48 Questions
Which type of business structure is not mentioned in the text?
Limited Liability Company (LLC)
What do financial statements provide insight into?
Future profitability
When did Canada transition from GAAP to IFRS?
January 1, 2011
What are the topics covered in the chapter?
Types of Business Structures, Financial Statements of a Corporation, The Annual Report, Public Company Disclosures and Investor Rights
What are the advantages of a sole proprietorship?
Ability to be one's own boss and certain tax advantages
What are the advantages of a partnership?
Easier setup and the ability to raise larger amounts of capital
What are the advantages of a corporation?
Limited liability and ability to finance growth
What do common shareholders in corporations have?
Voting rights
Who uses financial statements of a corporation?
Management, investors, advisors, analysts, bankers, competitors, and regulators
What do International Financial Reporting Standards (IFRS) provide compared to GAAP?
More extensive and detailed disclosure
What are the four financial statements of a corporation?
Statement of Financial Position, Statement of Comprehensive Income, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows
What does the Statement of Financial Position show?
Company's financial picture at a specific point in time, detailing its assets, equity, and liabilities
What does Assets = Equity + Liabilities represent?
What the company owns, shareholder's interest, and what the company owes
Which accounting method is used to allocate the cost of intangible assets over their useful life?
Amortization
Where do annual allowances for depreciation, amortization, and depletion appear in the financial statements?
Statement of comprehensive income
What is the purpose of capitalization in accounting?
To record an expenditure as an asset
How is goodwill defined in accounting?
Excess of the amount paid for shares over their net asset value
At what ownership percentage is significant influence presumed to exist in accounting?
20%
What is the key measure of liquidity in accounting?
Current assets
How are inventories valued in changing price environments?
Weighted average or FIFO
What are prepaid expenses in accounting?
Payments for future services to be received
When is significant influence presumed to exist in accounting?
20% ownership
What is the purpose of depletion in accounting?
To allocate the cost of natural resources
What are trade receivables in accounting?
Amounts owed to the company for goods or services provided
What is the purpose of the cost method in accounting?
For little influence in another company
In a distribution by way of a prospectus, what right do purchasers usually have within two business days after receiving a prospectus and any amendment?
Right of withdrawal
In a distribution by way of a prospectus, when can purchasers rescind or cancel a contract for the purchase of securities?
If the prospectus contains a material misrepresentation
Who may be liable for damages if a prospectus contains a material misrepresentation?
The issuer, the directors of an issuer, the seller of a security, the underwriter, and any other person who signs a prospectus
What constitutes a takeover bid?
An offer to purchase the shares of a company that, with the offeror’s already owned securities, will in total exceed 20% of the outstanding voting securities of the company
Who are generally defined as insiders?
Directors, senior officers, and individuals or companies owning or controlling more than 10% of the voting shares of the company
What must insiders do regarding reporting trading activity?
Report details of any change from the previous report within ten days after the trade takes place
What are a corporation's owners not personally liable for?
Debts, losses, or obligations arising from its business activities
How is a corporation taxed?
As a separate legal entity
What do a corporation’s financial statements show?
What the company owns, how it was financed, and how much money it earned or lost over a given period
What must a reporting issuer do after distributing securities to the public?
Comply with the timely and continuous public disclosure of information
What is the consequence of failing to file an insider report or giving false or misleading information?
Offences under the acts and usually punishable by a fine
Which financial statement shows the revenue and related expenses for a specific period?
Statement of Comprehensive Income
What represents income tax payable in future periods due to temporary differences between book value of assets and liabilities and the amount used for income tax purposes?
Deferred tax liabilities
Which item is not directly related to a company’s normal operating activities on the Statement of Comprehensive Income?
Other comprehensive income
What does the Statement of Cash Flows primarily evaluate?
Ability to generate cash
What is the purpose of the Statement of Changes in Equity?
To link the Statement of Financial Position and Statement of Comprehensive Income
What is the purpose of the notes to the financial statements in an Annual Report?
To ascertain whether the company uses derivatives for hedging
What must a company do after distributing securities to the public?
Comply with the timely and continuous public disclosure requirements
What is the first paragraph of the Auditor’s Report in an Annual Report typically about?
Identification of the covered statements
What are the three statutory rights available to the purchaser of securities issued in Canada under prospectus requirements?
Right of Withdrawal, Right of Rescission, Right of Redemption
What is the key measure of liquidity in accounting?
Statement of Financial Position
What do the financial statements of a corporation provide insight into?
All of the above
What is the primary purpose of the Statement of Cash Flows?
To evaluate the company’s ability to generate cash
Study Notes
Accounting Principles and Concepts
- Depreciation, amortization, and depletion are used to allocate assets' cost over their useful life and match revenues and expenses.
- Depreciation is the normal wearing out of the firm's capital assets, amortization is for intangible assets, and depletion is used by extractive industries.
- Annual allowances for depreciation, amortization, and depletion appear as non-cash expenses in the statement of comprehensive income.
- Capitalization involves recording an expenditure as an asset to spread the expense over multiple accounting periods.
- Goodwill is the probability that a regular customer will continue to return and appears as the excess of the amount paid for shares over their net asset value.
- Intangible assets include patents, copyrights, trademarks, and franchises.
- Significant influence is presumed to exist when a company owns 20% or more of the voting rights of another company.
- Different degrees of ownership require different accounting treatment, such as the cost method for little influence and the consolidated method for over 50% ownership.
- Current assets include cash, inventories, prepaid expenses, and trade receivables, and are a key measure of liquidity.
- Inventories are valued at original cost or net realizable value, with commonly used methods including weighted average and FIFO.
- The choice of inventory valuation method impacts the inventory value on the statement of financial position and profit in changing price environments.
- Prepaid expenses are payments for services to be received in the near future, while trade receivables are amounts owed to the company for goods or services provided.
Test your knowledge of accounting principles and concepts with this quiz. Explore topics such as depreciation, amortization, asset allocation, capitalization, goodwill, intangible assets, ownership influence, current assets, inventory valuation, and prepaid expenses. Perfect for brushing up on essential accounting knowledge.
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