Exam Practice

Question 1

After performing a Liquidity Analysis, you can say that the company’s trend is:
A) Improving.
B) Stable, without changes.
C) Getting worst.
D) Unable to say, critical data is missing.
E) None of the above

Question 2

After performing a Profitability Analysis, you can say that the company’s trend is:
A) Improving.
B) Stable, without changes.
C) Getting worst.
D) Unable to say, critical data is missing.
E) None of the above

Question 3

When performing an efficiency analysis, which ratio you would consider?
A). Return on Sales (ROS)
B). Current ratio
C). Average collection period
D). Interest coverage
E). Equity ratio

Question 4

Which of the following is not a desirable attribute of financial statements
A) relevance
B) subjectivity
C) reliability
D) completeness
E) None of the other alternatives are correct

Question 5

The following definition pertains to which desirable attribute of financial statements: statements
should be free of material error and/or fraud and represent what really happened or exists.
A) relevance
B) subjectivity
C) reliability
D) completeness
E) None of the other alternatives are correct

Question 6

GAAP in Canada refers to
A) FASB and ASPE
B) IFRS and ASPE
C) FASB and IFRS
D) ASPE
E) None of the other alternatives are correct

Question 7

Business depend on accounting systems to
A) Manage all the sales with point of sales equipment
B) Keep track and collect all outstanding receivables at any point in time
C) Set up accounting policies and records
D) Convert large amount of transactions into useful data to manage the organization
E) None of the other alternatives are correct

Question 8

) You are the Chief Financial Officer of XYZ Corporation. You receive shares of XYZ as part of
your compensation each year and you sell these shares and use the proceeds from the sale to pay
for nursing home care for your mother. You have just learned that XYZ Corporation has lost its
major customer and know that sales for the year will be sharply impacted. Because reported net
income will be below the expectations of market analysts, you know that when the news of the
loss of the customer becomes public, the market price of XYZ Corporation shares will drop. If
you sell your shares of XYZ before the news becomes public you are

A) Sending a signal to the market
B) Engaging in insider trading and acting unethically
C) Exercising due care in taking care of your money
D) Contributing to an efficient capital market by acting rationally upon all available information
E) None of the other alternatives are correct

Question 9

When performing a liquidity analysis, which ratio you would consider?
A). Return on Sales (ROS)
B). Current ratio
C). Average collection period
D). Working capital turnover
E). Equity ratio

Question 10

When performing an analysis on leverage, which ratio you would consider?
A). Return on Sales (ROS)
B). Current ratio
C). Average collection period
D). Working capital turnover
E). Equity ratio

Question 11

When performing a profitability analysis, which ratio you would consider?
A). Return on Sales (ROS)
B). Current ratio
C). Average collection period
D). Interest coverage
E). Equity ratio

Question 12

When performing an efficiency analysis, which ratio you would consider?
A). Return on Sales (ROS)
B). Current ratio
C). Average collection period
D). Interest coverage
E). Equity ratio

Question 13

Which of the following is not a desirable attribute of financial statements
A) relevance
B) subjectivity
C) reliability
D) completeness
E) None of the other alternatives are correct

Question 14

The following definition pertains to which desirable attribute of financial statements: statements
should be free of material error and/or fraud and represent what really happened or exists.
A) relevance
B) subjectivity
C) reliability
D) completeness
E) None of the other alternatives are correct

Question 15

A set of rules of professional conduct that governs the behaviour of accountants in the performance
of their work is called
A) generally accepted accounting principles (GAAP)
B) the Accounting Act
C) the Sarbanes-Oxley Act
D) a code of ethics
E) None of the other alternatives are correct

Question 16

) Three foundations underpinning financial reporting and transparency are the conceptual foundations,
the technical foundations and
A) the professional foundations
B) the Board of Directors foundations
C) the audit foundations
D) The theoretical foundations
E) None of the other alternatives are correct

Question 17

Christina wants to have $10 million to retire 45 years from now. How much would she have
to invest today with an annual rate of return to 15%?
a. $18,562
b. $17,844
c. $20,003
d. $21,345
e. None of the above

Question 18

For which of the following errors should the appropriate amount be added to the balance
per bank on a bank reconciliation?
a. Cheque for $56 recorded by the company as $36
b. Deposit of $400 recorded by the bank as $40
c. A returned cheque for $200 recorded by the bank as $20
d. Cheque for $23 recorded by the company as $32
e. None of the above

Question 19

Company has a beginning balance in Accounts Receivable of $50,000 and beginning credit
balance in the Allowance for Doubtful Accounts of $1,000. During 2019 they sold $900,000 of
goods on credit and collected $750,000. If Company estimates that 2% of its ending accounts
receivable will eventually not be collected, its adjusting journal entry for the bad debt
expense will include a credit to allowance for doubtful accounts of:
a. $4,000
b. $3,900
c. $4,100
d. $3,000
e. None of the above

Question 20

) Roman wants to buy from Adrian a Company 10%, $100,000 bond that was issued 5 years
ago. The bond pays interest annually. The bonds currently have exactly five years to
maturity. How much Roman does have to Adrian, if current interest rates are 8%?
a. $107,987
b. $100,000
c. $74,730
d. $92,818
e. None of the above

Question 21

A 10 year, $100,000 zero coupon bond is priced to yield 10%. The amount the issuing
company will receive is:
a. $100,000
b. $38,550
c. $42,405
d. $93,452
e. None of the above

Question 22

A Company issuing 5 year, $100,000 face, 10% coupon bond to yield 12%. The journal entry
to record the issuance of the bonds would include:
a. Dr. to bond discount of $7,212
b. Dr. to cash of $100,000
c. Cr. to premium on bonds payable of $7,575
d. Cr. to bonds payable of $92,788
e. None of the above

Question 23

Which of the following changes describes the declaration of $1,000 in cash dividends payable
next month?
a. Assets and owners’ equity increase by $1,000
b. Assets and owners’ equity decrease by $1,000
c. Liabilities decrease and owners’ equity increase by $1,000
d. Liabilities increase and owners’ equity decrease by $1,000
e. None of the above

Question 24

Company Inc. has a balance in the treasury stock of $5,000 representing 1,000 shares of
stock it bought back last year. If Company sells 700 shares of the stock for $7 per share, the
balance in the treasury stock will be:
a) $5,000
b) $2,500
c) $1,500
d) $3,000
e) None of the above

Question 25

The qualitative characteristic that best refers to the confidence that financial statement
users have that the statements are free of material error or misrepresentation is:
A) objectivity
B) understandability
C) reliability
D) relevance
E) None of the other alternatives are correct

Question 26

A set of rules of professional conduct that governs the behaviour of accountants in the
performance of their work is called
A) generally accepted accounting principles (GAAP)
B) the Accounting Act
C) the Sarbanes-Oxley Act
D) a code of ethics
E) None of the other alternatives are correct

Question 27

Three foundations underpinning financial reporting and transparency are the conceptual
foundations, the technical foundations and
A) the professional foundations
B) the Board of Directors foundations
C) the audit foundations
D) The theoretical foundations
E) None of the other alternatives are correct

Question 28

Business depend on accounting systems to
A) Manage all the sales with point of sales equipment
B) Keep track and collect all outstanding receivables at any point in time
C) Set up accounting policies and records
D) Convert large amount of transactions into useful data to manage the organization
E) None of the other alternatives are correct

Question 29

For which of the following errors should the appropriate amount be added to the balance
per bank on a bank reconciliation?
a. Cheque for $56 recorded by the company as $36
b. Deposit of $400 recorded by the bank as $40
c. A returned cheque for $200 recorded by the bank as $20
d. Cheque for $23 recorded by the company as $32
e. None of the above

Question 30

Company has a beginning balance in Accounts Receivable of $50,000 and beginning credit
balance in the Allowance for Doubtful Accounts of $1,000. During 2019 they sold $900,000 of
goods on credit and collected $750,000. If Company estimates that 2% of its ending accounts
receivable will eventually not be collected, its adjusting journal entry for the bad debt
expense will include a credit to allowance for doubtful accounts of:
a. $4,000
b. $3,900
c. $4,100
d. $3,000
e. None of the above

Question 31

Roman wants to buy from Adrian a Company 10%, $100,000 bond that was issued 5 years
ago. The bond pays interest annually. The bonds currently have exactly five years to
maturity. How much Roman does have to Adrian, if current interest rates are 8%?
a. $107,987
b. $100,000
c. $74,730
d. $92,818
e. None of the above

Question 32

A 10 year, $100,000 zero coupon bond is priced to yield 10%. The amount the issuing
company will receive is:
a. $100,000
b. $38,550
c. $42,405
d. $93,452
e. None of the above

Question 33

) A Company issuing 5 year, $100,000 face, 10% coupon bond to yield 12%. The journal entry
to record the issuance of the bonds would include:
a. Dr. to bond discount of $7,212
b. Dr. to cash of $100,000
c. Cr. to premium on bonds payable of $7,575
d. Cr. to bonds payable of $92,788
e. None of the above

Question 34

Which of the following changes describes the declaration of $1,000 in cash dividends payable
next month?
a. Assets and owners’ equity increase by $1,000
b. Assets and owners’ equity decrease by $1,000
c. Liabilities decrease and owners’ equity increase by $1,000
d. Liabilities increase and owners’ equity decrease by $1,000
e. None of the above

Question 35

Company Inc. has a balance in the treasury stock of $5,000 representing 1,000 shares of
stock it bought back last year. If Company sells 700 shares of the stock for $7 per share, the
balance in the treasury stock will be:
a) $5,000
b) $2,500
c) $1,500
d) $3,000
e) None of the above

Question 36

Company Inc. sold a piece of equipment on January 1, 2019. The company originally
purchased the equipment 20 years ago for $200,000. Accumulated depreciation on the date
of sale was $120,000. The sale resulted in a gain of $5,000.

The equipment was sold for:
a) $205,000
b) $85,000
c) $125,000
d) $80,000
e) None of the above

On the cash flow statement, Company would
a) Subtract the gain from the income in the “Cash from operations”
b) Add gain to the income in the “Cash from operations”
c) Subtract the gain in the “Cash from investing”
d) Add the gain in the “Cash from investing”
e) None of the above

Question 37

) Company Inc. purchased land adjacent to its plant. Expenses incurred in purchasing the
land were as follows: purchase price, $55,000; broker’s fees, $6,000; title search and other
fees, $5,000; demolition of an old building on the property, $5,700; grading, $1,200; digging
foundation for the road, $3,000; laying and paving driveway, $25,000; lighting $7,500; signs,
$1,500. What is the land acquisition cost?
a) $73,900
b) $71,700
c) $96,700
d) $74,400
e) None of the above

Question 38

) Which of the following is not a desirable attribute of financial statements
A) relevance
B) subjectivity
C) reliability
D) completeness
E) None of the other alternatives are correc