Type:
Test Bank
Resource:
Advanced Financial Accounting
Edition:
6th Edition
Author(s):
Thomas H. Beechy V. Umashanker Trivedi Kenneth E. MacAulay
Advanced Financial Accounting, 6e (Beechy/Trivedi/MacAulay) Chapter 1 Setting the Stage 1) Which of the following Canadian accounting standards are not included in the CICA Handbook? A) Publicly accountable enterprises B) Private enterprises C) Not-for-profit organizations D) Government Answer: D Type: MC Page Ref: 4 Difficulty: Easy 2) Which of the following financial reporting objectives is a user objective? A) Income tax deferral B) Net income maximization C) Cash flow prediction D) Income smoothing Answer: C Type: MC Page Ref: 5 Difficulty: Easy 3) Which financial reporting objective is common to both users and preparers of financial statements? A) Cash flow prediction B) Contract compliance C) Income tax deferral D) Net income maximization Answer: B Type: MC Page Ref: 5-7 Difficulty: Moderate 4) Which of the following financial statements would likely be the most effective in conveying information to users that will help them to predict the long-term future cash flows of the company? A) A classified balance sheet prepared under the accrual basis of accounting B) A proforma cash flow statement showing expected cash flows for the next year C) A multi-step income statement prepared under the accrual basis of accounting D) A cash flow statement showing actual cash flows for the past two year Answer: C Type: MC Page Ref: 5-6 Difficulty: Moderate
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5) A company has chosen accounting policies that result in maximizing its net income. Which of the following is not a reason for doing this? A) To comply with loan agreement maintenance tests B) For favourable performance evaluation C) For cash flow prediction D) To attract new investors Answer: C Type: MC Page Ref: 5-8 Difficulty: Moderate 6) How do financial analysts refer to earnings that correspond closely to cash flows? A) Cash flow per share B) High quality earnings C) Earnings determined on a cash basis D) Low quality earnings Answer: B Type: MC Page Ref: 6 Difficulty: Easy 7) Which of the following covenants would not appear in a loan agreement? A) Limits on additional debt B) Dividend payout limitations C) Valuation D) Minimum times-interest-earned ratio Answer: C Type: MC Page Ref: 6 Difficulty: Moderate 8) In preparing financial statements with cash flow prediction as a major objective, a company should choose an accounting policy that ________. A) allows a cost to be capitalized B) allows a cost to be expensed C) results in income-smoothing D) maximizes net income Answer: B Type: MC Page Ref: 6 Difficulty: Moderate 9) Which of the following is not one of the major reporting objectives of financial statement preparers? A) Prediction of future cash flows B) Compliance monitoring C) Fraud detection D) Performance evaluation Answer: C Type: MC Page Ref: 7 Difficulty: Moderate
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10) A company has chosen accounting policies that result in minimizing its net income. Which of the following is not a reason for doing this? A) Income tax deferral B) Performance evaluation C) Discourage new competitors D) For negotiations with unions Answer: B Type: MC Page Ref: 8-9 Difficulty: Moderate 11) What is often the main motivation behind the practice of taking a "big bath" in a loss year? A) To minimize income taxes B) To smooth income C) To maximize asset book values D) To increase future years' earnings Answer: D Type: MC Page Ref: 9 Difficulty: Easy 12) How does a company usually take a "big bath" in a loss year? A) Reduces its long-term liabilities B) Expenses as many of its costs as possible C) Recognizes revenue as soon as possible D) Writes-down its assets Answer: D Type: MC Page Ref: 9 Difficulty: Moderate 13) What effect does income smoothing have on risk analysis? A) Reduces the business risk of a company B) Increases the financial risk of a company C) Reduces the audit risk of a company D) Has no effect on risk analysis Answer: A Type: MC Page Ref: 9-10 Difficulty: Moderate 14) Which of the following statements about income smoothing is true? A) Incoming smoothing can only be accomplished through revenue recognition policies. B) Income smoothing can only be accomplished through the use of estimates. C) IFRS provides more opportunities for income smoothing than under pre-IFRS GAAP. D) Income smoothing through expense recognition policies is effective if there is a strong relationship between expenses and revenues. Answer: D Type: MC Page Ref: 9-10 Difficulty: Moderate
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15) Choco Chocolate is the wholly-owned Canadian subsidiary of the Yummy Candy Company, a publicly-traded US company. Which accounting standards must Choco Chocolate comply with? A) IFRS B) Canadian Accounting Standards for Private Enterprises C) US GAAP D) Whatever standards are prescribed by any loan agreements that Choco has with its lending institutions Answer: C Type: MC Page Ref: 10 Difficulty: Moderate 16) Which of the following user groups has the most influence on reporting objectives? A) Canada Revenue Agency B) The company's audit committee C) The company's major lenders D) Industry security analysts Answer: B Type: MC Page Ref: 11 Difficulty: Easy 17) What does accounting harmonization refer to? A) The smoothing of income between periods by a company B) Achieving a high level of consistency among accounting standards of different countries C) All companies using the same accounting standards D) Reconciling financial statements prepared under pre-IFRS GAAP to financial statements prepared under IFRS Answer: B Type: MC Page Ref: 12 Difficulty: Moderate 18) In the U.S., accounting standards are set by the Financial Accounting Standards Board (FASB). From which body does FASB derive its authority? A) US government B) American Institute of Certified Public Accountants (AICPA) C) Securities and Exchange Commission (SEC) D) International Accounting Standards Board (IASB) Answer: C Type: MC Page Ref: 14 Difficulty: Moderate
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