Course Introduction
Accounting Principles
Chapter Exam Questions
Accounting Principles introduces students to the fundamental concepts and practices of financial accounting, focusing on the systematic recording, reporting, and analysis of business transactions. The course covers essential topics such as the accounting cycle, preparation of financial statements, interpretation of financial information, and understanding of generally accepted accounting principles (GAAP). Emphasis is placed on the practical application of accounting methods in real-world scenarios, enabling students to develop the skills necessary to analyze financial data, make informed business decisions, and ensure organizational accountability and transparency.
Recommended Textbook
Intermediate Accounting Volume 1 12th Canadian Edition by Donald E. Kieso
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1318 Verified Questions
1318 Flashcards
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Page 2
Chapter 1: The Canadian Financial Reporting Environment
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74 Flashcards
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Sample Questions
Q1) Information asymmetry
In markets where information asymmetry exists, there can be adverse selection and moral hazard. Explain what these terms mean.
Answer: Adverse selection refers to hidden knowledge, where the capital marketplace may attract the wrong type of company, such as companies who have the most to gain from not disclosing information. Given this situation, companies who do fully disclose all information may choose not to enter the marketplace if they are aware of the presence of adverse selection.
Moral hazard refers to hidden actions, and occurs as a result of human nature. People or companies may shirk their responsibilities if they think they can get away with it, e.g., not disclose negative information since they know it may be detrimental to their share price. This is a form of management bias.
Q2) The Sarbanes-Oxley Act (SOX) was NOT enacted to
A) help prevent fraud and poor financial reporting practices.
B) ensure the act was applied internationally.
C) enable the SEC to increase its policing efforts.
D) introduce new independence rules for auditors.
Answer: B
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Page 3
Chapter 2: Conceptual Framework Underlying Financial Reporting
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81 Flashcards
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Sample Questions
Q1) Which of the following is NOT a component of a conceptual framework for financial reporting?
A) accounting's goals and purposes
B) qualitative characteristics of accounting information
C) foundational principles
D) All of the above are components of a conceptual framework.
Answer: D
Q2) Fraudulent financial reporting and the accountant's role
Explain what the accountant's responsibility is in preparation of a company's financial records.
Answer: The accountant's role is to capture business and economic events and transactions as they occur and communicate them to interested parties. They should not use the financial statements to portray something that is not there. Good financial reporting should be a result of reasoned and supported analysis that is grounded in a conceptual framework. It should not be influenced by external pressures such as those identified in a previous question.
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Chapter 3: Measurement
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31 Flashcards
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Sample Questions
Q1) In order to measure fair value under IFRS13, an entity must determine
A) the item being measured, and how the item could or would be used.
B) the market the item would be (or is) bought and sold in.
C) which fair value model is being used to value the item.
D) all of the above
Answer: D
Q2) Barkley Company will receive $400,000 in a future year. If the future receipt is discounted at an interest rate of 8%, its present value is $252,068. In how many years is the $400,000 received?
A) 5 years
B) 6 years
C) 7 years
D) 8 years
Answer: B
Q3) Under the traditional discounted cash flow approach,
A) the model is best used when cash flows are uncertain.
B) the stream of contracted cash flows is discounted.
C) the risk-free discount rate is used.
D) the method is best used when cash flows are variable.
Answer: B
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Chapter 4: Reporting Financial Performance
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125 Flashcards
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Sample Questions
Q1) Which of the following is INCORRECT regarding differences between IFRS and ASPE?
A) Both IFRS and ASPE mandate a list of required items that must be presented.
B) IFRS requires that held-for-sale assets be reclassified as current assets.
C) Comprehensive income is not recognized under ASPE.
D) Both IFRS and ASPE require presentation of both basic and diluted EPS.
Q2) Segregating a company's recurring operating income from nonrecurring income sources is useful because
A) recurring income is constantly changing.
B) nonrecurring income is subject to greater management bias and uncertainty.
C) results from continuing operations have greater significance for predicting future performance.
D) nonrecurring income is irrelevant to stakeholders.
Q3) IFRS requires that expenses be presented in the income statement
A) by amount or in alphabetical order.
B) by geographical area or by the single-step method.
C) by nature or by function.
D) by current or non-current.
Q4) Low-cost/high-volume strategy versus cost differentiation strategy Explain the difference between a low-cost/high-volume strategy and a cost differentiation strategy.
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Chapter 5: Financial Position and Cash Flows
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103 Flashcards
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Sample Questions
Q1) Which of the following is NOT a current liability?
A) unearned revenue
B) derivatives
C) stock dividends distributable
D) trade accounts payable
Q2) Ratios that measure the degree of protection for long-term creditors and investors or the ability to meet long-term obligations are called
A) liquidity ratios.
B) activity ratios.
C) solvency ratios.
D) profitability ratios.
Q3) IFRS Practice Statement 2
IFRS Practice Statement 2 (PS2) was issued in September 2017 and provides (non-mandatory) guidance for reporting entities to consider. Given that information is material if its omission or misstatement could influence financial information users' decisions, identify the four-step process for assessing materiality suggested by PS2.
Q4) Current assets
Define current assets without using the word "asset."
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Chapter 6: Revenue Recognition
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Sample Questions
Q1) Contract-based approach
In January 2020, Bruins Construction Corp. contracted to construct a building for $ 6,000,000. Construction started in early 2020 and was completed in 2021. The following additional information is available:
\(\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad \quad\quad\quad\quad\quad\underline{2020}\quad\quad\quad\quad\underline {2021}\)
\(\text{Costs incurred}\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots\ldots\$2,430,000\quad\$2,270,000\)
\(\text{Estimated costs to complete}\ldots \ldots \ldots \ldots\ldots2,600,000 \quad -\)
\(\text{Collections during the year}\ldots \ldots \ldots \ldots \ldots \ldots2,400,000\quad3,600,000\) Bruins uses the percentage-of-completion method.
Instructions
Under the contract-based approach,
a) How much revenue should Bruins report for 2020 and 2021?
b) Prepare all journal entries for 2020 and 2021 for this contract.
Q2) Concessionary terms
Explain what concessionary terms are, and give four examples.
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Chapter 7: Cash and Receivables
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114 Flashcards
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Sample Questions
Q1) Cookie Ltd. receives a four-year, $100,000, zero-interest-bearing note. The present value of this note is $82,270. What is the implicit rate of interest?
A) 3%
B) 5%
C) 7%
D) 9%
Q2) Amortization of discount under the straight-line and effective interest methods
On January 1, 2020, Ethiopia Corporation receives a four-year, $50,000, zero-interest-bearing note in payment of goods sold. The present value of the note equals the agreed upon sales price of $32,936.55. Ethiopia is a privately held company and follows ASPE.
Instructions
a) Assuming Ethiopia uses the straight-line method to amortize the note's discount, prepare the journal entry to record the sale on January 1, and the interest accrual on December 31, 2020.
b) Assuming Ethiopia uses the effective interest method to amortize the note's discount, prepare the journal entry to record the sale on January 1, and the interest accrual on December 31, 2020.
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Page 9
Chapter 8: Inventory
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168 Flashcards
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Sample Questions
Q1) Assuming that Key uses the perpetual inventory system, what should the inventory be at January 31, using the moving-average inventory method, rounded to the nearest dollar?
A) $10,237
B) $10,260
C) $10,360
D) $10,505
Q2) Which of the following best describes the concept of product costs?
A) They are costs that are "attached" to inventory.
B) They are costs that are usually expenses.
C) They usually don't include freight charges.
D) They usually don't include conversion costs.
Q3) Which of the following criteria does NOT have to be met in order to be able to value inventory above cost?
A) The cost of disposal can be estimated.
B) The sale is assured.
C) There is an active market for the product.
D) The sale must already have occurred.
Q4) Bearer plants
Explain how bearer plants are accounted for and why.
Page 10
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Chapter 9: Investments
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Sample Questions
Q1) On December 31, 2020, Ryan Corp. acquired a 40% interest in Gosling Corp. for $ 315,000. During 2021, Gosling reported net income of $ 200,000 and paid total cash dividends of $ 50,000. Assuming Ryan uses the equity method, at December 31, 2021, the balance in the investment account should be
A) $ 395,000.
B) $ 295,000.
C) $ 375,000.
D) $ 255,000.
Q2) When an investor is using the equity method and receives dividends from the investee, the journal entry will include a
A) credit to Dividend Revenue.
B) credit to Retained Earnings.
C) credit to the Investment account.
D) debit to the Investment account.
Q3) Under the cost/amortized cost model, holding gains are
A) recognized in net income only when realized.
B) recognized in other comprehensive income.
C) recognized depending on management's intention.
D) not recognized at all.
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Page 11
Chapter 10: Property, Plant, and Equipment: Accounting Model Basics
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99 Flashcards
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Sample Questions
Q1) Which of the following would NOT be included in the cost of an item of property, plant, and equipment?
A) the purchase price net of any trade discounts and rebates
B) delivery costs
C) costs of training employees to use the asset
D) costs of obligations associated with the asset's eventual disposal
Q2) Explain the concept of componentization as it applies to the recognition of PP&E assets.
Q3) Which of the following statements is correct?
A) IFRS treats major overhauls that allow the continued use of an asset, as replacements; ASPE usually treats them as expenses.
B) ASPE treats major overhauls that allow the continued use of an asset, as replacements; IFRS usually treats them as expenses.
C) Both IFRS and ASPE treat major overhauls that allow the continued use of an asset, as replacements.
D) Both IFRS and ASPE treat major overhauls that allow the continued use of an asset, as expenses.
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Page 12
Chapter 11: Depreciation, Impairment, and Disposition
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Sample Questions
Q1) An asset's useful life
A) remains unchanged once it has been determined.
B) is the same as its physical life.
C) is affected by physical and economic factors.
D) is not affected by physical and economic factors.
Q2) Which of the following does NOT apply to the declining-balance method?
A) It results in a decreasing charge to depreciation expense.
B) Residual value is not deducted in calculating the depreciation base.
C) The book value should not be reduced below residual value.
D) In certain circumstances, the book value may be reduced below residual value.
Q3) On January 3, 2018, City Corp. purchased machinery. The machinery has an estimated useful life of eight years and an estimated residual value of $67,500. City uses straight-line depreciation for all their machinery, and recorded $115,500 depreciation expense for 2020. The acquisition cost of the machinery was
A) $991,500.
B) $924,000.
C) $856,500.
D) $655,500.
Q4) Explain why assets that are held for sale are not depreciated while they are held.
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Chapter 12: Intangible Assets and Goodwill
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104 Flashcards
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Sample Questions
Q1) Internally generated goodwill
A) is not possible.
B) may be capitalized or expensed.
C) is not capitalized.
D) is capitalized but not amortized.
Q2) Assuming that excess earnings are expected to continue for 8 years, and ignoring the time value of money, estimated goodwill is
A) $ 2,273,000.
B) $ 2,006,667.
C) $ 1,854,333.
D) $ 1,531,733.
Q3) The cost of a patent should be amortized over its A) legal life.
B) legal life or useful life, whichever is shorter.
C) legal life or useful life, whichever is longer.
D) Patents are indefinite-life intangibles, and therefore not amortized.
Q4) Technology-based intangible assets
Provide an example of a technology-based intangible asset. Over what period should these types of assets be amortized?
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Chapter 13: Accounting Information Systems and Adjusting
Entries: A Comprehensive Guide
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Sample Questions
Q1) Rathbone Corp. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to Unearned Service Revenues. This account had a balance of $ 1,100,000 at December 31, 2020, before year-end adjustment. Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance of $ 325,000 at December 31, 2020.
Service contracts still outstanding at December 31, 2020, expire as follows:
\(\begin{array} { l r }
\text { During 2021 } & \$ 140,000 \\
\text { During 2022 } & 210,000 \\
\text { During 2023 } & 99,000
\end{array}\)
What amount should be reported as Unearned Service Revenues on Rathbone's December 31, 2020, statement of financial position?
A) $ 774,000
B) $ 325,000
C) $ 449,000
D) $ 124,000
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Page 15