CSC Corporate Financial Statements 5

Question 1

A company writes down inventory from $80,000 to its net realizable value of $60,000. How does this affect the financial statements?

Accepted Answer

Decreases assets and increases expenses

Answer

An inventory write-down reduces the inventory asset on the balance sheet and increases cost of goods sold (an expense) on the income statement, reducing net income.

Question 2

What is the primary purpose of an auditor's report accompanying financial statements?

Accepted Answer

To provide an independent opinion on whether the financial statements are fairly presented

Answer

An independent auditor's report expresses an opinion on whether the financial statements present fairly, in all material respects, the financial position of the company in accordance with applicable accounting standards.

Question 3

Which of the following transactions increases total assets without affecting net income?

Accepted Answer

Issuing common shares for cash

Answer

Issuing common shares for cash increases both cash (an asset) and share capital (equity), with no effect on the income statement or net income.

Question 4

On the balance sheet, a bond payable with a face value of $1,000,000 maturing in 8 years is classified as:

Accepted Answer

A non-current (long-term) liability

Answer

Debt maturing beyond one year from the balance sheet date is classified as a non-current (long-term) liability.

Question 5

Which accounting treatment applies when a company acquires a controlling interest in another company under IFRS?

Accepted Answer

Consolidation with full acquisition method

Answer

Under IFRS 3 and IFRS 10, when a parent acquires control of a subsidiary, it must prepare consolidated financial statements using the acquisition method.

CSC - Canadian Securities Course Practice Test

CSC - Canadian Securities Course Practice Test

CSC Corporate Financial Statements 5