeds from a sale of shares,paid directly to a firm by its owners.

Question 70

At Lexi Corp.,sales revenue is $20 million,the cost of goods sold is $14 million,operating expenses are $3 million,and income taxes are $1 million.What is the company's gross profit?

A) $6 million
B) $17 million
C) $16 million
D) $2 million
E) None of these

Question 71

As buildings and equipment wear out or become obsolete,their value decreases.To reflect decreasing value,accountants use

A) prepaid expenses.
B) licensing.
C) subtracting methods.
D) depreciation.
E) all of these.

Question 72

Which of the following formulas is used to calculate the cost of goods sold during the period?

A) Beginning inventory plus purchases minus ending inventory
B) Ending inventory minus beginning inventory plus purchases
C) Purchases minus beginning inventory plus ending inventory
D) Beginning inventory plus ending inventory minus purchases
E) Ending inventory plus beginning inventory divided by two

Question 73

The basic formula used for the income statement is

A) profit plus revenues equals expenses.
B) revenue minus expenses equals profit.
C) expenses plus profit equals revenue.
D) expenses plus revenues equals profit.
E) revenue minus profits equals expenses.

Question 74

Mahar wants to calculate net income.Which formula should he use?

A) Gross profit minus total operating expenses minus income taxes
B) Gross profit minus income taxes
C) Revenues minus operating expenses
D) Gross profit minus administrative expenses minus income taxes
E) Gross profit minus operating expenses

Question 75

At Lexi Corp.,sales revenue is $20 million,the cost of goods sold is $14 million,operating expenses are $3 million,and income taxes are $1 million.What is the company's net income?

A) $6 million
B) $17 million
C) $16 million
D) $2 million
E) None of these

Question 76

One manager (Adam)says that the income statement should be strong this year because the company has achieved a high level of sales revenue.Another manager (Eve)says that even with strong sales revenue,the income statement might not look particularly good.What is Eve assuming?

A) That revenues this year were not as high as last year's
B) That revenues are not as high as Adam thinks they are
C) That selling expenses exceeded administrative expenses this year
D) That many other factors must be taken into account to arrive at an income statement
E) That income taxes will be high this year

Question 77

Gem Corp.has $100 million in assets and $50 million in liabilities.Last year the company earned $10 million in net profit and paid out $5 million in dividends to shareholders.What are the retained earnings for the company?

A) $50 million
B) $5 million
C) $45 million
D) $90 million
E) $95 million

Question 78

If the following facts were known,which one would strengthen the argument that a company is profitable?

A) The company's sales revenue is low relative to its cost of goods sold.
B) The company's cost of goods sold is low relative to its sales revenue.
C) The number of customers has remained stable for some time.
D) The company has had the same owners over its lifetime.
E) The company's selling expenses are high compared to its administrative expenses.

Question 79

One manager (Adam)says that the income statement should be strong this year because the company has achieved a high level of sales revenue.Another manager (Eve)says that even with strong sales revenue,the income statement might not look particularly good.If the following facts were known,which one would strengthen Eve's argument?

A) Gross sales were higher than last year.
B) In the current year,total operating expenses were high.
C) There is only one part-time accountant at the company.
D) There were relatively few sales returns this year.
E) Outsourcing helped the company reduce administrative salaries by 25 percent.

Question 80

If a firm has $1 000 000 in retained earnings,what does this mean?

A) That the firm paid out $1 000 000 this year in dividends.
B) That the company is owed $1 000 000 by its creditors but has not yet collected the money.
C) That the firm has $1 000 000 in the bank.
D) That the company's net profits less its dividend payments equals $1 000 000.
E) That the company has saved $1 000 000 during the period since the last balance sheet was made up.