Question 1

Accounting methods, estimates, and assumptions used in preparing &#64257;nancial statements are found
A) in the auditor's report.
B) in the management discussion and analysis.
C) In the notes to the ﬁnancial statements.
D) on the income statement.

Accepted Answer

Accounting methods, estimates, and assumptions are detailed in the notes to the financial statements. These notes provide additional context and explanations for the figures presented in the main financial statements, helping users to understand the basis on which the financial information has been prepared.

Question 2

In Canada, generally accepted accounting principles for private enterprises are currently developed by which entity?
A) The Securities and Exchange Commission
B) Ontario Securities Commission
C) The Private Company Accounting Oversight Board
D) The Accounting Standards Board

Accepted Answer

In Canada, generally accepted accounting principles (GAAP) for private enterprises are developed by the Accounting Standards Board (AcSB).

Question 3

Information about material events, opportunities and uncertainties would best be found in
A) in the management discussion and analysis.
B) In the notes to the ﬁnancial statements.
C) on the income statement.
D) in the auditor's report.

Accepted Answer

The management discussion and analysis (MD&A) section provides insights into material events, opportunities, and uncertainties affecting the company, offering a narrative explanation of the financial statements.

Question 4

When are ratios most useful for analysis?
A) When used alone.
B) When compared with historical ratios of the same company.
C) When compared with ratios for other companies in the industry.
D) When compared with both historical ratios of the same company and ratios for other companies in the industry.

Accepted Answer

Ratios are most useful for analysis when they are compared both with historical ratios of the same company, to track performance over time, and with ratios for other companies in the industry, to gauge competitive position and industry standards. This comprehensive approach provides a more complete picture of a company's financial health and performance.

Question 5

Ratios are useful in explaining the:
A) differences between companies
B) relationships between financial data
C) trends within industries
D) reasons for financial performance

Accepted Answer

Ratios are primarily used to illustrate relationships between different pieces of financial data, helping to analyze a company's performance, financial health, and operational efficiency.

Question 6

Whether by implementing a strategy of differentiation or one of cost advantage, the common objective of a company is
A) an ROA above 8%
B) positive earnings per share
C) maximum return on equity
D) maximum leverage

Accepted Answer

The common objective of a company, whether through differentiation or cost advantage, is to maximize return on equity (ROE), as it reflects the company's ability to generate profits from shareholders' investments.

Question 7

International ﬁnancial reporting standards are currently developed by which entity
A) the IFRS Foundation
B) the International Accounting Standards Board
C) the International Organization of Securities Commissions
D) the Ontario Securities Commission

Accepted Answer

The International Accounting Standards Board (IASB) is responsible for the development of International Financial Reporting Standards (IFRS), which are designed to bring transparency, accountability, and efficiency to financial markets around the world. The IASB operates under the oversight of the IFRS Foundation.

Question 8

Which of the following is not an example of a company comparison analysis?
A) Determining how the growth in sales from one company differed from that of another company.
B) Comparing growth in sales across different industries
C) Comparing total sales across companies in the same industry for the past three years.
D) Determining the growth in sales for a company over a ﬁve-year period.

Accepted Answer

Determining the growth in sales for a company over a five-year period is not an example of a company comparison analysis because it focuses on the performance of a single company over time rather than comparing it with other companies.

Question 9

Companies that focus on maintaining high proﬁt margins in order to generate higher returns on equity are most likely employing what type of business strategy?
A) Cost advantage
B) Vertical integration
C) Differentiation
D) Earnings capitalization

Accepted Answer

Differentiation strategy focuses on offering unique products or services that allow the company to charge premium prices, thereby maintaining high profit margins. This approach can lead to higher returns on equity as it creates a competitive advantage that can sustain higher profitability.

Question 10

Companies that focus on making the most eﬃcient use of assets in order to generate higher returns on equity are most likely employing what type of business strategy?
A) Cost advantage
B) Vertical integration
C) Differentiation
D) Earnings capitalization

Accepted Answer

Cost advantage strategies focus on improving efficiency and reducing costs, which can lead to higher returns on equity by maximizing the use of assets.

Question 11

The primary responsibility for the information in a company's ﬁnancial statements and related disclosures lies with:
A) the creditors.
B) the external auditor.
C) the CEO and CFO of the company.
D) the internal auditors.

Accepted Answer

The CEO and CFO of the company are primarily responsible for the information in the company's financial statements and related disclosures. They are tasked with ensuring the accuracy and completeness of financial reports in accordance with applicable laws and accounting standards.

Question 12

Review of the ﬁnancial statements revealed the following for Petrolis Sales Inc. Sales $1,250,000, Net income $37,500, Total assets $650,000, Long-term debt $750,000, Interest expense $65,000 and Cost of goods sold $775,000. When preparing common size ﬁnancial statements interest expense would be shown as
A) 9.4%
B) 8.4%
C) 5.2%
D) 10%

Accepted Answer

Interest expense as a percentage of sales is calculated as ($65,000 / $1,250,000) * 100 = 5.2%.

Question 13

What type of audit report indicates that the ﬁnancial statements present fairly the ﬁnancial position, results of operations and the cash ﬂows for the accounting period?
A) A disclaimer of opinion
B) A qualiﬁed report
C) An unqualiﬁed report
D) An adverse opinion

Accepted Answer

An unqualified report indicates that the auditor believes the financial statements present fairly the financial position, results of operations, and cash flows for the accounting period, in conformity with the applicable financial reporting framework.

Question 14

Why is the audit report important in the analysis of a company?
A) The auditors are an independent third party expressing an opinion on the fairness of the ﬁnancial statements.
B) It guarantees the accuracy of the information in the ﬁnancial statements.
C) The auditors are hired by management to assess the appropriateness of the accounting policies chosen.
D) It guarantees the accuracy of the internal controls of the company.

Accepted Answer

The audit report is important because it provides an independent third-party opinion on the fairness and accuracy of the financial statements, which helps stakeholders make informed decisions.

Question 15

Time series analysis involves examining a company's ﬁnancial data
A) across account classiﬁcations.
B) and comparing it with other companies.
C) across time periods.
D) as percentages of net sales or total assets.

Accepted Answer

Time series analysis specifically refers to the examination of data across different time periods to identify trends, patterns, and potential forecasts.

Question 16

What is the goal of the International Accounting Standards Board?
A) To have worldwide acceptance of a set of international generally accepted accounting principles
B) To develop accounting principles to meet the legal and tax needs of countries
C) To protect the right of each country to develop and maintain its own accounting standards
D) To develop rules for listing securities in any market

Accepted Answer

The International Accounting Standards Board (IASB) aims to develop a single set of high-quality, understandable, enforceable, and globally accepted accounting standards—IFRS Standards—and to promote and facilitate their worldwide acceptance. This is to ensure transparency, accountability, and efficiency in the financial markets around the world, rather than focusing on the legal, tax needs, or securities listing rules of individual countries.

Question 17

Information about management and director compensation would best be found
A) in the notes to the ﬁnancial statements
B) in the auditor's report
C) In the cash ﬂow statement
D) In the shareholders' information circular

Accepted Answer

The shareholders' information circular typically contains details about management and director compensation, as it is used to inform shareholders about matters to be discussed at the annual meeting, including executive pay.

Question 18

An analytical tool for comparing two companies of different sizes is
A) common size statements
B) short-term liquidity
C) ﬁnancial leverage
D) Annual reports

Accepted Answer

Common size statements are financial statements in which each line item is expressed as a percentage of a significant total such as sales or assets. This allows for comparison between companies of different sizes by standardizing the data.

Question 19

Solvency is of most interest to:
A) short-term creditors.
B) customers.
C) competitors.
D) long-term creditors.

Accepted Answer

Solvency refers to an entity's ability to meet its long-term financial commitments and obligations. Long-term creditors are most interested in solvency because it affects the entity's ability to repay long-term debts.

Question 20

What is the common denominator for each item on the income statement when preparing a common size income statement?
A) Net income
B) Sales
C) Operating proﬁt
D) Gross proﬁt

Accepted Answer

The common denominator for each item on a common size income statement is sales (or total revenue). This allows for the analysis of each line item as a percentage of total sales, facilitating comparison across periods and with other companies.

Quiz 12: Statement Cash Flows

Accounting methods, estimates, and assumptions used in preparing ﬁnancial statements are found

In Canada, generally accepted accounting principles for private enterprises are currently developed by which entity?

Information about material events, opportunities and uncertainties would best be found in

When are ratios most useful for analysis?

Ratios are useful in explaining the:

Whether by implementing a strategy of differentiation or one of cost advantage, the common objective of a company is

International ﬁnancial reporting standards are currently developed by which entity

Which of the following is not an example of a company comparison analysis?

Companies that focus on maintaining high proﬁt margins in order to generate higher returns on equity are most likely employing what type of business strategy?

Companies that focus on making the most eﬃcient use of assets in order to generate higher returns on equity are most likely employing what type of business strategy?

The primary responsibility for the information in a company's ﬁnancial statements and related disclosures lies with:

What type of audit report indicates that the ﬁnancial statements present fairly the ﬁnancial position, results of operations and the cash ﬂows for the accounting period?

Why is the audit report important in the analysis of a company?

Time series analysis involves examining a company's ﬁnancial data

What is the goal of the International Accounting Standards Board?

Information about management and director compensation would best be found

An analytical tool for comparing two companies of different sizes is

Solvency is of most interest to:

What is the common denominator for each item on the income statement when preparing a common size income statement?