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BUS 320 Study Guide - Midterm Guide: Current Liability, Financial Statement, Income Statement

Business Administration
Course Code
BUS 320
Amir Azaran
Study Guide

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Chapter 2 Pre-test Quiz
1. The mark-to-market accounting rule
a) will be adapted in Canada in 2011 as par t of the IFRS rules.
b) will increase transparency of financial information.
c) will allow Canadian companies to gain access to international financial markets.
d) will make Canadian companies financial statements more comparable to their
European counterpar ts.
e) all of the above.
The correct answer is e. P.29
2. Given book values of current assets = $500, current liabilities = $300, net fixed assets =
$1,000, and long-term debt = $ 600; market values of net fixed assets = $1,500 and long-term
debt = $700. What is the market value of shareholders equity?
a) $500
b) $600
c) $1,000
d) $1,100
e) Insufficient information is given to calculate market value of equity.
The correct answer is c. MV(equity)=500+1500-300-700=1000
3. The balance sheet is potentially useful to
a) Suppliers
b) Managers
c) Creditors
d) Investors
e) All of the above.
The correct answer is e. P29
4. Due to the realization principle in accounting, depreciation deductions should not be
included in calculations of cash flows.
a) True
b) False
The correct answer is b. P31
5. A financial manager who is analyzing an income statement must bear in mind
a) GAAP rules that are used to prepare the financial statements.
b) the presence of non-cash items such as depreciation.
c) the difference between fixed and variable costs.
d) the timing of cash inflows and outflows.
e) All of the above.
The correct answer is e. P31
6. Dividends received by Canadian corporations are tax free.
a) True
b) False
The correct answer is a. P41
7. One reason that debt financing may be preferable to equity financing is
a) debt-financing is always less risky.
b) interest paid is tax-deductible while dividends paid are not.
c) dividends paid is tax-deductible while interest paid is not.
d) debt-financing is generally cheaper than selling shares.
e) it is usually easier for a firm to obtain loans than issue shares.
The correct answer is b. P41
8. Canadian tax laws require that CCA calculations to include expected future salvage value
and expected economic life of the assets.
a) True
b) False
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