Question #1.

An example of a liability is:

a) insurance expense
b) equipment
c) notes payable
d) dividends

Question #2.

In January 1, 2004, Richard’s Design Corporation had assets of $160,000 and shareholders’ equity of $75,000. During the year, assets increased by $45,000 and shareholders’ equity decreased by $22,000. What were the liabilities on December 31, 2004?

a) $85,000
b) $152,000
c) $53,000
d) $205,000

Question #3.

An accountant debited Insurance Expense $10,600 and credited Cash $10,600 in error. The correct entry should have been to debit Prepaid Insurance for $10,600 and credit Cash for $10,600. As a result of this error

a) assets are overstated by $10,600
b) expenses are understated by $10,600
c) the trial balance will not balance
d) expenses are overstated by $10,600

Question #4.

The recording of expenses in the same time period as related revenues is known as:

a) Operating cycle.
b) Matching.
c) Cost recovery.
d) Cash basis.

Question #5.

The concept that states that a financial statement item would make a difference if its omission or misstatement would tend to mislead the reader of the financial statements under consideration is the:

a) Going concern convention.
b) Materiality convention.
c) Cost-benefit criterion.
d) Entity concept.

Question #6.

The purpose of an audit is to

a) prove the accuracy of an entity’s financial statements.
b) lend credibility to an entity’s financial statements.
c) endorse the quality of leadership that managers provide for a corporation.
d) establish that a corporation’s stock is a sound investment.

Question #7.

Which of the following will not result in recording a transaction?

a) Signing a contract to have an outside cleaning services clean offices nightly
b) Paying our employees their wages
c) Selling stock to investors
d) Buying equipment and agreeing to pay a note payable and interest at the end of a year
e) All of the above result in recording a transaction.

Question #8.

Which one of the following would cause cash inflow from an investing activity for Mobil Corporation?

a) Sold shares of stock in Boeing Corp.
b) Sold shares of Mobil Corp. stock.
c) Sold used equipment, which had been used in our refinery.
d) Both A and C create investing cash inflow.
e) None of the above generates investing cash inflow.

Question #9.

Which of the following errors would most likely lead to an overstatement of income?

a) Recording revenue next period when the cash is collected although it is earned in the current year.
b) Recording the expense incurred this year when the cash is paid next year.
c) Failure to adjust deferred rent revenue account for the portion of rent earned this year.
d) All of the above lead to overstated income this period.
e) None of the above leads to overstated income this period

Question #10.

The accounting definition of an asset does not include which of the following?

a) Things that a firm owns
b) Things that have future value
c) Things that a firm has the right to use
d) Things that had value in the past
e) All of the above are characteristics of assets

Question #11.

Generally accepted accounting principles

a) are considered to be a law that must be followed by all firms.
b) derive their authority from legal court proceedings.
c) derive their credibility and authority from general recognition and acceptance by the accounting profession.
d) include a set of accounting concepts and principles that guide accountant in preparing the financial statements.
e) Both c and d above are correct answers.

Question #12.

The primary purpose of the statement of cash flows is to report

a) income earned and dividends paid during the period.
b) all inflows and outflows of cash during the period.
c) assets owned and claims against those assets at the end of the period.
d) liability changes made by the financial department of the company during the period
e) All of the above are correct.

Question #13.

Which of the following ratios is(are) useful in assessing a company’s ability to meet currently maturing or short-term obligations? (Acid-test Ratio, Debt to equity ratio)

a) Neither
b) Debt to equity ratio
c) Both
d) Acid-test Ratio

Question #14.

Consolidated financial statements are prepared when a parent-subsidiary relationship exists in recognition of the accounting concept of

a) Materiality.
b) Entity.
c) Verifiability.
d) Going concern.

Question #15.

An expenditure to install an improved electrical system is a

a) Repair expenditure
b) Neither Repair expenditure or Capital expenditure
c) Capital expenditure
d) Both Repair expenditure and Capital expenditure

Question #16.

A company decided to change its inventory valuation method from FIFO to LIFO in a period of decreasing prices. What was the result of the change on ending inventory and net income in the year of the change?

a) Ending inventory Increase, Net income Decrease
b) Ending inventory Increase, Net income Increase
c) Ending inventory Decrease, Net income Decrease
d) Ending inventory Decrease, Net income Increase

Question #17.

The effect of a stock split is to

a) reduce the amount of retained earnings and reduce total contributed capital.
b) reduce the amount of retained earnings and increase total contributed capital.
c) reduce the amount of retained earnings and reduce the amount of total assets.
d) reduce the amount of retained earnings and increase the balance in a liabilities accounts.
e) None of the above is correct.

Question #18.

Which of the following best illustrates the accounting concept of conservatism?

a) Use of the lower of cost or market approach in valuing inventories
b) Use of the allowance method to recognize bad debt losses from credit sales
c) Use of the same accounting method from one period to the next in calculating amortization expense
d) Utilization of a policy of deliberate understatement of asset values in order to present a conservative net income figure
e) None of the above

Question #19.

What is the difference between cumulative and non-cumulative preferred stock?

a) They both receive dividends in arrears.
b) Cumulative does not receive dividends but noncumulative does.
c) Cumulative’s undeclared dividends accumulate each year until paid, while noncumulative’s right to receive dividends is forfeited in any year that dividends are not declared.
d) Cumulative preferred stock’s right to receive dividends is forfeited in any year that dividends are not declared. However, noncumulative’s undeclared dividends accumulate each year until paid.
e) Cumulative is callable stock, while noncumulative is convertible stock.

Question #20.

Which of the following most accurately describes owner's equity?

a) The financial worth of a company.
b) Creditors' claims to the assets of a company.
c) The value of assets contributed to the company by owners.
d) Owners' claims to the assets of a company.
e) None of the above.

Question #21.

Proper preparation and presentation of the financial statements is the responsibility of the:

A) Board of Directors
B) Management team
C) External auditor
D) Audit Committee

Question #22.

The Canadian Public Accountability Board is mandated to:

A) Conduct practice inspections of public accounting firms
B) Impose sanctions and restrictions on public accounting firms
C) Set accounting and assurance standards
D) Both a. and c. above
E) Both a. and b. above

Question #23.

The “balance sheet” provides information about:

A) The economic resources owned or controlled by the entity
B) The obligations to enterprise creditors
C) The current values of assets and liabilities
D) All of the above
E) Both a. and b. above

Question #24.

High quality earnings have which of the following attributes?

A) Correlate with cash flow from operations
B) More biased
C) Less volatile
D) Both a. and c. above
E) All of the above

Question #25.

The external auditor is hired, or fired, by:

A) Chief Financial Officer
B) Audit Committee
C) Chairman of the Board, with the advice of the CEO
D) The Board, having usually delegated the task to the audit committee
E) By vote of the shareholders

Question #26.

Which of the following is NOT typically included among “current assets” on the balance sheet?

A) Accounts receivable
B) Marketable securities
C) Inventory
D) Prepaid expenses
E) All of the above are typically included

Question #27.

Company obligations due within a year are called:

A) Current assets
B) Expenses
C) Current liabilities
D) Long term liabilities

Question #28.

The three sections of the cash flow statement are:

A) Cash from operations, investing and financing activities
B) Cash from operations, working capital and capital expenditures activities
C) Cash from operations, asset sales and stock activities
D) None of the above

Question #29.

What two measures of Earnings Per Share (EPS) are required on the income statement? What is the difference between them?

A) Basic and Fully Diluted EPS - discontinued operations being one component of the difference
B) Basic and Diluted EPS – potential dilutive common shares being the difference
C) Basic EPS and Diluted EPS – extraordinary items being one component of the difference
D) None of the above is correct

Question #30.

An alternative to EPS is:

A) Cash flow per share
B) Cash flow from operating activities per share
C) Dividends per share
D) None of the above

Question #31.

Assets that could require the company to record an impairment write-down if their realizable value declined below their book value include:

A) Receivables
B) Plant and equipment
C) Inventory
D) Investments and securities
E) Goodwill
F) All of the above

Question #32.

Comprehensive income includes:

A) Net income
B) Unrealized foreign currency translation gains and losses, net of hedging activities
C) Changes in gains and losses on derivatives designated as cash flow hedges
D) All of the above

Question #33.

Criteria for segmented reporting include:

A) 10% of all operating revenue
B) Assets are 10% of all operating assets
C) A component whose operating results are regularly reviewed by the enterprise's chief operating decision maker
D) All of the above

Question #34.

The auditor should keep the Audit Committee informed of:

A) All significant misstatements
B) Illegal acts
C) Management’s judgments and estimates of accounting-related issues
D) All of the above

Question #35.

Gross margin is generally defined as:

A) Revenue less operating expenses
B) Revenues less direct operating costs, usually costs of goods sold
C) Revenues less costs of good sold plus depreciation and amortization
D) None of the above

Question #36.

The purposes of MD&A (management discussion and analysis) in the financial statements includes

A) Providing a narrative explanation
B) Providing an analysis of historical data
C) Providing contextual prospective information not provided by the financial statements
D) Both a. and b. above
E) All of a., b., and c. above

Question #37.

Which of the following are NOT responsibilities of the external auditor?

A) Maintain an attitude of professional skepticism
B) Consider the possibility of fraud
C) Provide absolute assurance of the correctness of the financial statements
D) Be aware of potential for the occurrence of errors

Question #38.

A new CEO is hired by the Board of Directors and given a $250,000 allowance. The new CEO must repay the allowance if she leaves the company within one year of her start date. To account for the allowance the company should:

A) Record a prepaid for the amount and expense it after one year
B) Capitalize the expense and amortize it over the first year of employment
C) Expense it when paid
D) None of the above

Question #39.

A “Management Report” is:

A) Part of financial statements
B) Where management acknowledges responsibility for the financial statement preparation
C) Where management acknowledges responsibility for specialist reports
D) Both a. and b. above
E) Both b. and c. above

Question #40.

The organization responsible for monitoring whether publicly traded companies present fairly the financial position and results of operation is:

A) Canada Revenue Agency
B) Securities and Exchange Commission
C) Financial Accounting Standards Board
D) Provincial Securities Commission
E) Canadian Institute of Chartered Accountants
F) All of the above

Question #41.

The audit committee of a public company should be composed of:

A) The CFO, CEO and at least three outside directors
B) A minimum of three directors of the issuer who are financially literate and independent
C) The Chairman of the Board and two directors
D) None of the above is correct

Question #42.

Which of the following are intangible assets?

A) Patent
B) Major facility improvements
C) Goodwill
D) Both a. and c. above
E) All of the above