Chapter 8 – Financial Statements

Question 1

Examples of sole proprietorship

Answer 1

– Grocery shop
– Realtor
– Own business

Tax = personal 
liability = personal

Question 2

Examples of general partnership

Answer 2

– Lawyers
– Accountant
– Doctors
– Dentist

Joint plus several liability

Tax personable but liability is joint
(Common exam question)

Question 3

Examples of limited partnerships

examples of general partnership

Answer 3

Lawyers
accountants
doctors
dentists

One or more equals general partnership

one or more equals limited partnership

Question 4

Example of corporations

Answer 4

– Separate personal
– Shareholders
– Never dies

Tax is different at 13% can only sue company not personal

Question 5

Examples of trust on financial statements

Answer 5

One holding is trustee and one is a beneficiary

Question 6

Example of joint venture

Answer 6

Two entities with a common interest

I.e. builder and developer

Question 7

Two types of financial statements

Answer 7

Income statement (for a period)

Balance sheet (snapshot “as at”)

Question 8

What does GAAP stand for?

Answer 8

General
Accepted
Accounting
Principles

Question 9

Explain the following:

Cost principal
Revenue principal
Matching principal
Objectivity principal
Consistency principal
Fiscal principal

Answer 9

Original cost of asset

Revenue is recognized

Expenses are recognized

Data can be verified

Keep it the same

Yearly the accounting cycle

Question 10

What is the street line depreciation method?

Answer 10

Determines the estimated useful life of the asset

Depreciation = cost - salvage \ by useful life

Or

Divide the estimated useful life (in years) into one to arrive at the straight-line depreciation rate.
Multiply the depreciation rate by the asset cost (les salvage value)

Question 11

CCA – capital cost allowance.

Is it tax-deductible?

Answer 11

Capital cost allowance can only be cleaned in year one and can’t claim any in the last year.