CSC Corporate Financial Statements 2 — Questions and Answers
Question 1: Which financial statement shows a company's revenues, expenses, and net income over a specific accounting period?
- Balance sheet
- Income statement (Correct answer)
- Statement of cash flows
- Statement of changes in equity
Correct answer: Income statement
The income statement (also called the statement of comprehensive income) reports revenues and expenses over a defined period, resulting in net income or loss.
Question 2: Under IFRS, which inventory costing method is explicitly prohibited?
- FIFO (First-In, First-Out)
- Weighted average cost
- LIFO (Last-In, First-Out) (Correct answer)
- Specific identification
Correct answer: LIFO (Last-In, First-Out)
IFRS prohibits the LIFO method for inventory valuation; Canadian public companies using IFRS must use FIFO, weighted average, or specific identification.
Question 3: A company reports total assets of $500,000 and total liabilities of $320,000. What is shareholders' equity?
- $820,000
- $320,000
- $180,000 (Correct answer)
- $500,000
Correct answer: $180,000
Shareholders' equity = Total assets − Total liabilities = $500,000 − $320,000 = $180,000.
Question 4: Which section of the cash flow statement would include proceeds from issuing common shares?
- Operating activities
- Investing activities
- Financing activities (Correct answer)
- Non-cash activities
Correct answer: Financing activities
Proceeds from issuing shares represent a financing activity because they relate to raising capital from equity investors.
Question 5: What does the term 'working capital' represent on a corporate balance sheet?
- Total assets minus total liabilities
- Current assets minus current liabilities (Correct answer)
- Long-term assets minus long-term debt
- Cash and equivalents only
Correct answer: Current assets minus current liabilities
Working capital = Current assets − Current liabilities, measuring a company's short-term liquidity and operational efficiency.
Question 6: Which accounting principle requires expenses to be recognized in the same period as the revenues they helped generate?
- Conservatism principle
- Matching principle (Correct answer)
- Full disclosure principle
- Going concern principle
Correct answer: Matching principle
The matching principle dictates that expenses are recorded in the period the related revenues are recognized, ensuring accurate profit measurement.
Question 7: Goodwill on a corporate balance sheet arises when a company:
- Writes down an impaired asset
- Pays more than the fair value of net assets acquired in a business combination (Correct answer)
- Issues shares above par value
- Records deferred tax liabilities
Correct answer: Pays more than the fair value of net assets acquired in a business combination
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination.
CSC Corporate Financial Statements 2
Which financial statement shows a company's revenues, expenses, and net income over a specific accounting period?