$\text{Assets} = \text{Liabilities} + \text{Shareholders' Equity}$

Question 1

Which of the following best describes the entity perspective in financial accounting?

Accepted Answer

The assets of the company belong to the company itself, not to any individual creditor or shareholder.

Question 2

Which financial statement shows a company’s financial position at a specific point in time?

Accepted Answer

Statement of financial position (Balance Sheet)

Question 3

A partnership differs from a corporation in which of the following ways?

Accepted Answer

A partnership has unlimited liability for each partner.

Question 4

Which of the following is NOT an external user of financial accounting information?

Accepted Answer

Management

Question 5

Which section of the CPA Canada Handbook contains the International Financial Reporting Standards (IFRS)?

Accepted Answer

Part I

Question 6

A company purchases equipment for $50,000 using cash. Which type of business activity does this transaction represent?

Accepted Answer

Investing activity

Question 7

Which of the following is a characteristic of a corporation?

Accepted Answer

Taxed as a separate legal entity

Question 8

A company issues new shares to raise capital. This is an example of which type of business activity?

Accepted Answer

Financing activity

Question 9

Which of the following statements about private companies is correct?

Accepted Answer

They may follow Accounting Standards for Private Enterprises (ASPE) as outlined in Part II of the CPA Handbook.

Question 10

Which of the following is an example of an operating activity?

Accepted Answer

Paying employee salaries

Question 11

A company borrows $100,000 from a bank. Which type of business activity is this?

Accepted Answer

Financing activity

Question 12

Which of the following best describes the purpose of financial accounting?

Accepted Answer

To identify, record, and communicate financial information to external users.

Question 13

Which of the following is NOT a financial statement typically prepared by a company?

Accepted Answer

Statement of business activities

Question 14

A company sells a piece of equipment for $20,000. Which type of business activity does this represent?

Accepted Answer

Investing activity

Question 15

Which of the following is a key advantage of a corporation compared to a proprietorship?

Accepted Answer

Ease of raising capital

Question 16

Which of the following is true regarding the Statement of Cash Flows?

Accepted Answer

It shows the company’s cash inflows and outflows from operating, investing, and financing activities.

Question 17

Which formula correctly represents the basic accounting equation?

Accepted Answer

$	ext{Assets} = 	ext{Liabilities} + 	ext{Shareholders' Equity}$

Question 18

A company repays a $10,000 loan. Which type of business activity is this?

Accepted Answer

Financing activity

Question 19

Which of the following is a characteristic of a proprietorship?

Accepted Answer

Unlimited liability for the owner

Question 20

Which of the following is a primary purpose of the notes to financial statements?

Accepted Answer

To provide detailed explanations and additional information about the financial statements.

Chapter 1: The Purpose and Use of Financial Statements – Study Notes

Study Guide - Practice Questions