Question 1

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

Accepted Answer

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 2

Which of the following statements about preparers is true?

Accepted Answer

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 3

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

Accepted Answer

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 4

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

Accepted Answer

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.

Question 5

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

Accepted Answer

The answer of Identify five potential stakeholders in a company...

Question 6

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?

Accepted Answer

The answer of Armand Arsenault owns-that is, he is the...

Question 7

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

Accepted Answer

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

Question 8

What does ASPE stands for?

Accepted Answer

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 9

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?

Accepted Answer

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

Question 10

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

Accepted Answer

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

Question 11

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?

Accepted Answer

The answer of In the summer of 2005, forty three...

Question 12

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.

Accepted Answer

The answer of Identify three external users of an entity's...

Question 13

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

Accepted Answer

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

Question 14

Which of the following statements about private corporations is true?

Accepted Answer

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 15

What are the four key components of the accounting environment?

Accepted Answer

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 16

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

Accepted Answer

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 17

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 $\begin{array}{llr}
\text { Date } & \text { Purpose } & \text { Amount } \
\text { June 1 } & \text { opening balance } & \$ 1,000 \
\text { June 1 } & \text { purchase of 100 titles } & -400 \
\text { June 1 } & \text { payment of June's rent } & -250\
\text { June 1-8 } & \text { rental fees collected } & 175 \
\text { June } 2 & \text { purchase of office supplies } & -125 \
\text { June } 9-16 & \text { rental fees collected } & 200 \
\text { June } 17^{\text {th }} & \text { late fees collected } & 5\
\text { June } 18^{\text {th }} & \text { purchase of DVD player for the store to show movies } & -225 \
\text { June } 17-24 & \text { rental fees collected } & 225 \
\text { June 26 }^{\text {th }} & \text { ordered in pizza } & -20 \
\text { June 24-20 } & \text { rental fees collected } & 250 \
\text { June 30 }^{\text {th }} & \text { payment of July's rent } & -250
\end{array}$ 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.

Accepted Answer

The answer of Katerina Slovenka decided to turn her love...

Question 18

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

Accepted Answer

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 19

Which of the following statements about stakeholders is true?

Accepted Answer

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 20

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

Accepted Answer

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.

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