Question 1

Which of the following is an example of an "investing" cash cycle?

Accepted Answer

A) Receipt of funding from investors that is used to generate returns from investments and operations, and then returned to investors. 
B) Purchase of property with long-term future benefits which results in cash inflows and then the property is disposed of. 
C) Planning for product growth which results in investment opportunities that will create returns for investors. 
D) Purchase of inventory, conversion into products that are delivered to customers, and receipts from customers. 
A) Receipt of funding from investors that is used to generate returns from investments and operations, and then returned to investors. 
B) Purchase of property with long-term future benefits which results in cash inflows and then the property is disposed of. 
C) Planning for product growth which results in investment opportunities that will create returns for investors. 
D) Purchase of inventory, conversion into products that are delivered to customers, and receipts from customers.

Question 2

Information on the cash flow statement is categorized into

Accepted Answer

A) operating, investing and financing activities. 
B) current and non-current activities. 
C) operating, non-operating and discontinued activities. 
D) nature and function activities. 
A) operating, investing and financing activities. 
B) current and non-current activities. 
C) operating, non-operating and discontinued activities. 
D) nature and function activities.

Question 3

Which statement is correct?

Accepted Answer

A) Lower amounts of excessive accruals results in higher earnings quality. 
B) Excessive accruals are directly observable in financial reporting. 
C) It is easy to determine the contractual incentives causing excessive accruals. 
D) Excessive accruals improve the comparability of financial reporting. 
A) Lower amounts of excessive accruals results in higher earnings quality. 
B) Excessive accruals are directly observable in financial reporting. 
C) It is easy to determine the contractual incentives causing excessive accruals. 
D) Excessive accruals improve the comparability of financial reporting.

Question 4

General Limited's income statement reported the following for last year: $$\begin{array} { | l | r | } 
\hline \text { Sales revenue } & \$ 881,000 \
\hline \text { Cost of goods sold } & 573,000 \
\hline \text { Expenses } & 129,000 \
\hline \text { Net income } & 179,000 \
\hline
\end{array}$$ Which of the following statements is correct about the income statement?

Accepted Answer

A) Gross profit percentage is 20.32%. 
B) Mark-up on cost is $573,000. 
C) Net income percentage is 20.32%. 
D) Mark-up on the selling price is $308,000. 
A) Gross profit percentage is 20.32%. 
B) Mark-up on cost is $573,000. 
C) Net income percentage is 20.32%. 
D) Mark-up on the selling price is $308,000.

Question 5

The following information was provided from the records of Konstruct Inc, which began operations in the current year: $$\begin{array} { | l | r | } 
\text { Accrued expenses (payable), end of year } & \$ 30,000 \
\hline \text { Sales revenue (cash and credit) } & 325,000 \
\hline \text { Prepaid expenses, end of year } & 15,000 \
\hline \text { Cash collected on customer accounts during the year } & 31,000 \
\hline \text { Cash paid for expenses (including prepaid expenses and cost of } & 207,000 \
\text { goods sold) } & \
\hline
\end{array}$$ What were the company's expenses for the year?

Accepted Answer

A) $192,000 
B) $207,000 
C) $222,000 
D) $237,000 
A) $192,000 
B) $207,000 
C) $222,000 
D) $237,000

Question 6

A change in accounting policy

Accepted Answer

A) is accounted for on a retrospective basis, without restatement. 
B) allows management to bias financial reporting. 
C) is accounted for on a prospective basis, with restatement. 
D) is accounted for in the same manner as an error correction. 
A) is accounted for on a retrospective basis, without restatement. 
B) allows management to bias financial reporting. 
C) is accounted for on a prospective basis, with restatement. 
D) is accounted for in the same manner as an error correction.

Question 7

Explain how changes in accounting policies, changes in accounting estimates and errors are accounted for under the accrual basis of accounting.

Accepted Answer

Correction of errors and chang

Question 8

Which asset groups do not need to be presented separately in the balance sheet?

Accepted Answer

A) Asset groups that differ in their function or nature. 
B) Liabilities that are due to different banks. 
C) Asset groups that are material. 
D) Investment properties. 
A) Asset groups that differ in their function or nature. 
B) Liabilities that are due to different banks. 
C) Asset groups that are material. 
D) Investment properties.

Question 9

Sally Corp. received payment on a long-term receivable for $980,000. What effect does this transaction have on these accounts?

Accepted Answer

A)  $$\begin{array} { | l | l | l | } 
\hline \text { Total Assets } & \text { Total Liabilities } & \text { Shareholders' Equity } \
\hline \text { Increase by } \$ 980,000 & \text { Decrease by } \$ 980,000 & \text { No effect } \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | l | } 
\hline \text { Total Assets } & \text { Total Liabilities } & \text { Shareholders' Equity } \
\hline \text { Decrease by } \$ 980,000 & \text { Increase by } \$ 980,000 & \text { No effect } \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | l | } 
\hline \text { Total Assets } & \text { Total Liabilities } & \text { Shareholders' Equity } \
\hline \text { No effect } & \text { Decrease by } \$ 980,000 & \text { No effect } \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | l | } 
\hline \text { Total Assets } & \text { Total Liabilities } & \text { Shareholders' Equity } \
\hline \text { No effect } & \text { No effect } & \text { No effect } \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | l | l | } 
\hline \text { Total Assets } & \text { Total Liabilities } & \text { Shareholders' Equity } \
\hline \text { Increase by } \$ 980,000 & \text { Decrease by } \$ 980,000 & \text { No effect } \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | l | } 
\hline \text { Total Assets } & \text { Total Liabilities } & \text { Shareholders' Equity } \
\hline \text { Decrease by } \$ 980,000 & \text { Increase by } \$ 980,000 & \text { No effect } \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | l | } 
\hline \text { Total Assets } & \text { Total Liabilities } & \text { Shareholders' Equity } \
\hline \text { No effect } & \text { Decrease by } \$ 980,000 & \text { No effect } \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | l | } 
\hline \text { Total Assets } & \text { Total Liabilities } & \text { Shareholders' Equity } \
\hline \text { No effect } & \text { No effect } & \text { No effect } \
\hline
\end{array}$$

Question 10

Which of the following would be accounted for as correction of an error?

Accepted Answer

A) A furniture maker decreases bad debts expense from 3% to 2% of credit sales. 
B) A manufacturer determines that credit losses are becoming material due to deteriorating economic conditions. As a result, it decides to set up an allowance for doubtful accounts at 5% of amounts over 90 days. 
C) A parking service estimates bad debts to be 10% of the value of parking violations issued. In the current year, it changes to estimating the allowance for bad debts to be equal to 20% of accounts 30 to 90 days and 50% of accounts over 90 days. 
D) A shipbuilder changes its revenue recognition policy from the point of receipt by the customer to when the ship leaves the factory shipyard. This change results from a change in shipping policy from f.o.b. destination to f.o.b. shipping point. (Recall from introductory accounting that f.o.b. means "free on board," and it refers to the point at which ownership transfers from seller to buyer.) 
E) An electronics retailer has never accrued for warranties or product guarantees. A new consumer protection law comes into effect, giving buyers of electronic products a guarantee against defects for 180 days after purchase and the ability to return defective products to the retailer.
F)A clothing company that has been operating for 20 years decides to obtain an external audit for the first time in order to meet the bank's demands. The audit firm recommends that management report inventories at the lower of cost and net realizable value, whereas the company has previously only tracked and reported inventory figures at cost. 
A) A furniture maker decreases bad debts expense from 3% to 2% of credit sales. 
B) A manufacturer determines that credit losses are becoming material due to deteriorating economic conditions. As a result, it decides to set up an allowance for doubtful accounts at 5% of amounts over 90 days. 
C) A parking service estimates bad debts to be 10% of the value of parking violations issued. In the current year, it changes to estimating the allowance for bad debts to be equal to 20% of accounts 30 to 90 days and 50% of accounts over 90 days. 
D) A shipbuilder changes its revenue recognition policy from the point of receipt by the customer to when the ship leaves the factory shipyard. This change results from a change in shipping policy from f.o.b. destination to f.o.b. shipping point. (Recall from introductory accounting that f.o.b. means "free on board," and it refers to the point at which ownership transfers from seller to buyer.) 
E) An electronics retailer has never accrued for warranties or product guarantees. A new consumer protection law comes into effect, giving buyers of electronic products a guarantee against defects for 180 days after purchase and the ability to return defective products to the retailer.
F)A clothing company that has been operating for 20 years decides to obtain an external audit for the first time in order to meet the bank's demands. The audit firm recommends that management report inventories at the lower of cost and net realizable value, whereas the company has previously only tracked and reported inventory figures at cost.

Question 11

Dexter Corp. received cash for a service that is to be performed in the next accounting period. How should this transaction be accounted for?

Accepted Answer

A) As accrued revenue. 
B) As an expense. 
C) As a prepaid expense. 
D) As a liability. 
A) As accrued revenue. 
B) As an expense. 
C) As a prepaid expense. 
D) As a liability.

Question 12

Determine the missing amounts:

Accepted Answer

The answer of Determine the missing amounts:
 
 ...

Question 13

Changes in accounting estimates

Accepted Answer

A) are accounted for in the same manner as changes in accounting policies. 
B) reduce the relevance and reliability of financial reporting. 
C) are applied to current and past reporting periods. 
D) are applied to current and future reporting periods. 
A) are accounted for in the same manner as changes in accounting policies. 
B) reduce the relevance and reliability of financial reporting. 
C) are applied to current and past reporting periods. 
D) are applied to current and future reporting periods.

Question 14

Which statement is not correct about expenses in the income statement?

Accepted Answer

A) The function of expense format classifies expenses based on their use. 
B) Some function of expense categories are depreciation, employee costs, raw materials consumed. 
C) The nature of expense format classifies expenses based on their source. 
D) Some function of expense categories are cost of sales, administration or warehouse. 
A) The function of expense format classifies expenses based on their use. 
B) Some function of expense categories are depreciation, employee costs, raw materials consumed. 
C) The nature of expense format classifies expenses based on their source. 
D) Some function of expense categories are cost of sales, administration or warehouse.

Question 15

The method of depreciation was changed from the double-declining-balance method to the straight-line method in fiscal 2022. A machine was purchased on January 1, 2020, at a cost of $150,000. The machine has an estimated useful life of 10 years and a residual value of $9,000. Assume that net income before tax (NIBT)was $80,000 for fiscal 2020. What is the appropriate accounting for fiscal 2020?

Accepted Answer

A) Retrospective adjustment and revised NIBT of $110,000. 
B) Retrospective adjustment and revised NIBT of $95,900. 
C) Retrospective adjustment and revised NIBT of $65,900. 
D) No accounting is necessary in fiscal 2020. 
A) Retrospective adjustment and revised NIBT of $110,000. 
B) Retrospective adjustment and revised NIBT of $95,900. 
C) Retrospective adjustment and revised NIBT of $65,900. 
D) No accounting is necessary in fiscal 2020.

Question 16

Why is determining the "cut-off" point critical in the accrual basis of accounting?

Accepted Answer

A) Based on the periodicity concept, financial statements are prepared on a regular basis. 
B) It is important to reflect business transactions and events in the subsequent accounting period. 
C) The point in time at which one reporting period ends and another begins is important. 
D) Transactions must be reported in the cut-off period before the statements are authorized. 
A) Based on the periodicity concept, financial statements are prepared on a regular basis. 
B) It is important to reflect business transactions and events in the subsequent accounting period. 
C) The point in time at which one reporting period ends and another begins is important. 
D) Transactions must be reported in the cut-off period before the statements are authorized.

Question 17

The method of depreciation was changed from the double-declining-balance method to the straight-line method in fiscal 2022. A machine was purchased on January 1, 2020, at a cost of $150,000. The machine has an estimated useful life of 10 years and a residual value of $9,000. What is the appropriate accounting?

Accepted Answer

A) Retrospective adjustment for fiscal 2022. 
B) Retrospective adjustment for fiscal 2020 and 2021. 
C) Prospective adjustment from fiscal 2021 going forward. 
D) Error correction for fiscal 2022. 
A) Retrospective adjustment for fiscal 2022. 
B) Retrospective adjustment for fiscal 2020 and 2021. 
C) Prospective adjustment from fiscal 2021 going forward. 
D) Error correction for fiscal 2022.

Question 18

You are having coffee with a friend of yours who is interested in investing in a Canadian public company. Your friend gives you the audited financial statements but says he does not understand how this information is supposed to be helping him. Explain what is contained in a complete set of financial statements and how this information can help your friend with his decision-making needs.

Accepted Answer

•To meet the information needs of users,

Question 19

The method of depreciation was changed from the double-declining-balance method to the straight-line method in fiscal 2022. A machine was purchased on January 1, 2020, at a cost of $150,000. The machine has an estimated useful life of 10 years and a residual value of $9,000. What was booked as depreciation expense in fiscal 2020?

Accepted Answer

A) $14,100 
B) $15,900 
C) $24,000 
D) $30,000 
A) $14,100 
B) $15,900 
C) $24,000 
D) $30,000

Question 20

Which statement is correct about expenses in the income statement?

Accepted Answer

A) Some function of expense categories are depreciation or employee costs. 
B) Expenses can be classified in any manner under IFRS. 
C) The function of expense format classifies expenses based on their use. 
D) Expenses should be classified based on their materiality. 
A) Some function of expense categories are depreciation or employee costs. 
B) Expenses can be classified in any manner under IFRS. 
C) The function of expense format classifies expenses based on their use. 
D) Expenses should be classified based on their materiality.

Which of the following is an example of an "investing" cash cycle?

Information on the cash flow statement is categorized into

Which statement is correct?

General Limited's income statement reported the following for last year: Sales revenue \ 881,000 Cost of goods sold 573,000 Expenses 129,000 Net income 179,000 Which of the following statements is correct about the income statement?

A change in accounting policy

Explain how changes in accounting policies, changes in accounting estimates and errors are accounted for under the accrual basis of accounting.

Which asset groups do not need to be presented separately in the balance sheet?

Sally Corp. received payment on a long-term receivable for $980,000. What effect does this transaction have on these accounts?

Which of the following would be accounted for as correction of an error?

Dexter Corp. received cash for a service that is to be performed in the next accounting period. How should this transaction be accounted for?

Determine the missing amounts:

Changes in accounting estimates

Which statement is not correct about expenses in the income statement?

Why is determining the "cut-off" point critical in the accrual basis of accounting?

Which statement is correct about expenses in the income statement?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Revenue and Recognition

Cash and Receivables

Inventories

Financial Assets

Property, Plant and Equipment

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters

Exam 3: Accrual Accounting

Which of the following is an example of an "investing" cash cycle?

Information on the cash flow statement is categorized into

Which statement is correct?

General Limited's income statement reported the following for last year: Sales revenue \ 881,000 Cost of goods sold 573,000 Expenses 129,000 Net income 179,000 Which of the following statements is correct about the income statement?

A change in accounting policy

Explain how changes in accounting policies, changes in accounting estimates and errors are accounted for under the accrual basis of accounting.

Which asset groups do not need to be presented separately in the balance sheet?

Sally Corp. received payment on a long-term receivable for $980,000. What effect does this transaction have on these accounts?

Which of the following would be accounted for as correction of an error?

Dexter Corp. received cash for a service that is to be performed in the next accounting period. How should this transaction be accounted for?

Determine the missing amounts:

Changes in accounting estimates

Which statement is not correct about expenses in the income statement?

Why is determining the "cut-off" point critical in the accrual basis of accounting?

Which statement is correct about expenses in the income statement?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Revenue and Recognition

Cash and Receivables

Inventories

Financial Assets

Property, Plant and Equipment

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters