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Weygandt, Kieso, Kimmel, Trenholm: D. all of these options.

Accounting Principles, Second Canadian


Edition
Chapter 1

6 The first part of the accounting process is: 1 An organization that establishes a set of accounting
. A. communicating. 1 standards that are generally accepted and practised is
B. identifying. . the:
A. Canadian Institute of Chartered Accountants.
C. processing.
B. Business Development Corporation.
D. recording.
C. Canada Customs and Revenue Agency.
D. Provincial Securities and Exchange Commission.

7 Keeping a systematic chronological diary of events


. measured in dollars and cents is called:
A. communicating. 1 Combining the activities of Kellogg and General Mills
B. identifying. 2 would violate the:
. A. cost principle.
C. processing.
B. economic entity assumption.
D. recording
C. monetary unit assumption.
D. ethics principle.

8 Internal users of accounting information include all of


. the following except:
A. company officers. 1 A business organized as a separate legal entity under
B. investors. 3 federal or provincial corporate law and having
. ownership divided into transferable shares is a:
C. marketing managers. A. proprietorship.
D. production supervisors. B. partnership.
C. corporation.
D. sole proprietorship.

9 Public accounting involves all of the following activities


. but has less of an emphasis on:
A. auditing.
B. budgeting. 1 The resources owned by a business are called:
4 A. revenues.
C. business advisory services. .
B. owner's equity.
D. taxation.
C. liabilities.
D. assets.

1 Ethics are the standards of conduct by which one's


0 actions are judged as:
. A. right or wrong. 1 Net income results when:
B. honest or dishonest. 5 A. investments exceed drawings.
.
C. fair or unfair. B. revenues exceed drawings.
C. revenues exceed expenses.
D. expenses exceed revenues. Weygandt, Kieso, Kimmel, Trenholm:
Accounting Principles, Second Canadian
Edition
Chapter 2
A credit to a liability account indicates:
6 A. a debit was made to an asset account.
1 An example of an internal transaction is the: .
6 A. purchase of an asset. B. a decrease in the liability.
. C. an increase in the liability.
B. payment of a liability.
C. performance of services. D. an error.
D. use of office supplies.

7 A debit is not the normal balance for which of the


. following?
1 The investment of cash by the owner:
7 A. Asset account.
A. increases revenues.
. B. Drawing account.
B. increases owner's equity.
C. Expense account.
C. decreases expenses.
D. Capital account.
D. decreases assets.

8 An account will have a debit balance if the:


1 Revenues and expenses are reported on the: .
8 A. number of debits exceeds the number of credits.
A. balance sheet.
. B. first transaction posted was a debit.
B. income statement.
C. total of the debit amounts exceeds the total of the
C. statement of owner's equity. credit amounts.
D. cash flow statement. D. last transaction posted was a debit.

1 The ending owner's equity amount is shown on the:


9 A. balance sheet only.
.
B. statement of owner's equity only. 9 Which of the following statements is false?
C. cash flow statement. . A. Revenues increase owner's equity.
D. both the balance sheet and the statement of B. Revenues have normal credit balances.
owner's equity. C. Revenues are a positive factor in the
computation of net income.
D. Revenues are increased by debits.

2 Which of the following financial statements is prepared


0 as of a specific date:
. A. balance sheet.
1 A credit to a revenue account:
B. income statement. 0 A. indicates an increase in revenues earned.
C. statement of owner's equity. .
B. indicates a decrease in revenues earned.
C. must be accompanied by a debit to an expense
account.
D. is an error. C. financial statements.
D. financial statements and trial balance.

1 Entering transaction data in the journal is known as:


1 A. posting. 1 A complete journal entry includes all of the following
. 6 except:
B. journalizing.
. A. the date of the transaction.
C. balancing.
D. recording. B. a brief explanation of the transaction.
C. the balance of the accounts in the entry.
D. the accounts and amounts to be debited and
credited.

1 The first step in the recording process is to:


2 A. enter the transaction in a journal.
.
B. transfer journal information to ledger accounts.
1 The primary purpose of a trial balance is to:
C. prepare the trial balance.
7 A. prove that all transactions have been recorded.
D. analyse each transaction. .
B. prove that the debits equal the credits after
posting.
C. uncover errors in journalizing and posting.
D. determine the net income for the year.
1 A list of accounts and their balances at a specific time is
3 called a:
. A. chart of accounts.
B. general journal.
1 Which of the following is false about a journal?
C. general ledger.
8 A. It discloses the complete effect of a transaction.
D. trial balance. .
B. It provides a chronological record of
transactions.
C. It helps to prevent errors because debit and credit
amounts
for each entry can be readily compared.
1 Which of the following is incorrect regarding a trial D. It keeps in one place all the information about
4 balance? changes in specific
. A. It proves the mathematical equality of debits and account balances.
credits after posting.
B. It proves that all transactions have been
recorded.
C. A trial balance uncovers errors in journalizing
and posting. 1 Posting of journal entries should be done in:
D. A trial balance is useful in the preparation of 9 A. account number order.
financial statements. .
B. alphabetical order.
C. chronological order.
D. dollar amount order.

1 Dollar signs are usually used only in the: 2 The Unearned Revenue account is a (an):
5 A. journals. 0 A. asset.
. .
B. ledgers.
B. liability. 1 The adjusting entry for unearned revenues affects:
0 A. assets and expenses.
C. revenue.
.
D. expense. B. liabilities and revenues.
C. assets and revenues.
Weygandt, Kieso, Kimmel, Trenholm: D. expenses and liabilities.
Accounting Principles, Second Canadian
Edition
Chapter 3
6 An accounting time period that is one year in length is
. referred to as: 1 The adjusting entry for accrued expenses affects:
A. a calendar year. 1 A. assets and expenses.
B. a fiscal year. .
B. liabilities and revenues.
C. an interim period. C. assets and revenues.
D. a quarterly period. D. expenses and liabilities.

7 The revenue recognition principle dictates that revenue 1 Which of the following statements related to the
. be recognized in the accounting period: 2 adjusted trial balance is incorrect?
A. before it is earned. . A. It shows the balances of all accounts at the end
B. after it is earned. of the accounting period.
C. in which it is earned. B. It is prepared before adjusting entries have been
made.
D. in which it is collected.
C. It proves the equality of the total debit balances
and the total credit balances in the ledger.
D. Financial statements can be prepared directly
from the adjusted trial balance.

8 Costs paid in cash and recorded as assets before they are


. used or consumed are called:
A. accrued expenses.
B. interim expenses.
1 Each adjusting entry affects:
C. prepaid expenses. 3 A. balance sheet accounts only.
D. unearned expenses. .
B. income statement accounts only.
C. expense accounts only.
D. both balance sheet and income statement
accounts.

9 Revenues earned but not yet received in cash or


. recorded at the statement date are referred to as:
A. unearned revenues.
B. prepaid revenues.
1 An adjusting entry that debits an asset and credits a
C. interim revenues. 4 revenue is necessary for:
D. accrued revenues. . A. prepaid expenses.
B. unearned revenues.
C. accrued revenues.
D. accrued expenses.
2 If the adjusting entry for unearned revenues is not
0 made:
. A. assets will be overstated.
1 An adjusting entry that debits an expense and credits an B. liabilities will be overstated.
5 asset is necessary for:
. A. prepaid expenses. C. revenues will be overstated.

B. unearned revenues. D. net income will be overstated.

C. accrued revenues.
Weygandt, Kieso, Kimmel, Trenholm:
D. accrued expenses.
Accounting Principles, Second Canadian
Edition
Chapter 4
6 A work sheet is a:
. A. permanent accounting record.
1 Under the cash basis of accounting, revenue is only
B. part of the general ledger.
6 recorded when:
. A. services are performed. C. required part of the accounting cycle.
B. it is earned. D. device used to make it easier to prepare financial
statements.
C. cash is received.
D. it is incurred.

7 Which of the following accounts are not closed?


. A. Income statement accounts.
1 An expense is recorded under the cash basis only when:
B. Expense accounts.
7 A. services are performed.
. C. Permanent accounts.
B. it is earned.
D. Temporary accounts.
C. cash is paid.
D. it is incurred.

8 Closing entries can be prepared from all of the


. following except the:
1 The Accumulated Amortization account is a (an): A. adjusted balances in the general ledger.
8 A. asset. B. income statement and statement of owner's
.
B. liability. equity.
C. expense. C. adjusted trial balance.
D. contra asset. D. unadjusted trial balance.

1 If the adjusting entry for amortization is not made: 9 A post-closing trial balance will contain only:
9 A. assets will be understated. . A. income statement accounts.
.
B. owner's equity will be understated. B. asset accounts.
C. net income will be understated. C. permanent accounts.
D. expenses will be understated. D. temporary accounts.
1 Which of the following is an optional step in the 1 The balance sheet is most often presented in:
0 accounting cycle? 5 A. account form.
. A. Adjusting entries. .
B. ledger form.
B. Closing entries. C. general form.
C. Correcting entries. D. report form.
D. Reversing entries.

1 Which of the following accounts is not classified as a


1 Correcting entries are made: 6 long-term liability:
1 A. at the beginning of an accounting period. . A. bonds payable.
.
B. at the end of an accounting period. B. current maturities of long-term liabilities.
C. whenever an error is discovered. C. lease liabilities.
D. after closing entries. D. mortgages payable.

1 Cash and other resources that will be realized in cash or 1 All of the following are owner's equity accounts except:
2 sold or consumed in the business within one year of the 7 A. the capital account.
. balance sheet date or within the company's operating .
cycle are called: B. share capital.
A. current assets. C. investment in share capital.
B. intangible capital assets. D. retained earnings.
C. long-term investments.
D. tangible capital assets.

1 Working capital is calculated as the difference between:


8 A. liabilities and equity.
.
1 Patents and copyrights are: B. current liabilities and long-term liabilities.
3 A. current assets. C. current assets and current liabilities.
. D. current assets and non-current assets.
B. intangible capital assets.
C. long-term investments.
D. tangible capital assets.

1 Working capital is important in order to evaluate a


9 company's:
. A. workforce.
1 The salaries payable account is classified as :
4 B. liquidity.
A. a current liability.
. C. potential for future growth.
B. a long-term liability.
D. profitability.
C. a non-current liability.
D. an expense.
2 The current ratio is calculated by: 1 FOB shipping point means that the:
0 A. dividing current assets by current liabilities. 0 A. goods are placed free on board to the purchaser's
. . place of business.
B. dividing current liabilities by current assets.
C. subtracting current liabilities from current assets. B. purchaser pays the freight costs.

D. subtracting current assets from current liabilities. C. seller pays the freight costs.
D. common carrier pays the freight costs.
Weygandt, Kieso, Kimmel, Trenholm:
Accounting Principles, Second Canadian
Edition
Chapter 5
6 Gross profit is equal to: 1 The journal entry to record a credit sales transaction
. A. sales revenue less operating expenses. 1 when using a perpetual inventory system would include
. credits to the following accounts:
B. sales revenue less cost of goods sold. A. cost of goods sold and sales
C. net income less operating expenses. B. sales and inventory.
D. net income less cost of goods sold. C. cost of goods sold and inventory.
D. accounts receivable and cost of goods sold.

7 The cost of goods sold is determined and recorded each


. time a sale occurs in:
A. a periodic inventory system only. 1 Net sales is equal to sales less:
2 A. cost of goods sold.
B. a perpetual inventory system only. .
B. selling expenses.
C. both a periodic and perpetual inventory system.
C. advertising expense.
D. neither a periodic nor perpetual inventory
system. D. sales returns and allowances.

8 In a perpetual inventory system, a return of defective 1 Selling expenses include all of the following except:
. merchandise by a purchaser is recorded by crediting: 3 A. advertising expense.
A. purchases. .
B. delivery expense.
B. purchase returns. C. accounting expense.
C. purchase allowance. D. store salaries expense.
D. merchandise inventory.

1 Which of the following accounts is not closed to


9 Under a perpetual inventory system, when merchandise 4 Owner's Capital?
. is purchased for resale to customers: . A. Cost of goods sold.
A. purchases is debited. B. Merchandise inventory.
B. merchandise inventory is debited. C. Sales.
C. cost of goods sold is debited. D. Sales discounts.
D. selling expenses is debited.
1 All of the following items would be reported as other 2 Days sales in inventory is calculated by dividing:
5 revenues and gains except: 0 A. 365 days by the inventory turnover.
. A. gain from disposition of capital assets. .
B. the inventory turnover by 365 days.
B. interest revenue. C. cost of goods sold by the average inventory.
C. rent revenue. D. net sales by 365 days.
D. sales revenue.
Weygandt, Kieso, Kimmel, Trenholm:
Accounting Principles, Second Canadian
Edition
Chapter 6
1 Income from operations is equal to: 6 A company began the year with 200 units of inventory
6 A. net sales less cost of goods sold. . costing $8.00 each. During the year, the company
. purchased an additional 800 units costing $9.00 each. A
B. net sales less operating expenses.
physical count at year-end determined there were 300
C. gross profit less other expenses and losses. units of inventory still on hand. Using the average cost
D. net sales less cost of goods sold and operating method, the cost of goods sold was:
expenses. A. $6,250.
B. $2,550.
C. $6,160.
D. $2,640.

1 Which of the following is shown on both a multiple-


7 step and a single-step income statement?
. A. Gross profit.
B. Net sales.
7 A company began the year with 200 units of inventory
C. Income from operations. . costing $8.00 each. During the year the company
D. Other expenses and losses. purchased an additional 800 units costing $9.00 each. A
physical count at year-end determined there were 300
units of inventory still on hand. Using LIFO, the cost of
goods sold was:
A. $2,500.
B. $6,100.
1 In a classified balance sheet, merchandise inventory is
8 reported as a: C. $2,700.
. A. capital asset. D. $6,300.
B. current asset.
C. non-current asset.
D. long-term investment.

8 A company began the year with 200 units of inventory


. costing $8.00 each. During the year the company
purchased an additional 800 units costing $9.00 each. A
physical count at year-end determined there were 300
1 The inventory turnover is calculated by dividing: units of inventory still on hand. Using the average cost
9 method, the value of the ending inventory was:
A. cost of goods sold by ending inventory.
. A. $6,250.
B. net sales by cost of goods sold.
B. $2,550.
C. cost of goods sold by average inventory.
C. $6,160.
D. net sales by average inventory.
D. $2,640.
9 A company began the year with 200 units of inventory A. the average cost method assumes the goods
. costing $8.00 each. During the year the company available are identical or non-distinguishable.
purchased an additional 800 units costing $9.00 each. A
physical count at year-end determined there were 300 B. cost of goods available for sale divided by total
units of inventory still on hand. Using LIFO, the value units available for sale equals weighted average
of the ending inventory was: unit cost.
A. $2,500. C. results will fall in between FIFO and LIFO.
B. $6,100. D. the unit cost is based on simple average, not
weighted average.
C. $2,700.
D. $6,300.

1 When using LIFO:


4 A. older costs go to the income statement, newer
1 A company began the year with 200 units of inventory . costs go to the balance sheet.
0 costing $8.00 each. During the year the company
. purchased an additional 800 units costing $9.00 each. A B. older costs go to the balance sheet, newer costs
physical count at year-end determined there were 300 go to the income statement.
units of inventory still on hand. Using FIFO, the value C. identical costs go to the balance sheet and the
of the ending inventory was: income statement.
A. $2,500. D. management can decide which costs to assign to
B. $6,100. the balance sheet and which costs to assign to
the income statement.
C. $2,700.
D. $6,300.

1 When using FIFO:


5 A. older costs go to the income statement, newer
1 If the ending inventory for Year 1 was understated by . costs go to the balance sheet.
1 $400, cost of goods sold in Year 2 will be:
B. older costs go to the balance sheet, newer costs
. A. overstated by $400. go to the income statement.
B. understated by $400. C. identical costs go to the balance sheet and the
C. understated by $800. income statement.
D. correct. D. management can decide which costs to assign to
the balance sheet and which costs to assign to
the income statement.

1 If the beginning inventory was understated by $500 and


2 the ending inventory was overstated by $300 cost of 1 All of the following statements are true except:
. goods sold would be: 6 A. Given the choices of FIFO, Average and LIFO,
A. overstated by $200. . LIFO provides the best income statement
valuation.
B. understated by $200.
B. Given the choices of FIFO, Average and LIFO,
C. overstated by $800.
FIFO provides the best balance sheet valuation.
D. understated by $800.
C. Specific Identification is useful for high-volume,
low-unit-cost inventory.
D. Average will provide results between those of
LIFO and FIFO.

1 All of the following statements about the Average Cost


3 method are true except:
.
Accounting Principles, Second Canadian
Edition
Chapter 7
1 When prices are rising, cost of goods sold will be: 6 The starting point in developing an accounting system is:
7 A. highest when LIFO is used as the costing . A. analysis.
. method.
B. design.
B. highest when FIFO is used as the costing
C. follow-up.
method.
D. implementation.
C. highest when Average is used as the costing
method.
D. the same, regardless of the costing method used.

7 Principles of an efficient and effective accounting


. information system include all of the following except:
A. cost effectiveness.
1 If the ending inventory is overstated:
8 B. flexibility.
A. assets will be overstated and owner's equity will
. be understated. C. usefulness.
B. assets will be overstated and owner's equity will D. all of these options are principles.
be overstated.
C. assets will be understated and owner's equity
will be overstated.
D. assets will be understated and owner's equity
will be understated. 8 Each of the following is a subsidiary ledger except the:
. A. accounts receivable ledger.
B. accounts payable ledger.
C. customers' ledger.
D. general ledger.
1 If the beginning inventory is understated:
9 A. goods available for sale will be overstated, and
. net income will be overstated.
B. goods available for sale will be understated, and
net income will be understated.
C. goods available for sale will be understated, and 9 Which one of the following accounts is a control
net income will be overstated. . account?
A. Accounts payable.
D. goods available for sale will be overstated, and
net income will be understated. B. Cash.
C. Owner's capital.
D. Sales.

2 When the value of the inventory is lower than its cost:


0 A. no action is required.
.
B. a loss is recorded in the period in which the 1 All of the following are advantages of using subsidiary
decline occurs. 0 ledgers except they:
C. a loss is recorded when the inventory is sold. . A. show transactions that affect one customer or
one creditor in a single account.
D. a loss is recorded in the period in which the
decline occurs, but only if the inventory consists B. free the general ledger of excessive details.
of perishable goods. C. eliminate errors in individual accounts.
D. make possible a division of labour in posting.
Weygandt, Kieso, Kimmel, Trenholm:
D. yearly.

1 Closing entries are recorded in the:


1 A. cash receipts journal.
.
B. general journal.
1 The purchase of equipment in exchange for a note
C. purchases journal. 6 payable would be recorded in the:
D. sales journal. . A. cash payments journal.
B. cash receipts journal.
C. general journal.
D. purchases journal.

1 Cash sales of merchandise are recorded in the:


2 A. cash payments journal.
.
B. cash receipts journal.
C. general journal. 1 The individual amounts in the purchases journal are
D. sales journal. 7 posted to the accounts payable ledger:
. A. daily.
B. weekly.
C. monthly.
D. yearly.
1 Which of the following statements about using the sales
3 journal is not true?
. A. Postings from the sales journal to the individual
accounts receivable accounts in the subsidiary
ledger are made daily.
1 Cash purchases of merchandise are recorded in the:
B. . The reference column is used in posting.
8 A. cash receipts journal.
C. Less time is required to journalize compared to a .
general journal. B. cash payments journal.
D. The reference column is used in journalizing. C. general journal.
D. purchases journal.

1 Postings from the sales journal to the general ledger are


4 made: 1 The four phases of the accounting system life cycle are:
. A. daily. 9 A. analysis, tendering, acquisition, and installation.
.
B. monthly. B. analysis, needs assessment, development, and
C. weekly. implementation.
D. yearly. C. analysis, design, implementation, and follow-up.
D. analysis, processing, acquisition, and follow-up.

1 The individual amounts in the accounts receivable


5 column of the cash receipts journal are posted to the 2 An expanded purchases journal could contain any of the
. subsidiary ledger: 0 following additional columns except:
A. daily. . A. office supplies.
B. monthly. B. cash.
C. weekly. C. other accounts.
D. store supplies. C. documentation procedures.
D. independent internal verification.
Weygandt, Kieso, Kimmel, Trenholm:
Accounting Principles, Second Canadian
Edition
Chapter 8
6 The principles of internal control include all of the 1 Using pre-numbered cheques and having an approved
. following except: 1 invoice for each cheque are examples of:
A. authorization. . A. establishment of responsibility.
B. combination of duties. B. segregation of duties.
C. safeguarding assets and records. C. documentation procedures.
D. independent verification. D. independent internal verification.

7 All of the following items are included in a bank 1 A disbursement system that uses electronic means
. reconciliation except: 2 (telephone or computer) to transfer cash from one
A. deposits in transit. . location to another is called a (an):
B. outstanding cheques. A. automated system.
C. errors. B. electronic funds transfer system (EFT).
D. list of physical assets. C. internal system.
D. voucher system.

8 In large companies, independent internal verification is


. often monitored by the: 1 Making payments from a petty cash fund requires:
A. bookkeeper. 3 A. a credit to Cash.
B. controller. .
B. a credit to Petty Cash.
C. internal auditors. C. a debit to various expense accounts.
D. treasurer. D. no accounting entry at the time payment is made
from petty cash.

9 All of the following are classified as cash except:


. A. cheques. 1 A debit balance in Cash Over and Short is reported as a
B. money orders. 4 (an):
. A. liability.
C. money on deposit in a bank.
B. miscellaneous expense.
D. postdated cheques.
C. miscellaneous revenue.
D. asset.

1 Having different individuals receive cash, record cash


0 receipts, and hold the cash is an example of:
. A. establishment of responsibility. 1 The party who issues a cheque is the:
B. segregation of duties. 5 A. payee.
.
B. payer. C. treasury bills.
C. maker. D. compensating balances.
D. bank.
Weygandt, Kieso, Kimmel, Trenholm:
Accounting Principles, Second Canadian
Edition
Chapter 9
1 All of the following would involve a debit 6 The three primary accounting issues associated with
6 memorandum except: . accounts receivable include all of the following except:
. A. a bank service charge. A. recognizing accounts receivable.
B. an NSF cheque. B. valuing accounts receivable.
C. the cost of printing cheques. C. disposing of accounts receivable.
D. interest earned. D. analysing accounts receivable.

1 On a bank reconciliation, outstanding cheques are: 7 Accounts receivable are reported on the balance sheet
7 A. added to the bank balance. . at:
. A. cost.
B. deducted from the bank balance.
B. net realizable value.
C. added to the book balance.
C. gross realizable value.
D. deducted from the book balance.
D. face value.

1 On a bank reconciliation, collection of a note receivable


8 by the bank is: 8 Allowance for doubtful accounts is:
. A. added to the bank balance. . A. closed at the end of the fiscal year.
B. deducted from the bank balance. B. an operating expense.
C. added to the book balance. C. a contra asset account.
D. deducted from the book balance. D. added to Accounts Receivable on the balance
sheet.

1 Journal entries are required by the depositor for all of


9 the following except: 9 Under the allowance method, estimated uncollectible
. A. collection of a note receivable. . receivables are credited to:
A. bad debts expense.
B. an NSF cheque.
B. accounts receivable.
C. bank service charges.
C. allowance for doubtful accounts.
D. bank errors.
D. uncollectible accounts expense.

2 Cash equivalents include all of the following except:


0 A. money market funds. 1 Writing off an uncollectible account under the
. 0 allowance method requires a debit to:
B. short-term deposits .
A. accounts receivable.
B. allowance for doubtful accounts.
C. bad debts expense.
D. uncollectible accounts expense.
1 From an accounting perspective, sales resulting from
5 the use of nonbank credit cards are considered:
. A. credit sales.
B. cash sales.
C. notes receivable.
1 The percentage of sales basis of estimating
1 uncollectibles: D. accounts receivable.
. A. produces a better estimate of net realizable
value. 1 The interest rate specified in any note is for a:
B. results in a better matching of expenses with 6 A. day.
revenues. .
B. month.
C. emphasizes balance sheet relationships.
C. week.
D. considers the existing balance in the Allowance
D. year.
for Doubtful Accounts.

1 The percentage of receivables basis of estimating 1 The interest expense on a 9-month, 4%, $2,500 note is:
7 A. $75
2 uncollectibles:
.
. A. produces a better estimate of net realizable B. $100
value. C. $750
B. results in a better matching of expenses with D. $900
revenues.
C. emphasizes income statement relationships.
D. ignores the existing balance in the Allowance for
Doubtful Accounts.
1 For an interest-bearing note, the amount due at maturity
8 is the:
. A. face value.
B. face value plus interest.
1 The direct write-off method:
C. maturity value plus interest.
3 A. is acceptable for financial reporting purposes.
. D. net realizable value.
B. debits allowance for doubtful accounts to record
account write-offs.
C. does not attempt to match bad debt expense to
sales revenue.
D. estimates bad debt losses.
1 The entry to record the dishonour of a note receivable,
9 assuming the payee expects eventual collection,
. includes a debit to:
A. notes receivable.
B. cash.
1 Factoring occurs when:
C. allowance for doubtful accounts.
4 A. receivables are written off.
. D. accounts receivable.
B. bad debts are estimated.
C. credit card sales are purchased.
D. receivables are sold for a fee.
2 The accounts receivable turnover ratio is calculated by
0 dividing:
. 1 The amortization method that produces a decreasing
A. total sales by average accounts receivable.
0 annual amortization expense over an asset's useful life
B. net credit sales by average accounts receivable. . is the:
C. total sales by ending accounts receivable. A. straight-line method.
D. net credit sales by ending accounts receivable. B. units-of-activity method.
C. declining-balance method.
Weygandt, Kieso, Kimmel, Trenholm: D. none of these options.
Accounting Principles, Second Canadian
Edition
Chapter 10
6 Assets classified as property, plant, and equipment decline
. in service potential over their useful lives except for:
1 Residual value is ignored in determining the amount to
A. buildings. 1 which the rate of amortization is applied under the:
B. equipment. . A. straight-line method.
C. land. B. units-of-activity method.
D. land improvements. C. declining-balance method.
D. none of these options.

7 Canada Customs and Revenue Agency requires


. corporations to calculate amortization for income tax
1 When a change in estimated useful life is required, the
purposes using:
2 change is made in the:
A. capital cost allowance (CCA). . A. current and prior periods.
B. straight-line amortization.
B. current and future periods.
C. units of activity amortization.
C. current period only.
D. double declining-balance amortization.
D. prior periods only.

8 Factors that affect the calculation of amortization


1 Ordinary repairs are costs incurred to maintain the
. include all of the following except:
3 operating efficiency and expected productive life of the
A. cost. . unit and are referred to as:
B. net book value. A. capital expenditures.
C. residual value. B. expense expenditures.
D. useful life. C. improvements.
D. operating expenditures.

9 Amortizable cost is the:


. A. net book value of an asset less its salvage value. 1 A gain on disposal of an asset occurs when the proceeds
B. cost of an asset less its residual value. 4 of the sale are greater than the:
. A. salvage value of the asset sold.
C. cost of an asset less accumulated amortization.
D. net book value of an asset. B. market value of the asset sold.
C. net book value of the asset sold. D. research costs.
D. accumulated amortization on the asset sold.

2 The asset turnover ratio is calculated by dividing:


1 Natural resources are frequently called: 0 A. net income by average total assets.
5 .
A. intangible assets. B. net sales by average total assets.
.
B. plant assets. C. net income by ending assets.
C. fixed assets. D. net sales by ending assets.
D. wasting assets.
Weygandt, Kieso, Kimmel, Trenholm:
Accounting Principles, Second Canadian
Edition
Chapter 11
1 Removal and site restoration costs should be: 6 A current liability is a debt that can reasonably be
6 A. expensed in full when the property is acquired. . expected to be paid from existing current assets, or
. through the creation of other current liabilities within:
B. estimated in advance and allocated over the
useful life of the natural resource. A. one year.
C. recorded when the actual expenditures are made. B. the operating cycle.
D. ignored completely. C. one year or operating cycle, whichever is longer.
D. one year or operating cycle, whichever is shorter.

1 Amortizable cost of natural resources is calculated as:


7 A. cost plus residual value plus restoration costs. 7 The amount of sales tax collected by a retail store is
. . recorded as:
B. cost minus residual value minus restoration
costs. A. GST expense and PST expense or HST expense.
C. cost minus residual value plus restoration costs. B. GST payable and PST payable or HST payable.
D. cost plus residual value minus restoration costs. C. GST revenue and PST revenue or HST revenue.
D. sales.

1 The cost of a patent should be amortized over its:


8 A. useful life. 8 All of the following are current liabilities except:
. . A. GST and PST or HST payable.
B. legal life.
C. legal life or its useful life, whichever is shorter. B. unearned rental revenue.
D. legal life or its useful life, whichever is longer. C. current maturities of long-term debt.
D. all of these options are current liabilities.

1 All of the following are intangible assets except:


9 A. copyrights. 9 Acme borrows $100,000 on July 1 and is issued a 6%
. . one-year note payable. Interest is payable annually. On
B. goodwill.
December 31, Acme will:
C. patents. A. debit interest expense and credit interest payable.
B. debit interest expense and credit cash. A. Salaries Expense.
C. debit interest payable and credit cash. B. Wages Expense.
D. debit interest expense and credit notes payable. C. Salaries and Wages Payable.
D. Employee Pay Payable.

1 Current liabilities are reported on the balance sheet:


0 A. in order of liquidity, by maturity date. 1 Employer payroll contributions include all of the
. 5 following except:
B. in order of magnitude, with the largest ones first.
. A. Canada Pension Plan (CPP) contributions.
C. with bank loans, notes payable, and accounts
payable first, regardless of amount. B. Employment Insurance (EI) premiums.
D. all of these options are permitted. C. Workplace, Health, Safety and Compensation
Plan.
D. federal and provincial income taxes.

1 A contingent liability is recorded when the contingency


1 is:
. A. remote. 1 Unearned revenue exists when:
B. reasonably possible. 6 A. goods have been delivered or services provided
. and cash has been received.
C. probable.
D. unlikely to occur. B. goods have been delivered or services provided
but the customer has not yet been billed.
C. cash has been received, but goods have not been
delivered nor services provided.
D. goods have been delivered or services provided
and the customer has been billed, but has not yet
1 Employee pay expressed in terms of a specified amount paid.
2 per month or per year is called:
. A. bonuses.
B. fees.
C. salaries.
D. wages. 1 All of the following comments regarding current
7 maturities of long-term debt are true except:
. A. A journal entry is required to recognize the
current portion of long-term debt.
B. The current portion of long-term debt is shown
as a current liability on the balance sheet.
1 Mandatory employee payroll deductions include all of
3 the following except: C. The long-term debt is shown on the balance
. A. United Way donations. sheet, net of the current portion.
B. federal and provincial income taxes. D. The current portion will be due within the next
year or operating cycle, whichever is longer.
C. Employment Insurance (EI premiums).
D. Canada Pension Plan (CPP) contributions.

1 An estimated liability is:


8 A. an obligation that depends on the occurrence or
1 The sum of the individual cheques the employees will . non-occurrence of a future event.
4 receive is recorded as:
.
B. an obligation whose amount or timing is 8 When different companies use the same accounting
uncertain. . principles, the qualitative characteristic is called:
C. not recorded until the exact amount is known. A. consistency.

D. a definitely determinable liability. B. comparability.


C. relevance.
D. reliability.

1 All of the following can be estimated liabilities except:


9 A. property taxes payable.
. 9 Reliable information must be:
B. warranty liabilities.
. A. verifiable.
C. corporate income taxes payable.
D. salaries payable. B. a faithful representation.
C. neutral.
D. all of the above.

2 In 2002, Acme begins selling widgets with a two-year


0 warranty. The total warranty expense is estimated at
. $5,000. Actual warranty work done in 2002 is $2,750. 1 The assumption that the company will continue
In 2002, Acme should record a warranty expense of: 0 operating in the foreseeable future is the:
A. $0. . A. monetary unit assumption.
B. $5,000. B. economic entity assumption.
C. $2,500. C. going concern assumption.
D. $2,750. D. time period assumption.

Weygandt, Kieso, Kimmel, Trenholm:


Accounting Principles, Second Canadian
Edition
Chapter 12
1 The assumption that states that the economic life of a
6 The CICA's conceptual framework consists of all of the 1 business can be divided into artificial time periods is
. following except: . the:
A. objective of financial reporting. A. monetary unit assumption.
B. elements of financial statements. B. economic entity assumption.
C. qualitative characteristics of accounting C. going concern assumption.
information.
D. time period assumption.
D. international accounting standards.

1 One approach to the recognition of revenue using the


7 To be useful, information should possess: 2 cash basis is the:
. A. relevance. . A. accrual method.
B. reliability. B. instalment method.
C. comparability. C. percentage-of-completion method.
D. all of these options. D. sales basis.
1 Under the matching principle, expenses are recognized
3 when the:
. A. cash is paid.
B. work is performed.
C. product is produced. 1 The cost-benefit constraint ensures that:
8 A. expenses are linked to revenue recognition.
D. service or product makes its contribution to
.
revenue. B. material events and circumstances are disclosed.
C. assets are recorded at cost.
D. the value of the information exceeds the cost of
providing it.

1 The principle that requires reporting of circumstances


4 and events that make a difference to financial statement
. users is the:
A. cost principle.
1 The percentage-of-completion method recognizes
B. full disclosure principle. 9 revenue:
C. matching principle. . A. at the point of sale.
D. revenue recognition principle. B. at completion of production.
C. upon collection of cash.
D. during production.

1 The principle that is criticized by some as irrelevant is


5 the:
. A. cost principle.
2 An accounting organization whose purpose is to
B. full disclosure principle. 0 formulate and publish international accounting
C. matching principle. . standards is the:
D. revenue recognition principle. A. International Accounting Principles Board.
B. International Accounting Standards Board.
C. CICA.
D. Provincial Securities and Exchange
Commission.
1 Each of the following is a revenue recognition guideline
6 except: Weygandt, Kieso, Kimmel, Trenholm:
. A. the production or sales effort is substantially Accounting Principles, Second Canadian
complete.
Edition
B. revenue can be objectively measured. Chapter 13
C. cash has been received. All of the following are characteristics of partnerships
D. material expenses can be determines and 6 except:
matched. . A. co-ownership of property.
B. mutual agency.
C. limited life.
D. limited liability.

1 To determine the materiality of an amount, an


7 accountant usually compares it with:
. A. total assets.
B. total liabilities.
7 Which of the following is not an advantage of a
C. net income. . partnership?
D. any of these options.
A. Combines the skills and resources of two or
more individuals.
B. Easily formed.
1 The admission of a partner by an investment of assets in
C. Relative freedom from governmental regulations 2 a partnership:
and restrictions. . A. will not affect the net assets of the partnership.
D. Mutual agency. B. increases total partnership capital.
C. is a personal transaction between an existing
partner and the new partner.
D. does not require an entry in the partnership
records.
8 When a partner invests noncash assets in a partnership,
. the assets should be recorded at their:
A. book value.
B. carrying value.
C. fair market value. 1 When a new partner's capital credit is less than his/her
D. original cost. 3 investment in the firm, the difference is allocated to the
. old partners:
A. equally.
B. on the basis of their income ratios.
C. on the basis of their original investments.
9 Which of the following statements is correct? D. in proportion to their capital balances.
. A. Salaries to partners and interest on partners'
capital are expenses of the partnership.
B. Salaries to partners are expenses of the
partnership but interest on partners' capital is not.
C. Interest on partners' capital is an expense of the 1 The bonus that results when a new partner's capital
partnership but not salaries are not. 4 credit is greater than his/her investment in the firm is
D. Neither salaries to partners nor interest on . recorded by debiting:
partners' capital are expenses of the partnership. A. bonus expense.
B. the existing partners' capital accounts.
C. the existing partners' drawing accounts.
D. the new partner's capital account.

1 Partnership income ratios can be expressed as a:


0 A. fixed ratio.
.
B. percentage.
C. fraction. 1 A bonus may paid to a departing partner when the:
D. any of these options. 5 A. recorded assets are overvalued.
.
B. partnership has a poor earnings record.
C. partner is anxious to leave the partnership.
D. partnership has unrecorded goodwill.

1 The admission of a partner by purchase of an existing


1 partner's interest in the firm:
. A. increases total partnership assets.
B. increases total partnership capital.
1 A departing partner may give a bonus to the remaining
C. is a personal transaction between an existing 6 partners when:
partner and the new partner. . A. the fair market value of partnership assets is
D. can result in a bonus to the other partners. more than their book value.
B. the recorded assets are undervalued.
C. the partner is anxious to leave the partnership. 6 A corporation that may have thousands of shareholders
. and whose shares are usually traded on an organized
D. there is unrecorded goodwill. securities market is a:
A. closely held corporation.
B. nonprofit corporation.
C. privately held corporation.
1 A bonus paid to a departing partner is deducted from D. publicly held corporation.
7 the remaining partners' capital balances:
. A. equally.
B. on the basis of their income ratios.
C. on the basis of their original investments.
7 A crown corporation:
D. in proportion to their capital balances.
. A. may have thousands of shareholders.
B. is often referred to as a closely held corporation.
C. offers its shares for sale to the general public.
D. is similar to a private corporation but is owned
1 The first step in the liquidation of a partnership is to: by the government.
8 A. allocate gain/loss on realization to the partners.
.
B. distribute remain cash to partners.
C. pay partnership liabilities.
D. sell noncash assets and recognize a gain or loss 8 Shareholders have all of the following rights except the
on realization. . right to:
A. share corporate earnings through receipt of
dividends.
B. vote for the corporate officers.
C. keep the same percentage ownership when new
1 When a partnership is liquidated, the remaining cash shares are issued.
9 should be distributed to partners:
. D. share in assets upon liquidation in proportion to
A. equally.
their holdings.
B. on the basis of their income-sharing ratios.
C. on the basis of their capital balances.
D. on the basis of their original investments.

9 Shares that have a specific value stated in the corporate


. charter are called:
A. par value shares.
2 If a partner with a capital deficiency is unable to pay the B. no par value shares.
0 amount owed to the partnership, the deficiency is C. stated value shares.
. allocated to the partners with credit balances:
D. authorized capital.
A. equally.
B. on the basis of their income ratios.
C. on the basis of their capital balances.
D. on the basis of their original investments.
1 The shareholders' equity section of a corporation's
0 balance sheet consists of:
Weygandt, Kieso, Kimmel, Trenholm: . A. contributed capital and common shares.
Accounting Principles, Second Canadian B. contributed capital and retained earnings.
Edition C. common shares only.
Chapter 14
D. contributed capital only.
C. voting rights.
D. both dividends and assets in the event of
liquidation.

1 When noncash assets are acquired in exchange for


1 common shares, the assets are recorded at the:
. A. par value of the shares.
B. fair market value of the consideration received. 1 Dividends in arrears relate to:
C. fair market value of the consideration given up, 6 A. callable preferred shares.
if determinable. .
B. convertible preferred shares.
D. authorized value of the shares. C. preferred shares with a cumulative dividend
feature.
D. no par preferred shares.

1 Capital shares that have been issued and are being held
2 by shareholders are called:
. A. authorized shares.
1 Preferred shares that require the corporation to buy back
B. issued shares. 7 the shares at the shareholders' option at an arranged
C. treasury shares. . price and date are called:
D. outstanding shares. A. callable preferred shares.
B. retractable preferred shares.
C. cumulative preferred shares.
D. redeemable preferred shares.

1 When the selling price of common shares is greater than


3 the stated value, the difference is usually credited to:
. A. Gain on Sale of Common Shares.
B. Cash. 1 Return on equity, considered by many to be the most
C. Contributed Capital in Excess of Stated Value. 8 important measure of a firm's profitability, is
. calculated by dividing:
D. Retained Earnings.
A. average shareholder's equity by net income.
B. total shareholders' equity by the number of
common shares outstanding.
C. market value per share by the number of
common shares outstanding.
1 Preferred shares that grant the issuing corporation the
4 right to purchase the shares from shareholders at D. net income by average shareholders' equity.
. specified future dates and prices are called:
A. redeemable preferred shares. 1 When a company has both preferred and common shares,
B. retractable preferred shares 9 book value per share is calculated by dividing:
. A. total shareholders' equity by the number of
C. convertible preferred shares.
common shares outstanding.
D. cumulative preferred shares.
B. total shareholders' equity by the number of
common shares issued.
C. common shareholders' equity by the number of
common shares outstanding.
D. common shares equity by the number of common
1 Preferred shareholders have a priority over common shares issued.
5 shareholders as to:
. A. dividends.
B. assets in the event of liquidation.
2 The equity a common shareholder has in the net assets
0 of a corporation from owning one share is the:
. 1 Retained Earnings can be decreased by all of the
A. par value per share.
0 following except:
B. market value per share. . A. prior period adjustments.
C. stated value per share. B. stock dividends.
D. book value per share. C. cash dividends.
D. stock splits.
Weygandt, Kieso, Kimmel, Trenholm:
Accounting Principles, Second Canadian
Edition
Chapter 15
6 For a cash dividend to occur, a corporation must have all
1 Prior period adjustments:
. of the following except:
1 A. may only increase retained earnings.
A. adequate cash. .
B. may only decrease retained earnings.
B. declared dividends.
C. may either increase or decrease retained
C. net income.
earnings.
D. retained earnings.
D. do not affect retained earnings.

7 The date a cash dividend becomes a binding legal


1 Intraperiod Tax Allocation refers to:
. obligation to a corporation is the:
2 A. the procedure of associating income taxes in a
A. declaration date. . specified period with their related item of
B. earnings date. income.
C. payment date. B. the act of dividing taxes between the amount
D. record date. currently due and the amount due in the future.
C. recording transactions in one period for
accounting purposes and another period for
income tax purposes.
D. recording income tax expense in a separate
section of the corporate income statement.
8 A stock dividend results in a decrease in retained
. earnings and an increase in contributed capital of:
A. the par value of shares issued.
B. the fair market value of shares issued.
C. the stated value of the shares issued.
1 The non-typical items reported on corporation income
D. zero. 3 statements include:
. A. corporate income taxes.
B. retained earnings.
C. discontinued operations and extraordinary items.
D. other expenses and losses.
9 Both a stock dividend and a stock split will:
. A. decrease total retained earnings.
B. increase total contributed capital.
C. increase the number of shares outstanding.
D. decrease total retained earnings and increase
total contributed capital.
1 The disposal of a significant segment of a business is B. Discontinued operations.
4 reported as:
C. An extraordinary item.
. A. a change in accounting principle.
D. Dividends in arrears.
B. discontinued operations.
C. an extraordinary item.
D. a prior period adjustment.

1 The price-earnings (PE) ratio is calculated by dividing:


9 A. net income by ending common shares
. outstanding.
1 An example of an extraordinary item is: B. market price by net income.
5 A. expropriation of property by a government. C. net income less preferred dividends by ending
.
B. gains from sale of property or equipment. common shares outstanding.
C. losses due to labour strikes. D. market price per share by earnings per share.
D. write-down of inventories.

2 Generally, the most useful earnings per share amount is


1 Extraordinary items are events and transactions that: 0 EPS for:
6 . A. net income.
A. occur frequently, are not typical of normal
. business activities, and are subject to B. discontinued operations.
management discretion. C. income from continuing operations.
B. occur frequently, are not typical of normal D. income before extraordinary items.
business activities and, are not subject to
management discretion.
C. are not expected to occur frequently, are typical Weygandt, Kieso, Kimmel, Trenholm:
of normal business activities and are subject to Accounting Principles, Second Canadian
management discretion. Edition
D. are not expected to occur frequently, are not
Chapter 16
typical of normal business activities, and are not All of the following are advantages of bond financing over
subject to management's discretion. 6 common shares except:
. A. shareholder control is not affected.
B. tax savings result.
C. earnings per share may be higher.
D. higher net income.
1 A change in accounting principle is permitted:
7 A. if the shareholders vote for the change.
.
B. whenever management wishes, as long as the
effects of the change are clearly disclosed.
C. if the new principle results in a more appropriate 7 Bonds that mature at a single specified future date are
presentation of events or transactions. . called:
D. whenever management needs to improve the A. callable bonds.
company's net income.
B. registered bonds.
C. term bonds.
D. serial bonds.

1 Which of the following is disclosed net of taxes, as an


8 adjustment to the opening balance of retained earnings?
. A. A change in accounting principle.
8 The rate of interest investors demand for loaning funds 1 Under the effective interest method of amortization, the
. to a corporation is the: 3 amortization of bond discount results in:
A. contractual interest rate. . A. the same dollar amount of interest expense each
B. face value rate. interest period.

C. market interest rate. B. an increasing dollar amount of interest expense


each interest period.
D. stated interest rate.
C. a decreasing dollar amount of interest expense
each interest period.
D. interest expense equal to the interest payment
each period.

9 The market value (present value) of a bond is a function


. of all of the following except the:
A. dollar amounts to be received.
B. length of time until the amounts are received.
1 When bonds are issued at a premium, total interest
C. market rate of interest. 4 expense will be:
D. all of the options influence the present value of a . A. the same whether the straight-line or effective
bond. interest method is used.
B. higher if the straight-line method is used.
C. higher if the effective interest method is used.
D. higher than if the bonds were issued at a
discount.
1 Discount on Bonds Payable:
0 A. has a credit balance.
.
B. is a contra account.
C. is added to bonds payable on the balance sheet.
D. increases over the term of the bonds. 1 All of the following are long-term liabilities except:
5 A. bonds payable.
.
B. mortgage notes payable.
C. lease liabilities.
D. all of these options are long-term liabilities.
1 The amortization of the bond premium decreases:
1 A. interest expense.
.
B. bond carrying value.
C. interest paid.
D. both interest expense and bond carrying value. 1 Payments on an instalment note payable calling for
6 blended principal and interest payments will:
. A. have larger principal components in early years
versus later years.
B. get larger over time.
C. get smaller over time.
1 When bonds are redeemed before maturity, the gain or
2 loss on redemption is the difference between the cash D. have larger interest components in early years
. paid to redeem the bonds and the: versus later years.
A. carrying value of the bonds.
B. face value of the bonds.
C. original selling price of the bonds.
D. maturity value of the bonds.
1 The renting of an apartment is an example of:
7 A. a capital lease.
.
B. a lease liability.
C. an operating lease.
D. a lessor lease.
7 Identify the statement that is not true. Consolidated
. financial statements:
A. are prepared when a company owns between
20% to 50% of the common shares of another
1 The lessee must record the leased property as an asset if entity.
8: B. present the total assets and liabilities controlled
. A. the lease transfers ownership of the property to by the parent company.
the lessee. C. are useful because they indicate the size and
B. the lease contains a purchase option enabling the range of operations of the companies under
lessee to purchase the asset at fair market value. common control.
C. the lease term is 75% or more of the useful life D. are prepared in addition to the financial
of the leased property. statements for the individual parent and
subsidiary companies.
D. the total payments equal or exceed 90% of the
fair market value of the leased property.

8 Temporary investments that are not considered to be a


. substitute for cash, are reported in:
1 The debt to total assets ratio is calculated by dividing:
9 A. a separate section of the balance sheet after
A. long-term liabilities by total assets.
. current assets.
B. total debt by total assets.
B. the current asset section of the balance sheet after
C. total assets by total debt. cash.
D. total assets by long-term liabilities. C. the current asset section of the balance sheet
before cash.
D. a separate section of the balance sheet before
current assets.

2 The interest coverage ratio is calculated by dividing:


0 A. net income before income tax expense by
. interest expense.
B. net income before interest expense by interest 9 At acquisition, temporary debt investments are recorded
expense. . at the:
C. net income before income tax expense and A. face value of the bonds purchased.
interest expense by interest expense. B. price paid for the bonds plus interest.
D. net income by interest expense. C. price paid for the bonds plus brokerage fees
(commissions) if any.
Weygandt, Kieso, Kimmel, Trenholm: D. face value of the bonds purchased plus interest.
Accounting Principles, Second Canadian
Edition
Chapter 17
6 Corporations purchase equity investment for all of the
. following reasons except: 1 When a temporary investment in bonds is sold, the gain
A. to earn dividend income. 0 or loss on sale is the difference between the:
B. to realize gains when the shares are subsequently . A. sales price and the cost of the bonds.
sold. B. net proceeds and the cost of the bonds.
C. to expand, diversify, or create a profitable C. sales price and the market value of the bonds.
operating relationship.
D. net proceeds and the market value of the bonds.
D. to earn interest income.
C. The bond premium or discount is recorded
separately from the principal investment and is
amortized to interest revenue.
1 In accounting for equity investments of less than 20%, D. Temporary debt investments are used to invest
1 the: idle cash.
. A. consolidated financial statement method is used.
B. cost method is used.
C. equity method is used.
D. controlling interest method is used.
1 Companies generally purchase investments in debt and
6 equity securities:
. A. to house excess cash until needed.
B. to generate investment income.
1 Under the equity method, the investor records dividends C. to meet strategic goals.
2 received by crediting: D. all of the options are reasons to purchase debt
. A. Dividend Revenue. and equity securities.
B. Investment Income.
C. Revenue from Investment.
D. Equity Investments.

1 A valuation allowance account is used to record:


7 A. a decline in the market value of long-term
. investments.

1 The investor records its share of the investee's net B. interest revenue.
3 income under the: C. the acquisition cost of a security.
. A. cost method. D. the difference between the cost and market value
B. equity method. of a portfolio of temporary investments.
C. fair value method.
D. controlling interest method.

1 A loss on decline in value of investments is:


8 A. reported under other expenses and losses in the
. income statement.
1 Under the equity method, when dividends are received
4 from the investee, the investor: B. reported as an extraordinary item.
. A. debits dividends and credits investment revenue. C. reported as an adjustment to the beginning
balance of retained earnings.
B. debits cash and credits dividend revenue.
D. netted off against investment revenue on the
C. debits cash and credits equity investment. income statement.
D. debits equity investment and credits dividend
revenue.

1 Temporary investments are securities held by a


9 company that are:
1 All of the following statements concerning temporary . A. readily marketable.
5 debt investments are true except:
. B. intended to be converted into cash when the need
A. Temporary debt investments earn interest for cash arises.
revenue.
C. readily marketable and intended to be converted
B. Accrued interest must be paid by the purchaser into cash when the need for cash arises.
when purchasing temporary debt investments
between interest payment dates.
D. readily marketable and intended to be held until
maturity.

9 Cash flow activities that include obtaining cash from


. issuing debt and repaying the amounts borrowed are
classified as:
A. operating activities.
2 Which of the following accounting guidelines for equity
B. investing activities.
0 investments is correct?
. A. Less than 20% ownership, significant presumed C. financing activities.
influence, cost method. D. noncash activities.
B. Less than 20% ownership, insignificant
presumed influence, equity method.
C. Between 20% and 50% ownership, significant
presumed influence, equity method.
D. Between 20% and 50% ownership, significant 1 Operating activities include cash outflows to:
presumed influence, cost method. 0 A. purchase property and equipment.
.
B. purchase debt or equity securities.
Weygandt, Kieso, Kimmel, Trenholm: C. make loans to other entities.
Accounting Principles, Second Canadian
D. suppliers for inventory.
Edition
Chapter 18
6 The cash flow statement reports all of the following except
. the:
A. cash receipts during a period.
B. cash payments during a period. 1 The cash flow statement provides useful information by
1 showing the:
C. net change in cash during a period. . A. entity's ability to generate future cash flows.
D. all of these options are reported. B. entity's ability to pay dividends and meet
obligations..
C. reasons for the difference between net income
and cash provided (used) by operating activities.
D. all of these options.
7 Cash equivalents are short-term, highly liquid
. investments that are:
A. readily convertible to known amounts of cash.
B. relatively insensitive to changes in interest rates.
C. readily convertible to known amounts of cash 1 The information needed to prepare the cash flow
and relatively insensitive to changes in interest 2 statement includes all of the following except:
rates. . A. comparative balance sheet.
D. within one year of maturity. B. retained earnings statement.
C. additional information.
D. current income statement.

8 Cash flow activities that include acquiring and


. disposing of investments, productive long-lived assets,
and loans are classified as:
A. operating activities. 1 The operating activities section of the cash flow
B. investing activities. 3 statement must be converted from an accrual basis to a
. cash basis under:
C. financing activities. A. the direct method only.
D. noncash activities. B. the indirect method only.
C. both the direct and indirect methods. 1 Under the direct method, cash payments for operating
8 expenses equals operating expenses:
D. neither method.
. A. plus an increase in prepaid expenses and accrued
expenses payable.
B. minus a decrease in prepaid expenses and
accrued expenses payable.
C. minus a decrease in prepaid expenses and plus a
1 All of the following would be added to net income decrease in accrued expenses payable.
4 under the indirect method except:
. D. plus a decrease in prepaid expenses and minus
A. amortization expense.
an increase in accrued expenses payable.
B. increase in accounts payable.
C. loss on sale of equipment.
D. increase in prepaid expenses.

1 The cash current debt coverage ratio is calculated by


9 dividing:
. A. net increase in cash by average current liabilities.
1 Which of the following would be deducted from net B. net cash from financing activities by average
5 income under the indirect method? current liabilities.
. A. Amortization Expense. C. net cash from operating activities by average
B. Loss on sale of asset. current liabilities.
C. Decrease in accrued expenses payable. D. average current liabilities by net cash from
operating activities.
D. Decrease in accounts receivable.

2 The cash-based counterpart to the profit margin ratio is


1 Under the direct method, cash payments for operating 0 the:
6 expenses are a (an): . A. cash current debt coverage.
. A. operating activity.
B. cash flow per share.
B. investing activity.
C. cash return on sales.
C. financing activity.
D. cash total debt coverage.
D. noncash activity.

Weygandt, Kieso, Kimmel, Trenholm:


Accounting Principles, Second Canadian
Edition
Chapter 19
1 Under the direct method, cash payments to suppliers
6 A short-term creditor, such as a bank, is primarily
7 equals cost of goods sold:
. interested in the borrower's:
. A. plus an increase in inventory and accounts
A. liquidity.
payable.
B. profitability.
B. minus a decrease in inventory and accounts
payable. C. solvency.
C. minus an increase in inventory and plus a D. growth potential.
decrease in accounts payable.
D. plus an increase in inventory and minus an
increase in accounts payable.

7 To evaluate financial relationships it is best to make


. comparisons:
A. with industry averages.
B. on an intercompany basis. C. simple proportion.
C. on an intracompany basis. D. all of these options.
D. all of these options are bases for comparison.

1 Ratios that measure the short-term ability of the


3 enterprise to pay its maturing obligations and to meet
. unexpected needs for cash are:
8 A technique for evaluating a series of financial A. liquidity ratios.
. statement data over a period of time is: B. profitability ratios.
A. horizontal analysis. C. solvency ratios.
B. ratio analysis. D. trend ratios.
C. vertical analysis.
D. common size analysis. 1 A ratio that is a measure of a company's immediate
4 short-term liquidity is the:
. A. acid test ratio.
B. current ratio.
C. cash current debt coverage ratio.
9 A technique for evaluating financial statements that D. receivables turnover ratio.
. expresses the relationship among selected financial
statement data is:
A. horizontal analysis.
B. ratio analysis.
C. vertical analysis.
1 The cash current debt coverage ratio is calculated by
D. common size analysis. 5 dividing:
. A. net income by ending current liabilities.
B. net income by average current liabilities.
C. net cash provided by operating activities by
ending current liabilities.
1 Horizontal analysis is also called: D. net cash provided by operating activities by
0 A. common size analysis. average current liabilities.
.
B. ratio analysis.
C. trend analysis. 1 An overall measure of profitability is the:
D. vertical analysis. 6 A. asset turnover ratio.
.
B. profit margin ratio.
C. return on assets ratio.
D. return on common shareholders' equity.

1 In vertical analysis, the base for each income statement


1 item is:
. A. gross profit.
1 When preferred shares are present, the return on
B. net income.
7 common shareholders' equity is calculated by dividing:
C. net sales. . A. net income by ending common shareholders'
D. sales. equity.
B. net income by average common shareholders'
equity.
C. net income less preferred dividends by ending
1 A ratio can be expressed in terms of a: common shareholders' equity.
2 A. percentage. D. net income less preferred dividend requirements
. by average common shareholders' equity.
B. rate.
1 All of the following are solvency ratios except the:
8 A. cash total debt coverage ratio.
.
B. current ratio.
C. debt to total assets ratio.
D. interest coverage ratio.

1 The interest coverage ratio is calculated by dividing


9 interest expense into:
. A. net income.
B. income before income taxes.
C. income before interest expense.
D. income before income taxes and interest
expense.

2 Limitations of financial statement analysis include all of


0 the following except:
. A. atypical data.
B. common accounting methods.
C. cost.
D. diversification of firms.