CGA-CANADA
ACCOUNTING THEORY & CONTEMPORARY ISSUES [AT1] EXAMINATION
March 2011
Time: 3 Hours
Marks
Note:
All references to the Handbook refer to the CICA Handbook.
30
Question 1
Select the best answer for each of the following unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example, if the best answer for item (a) is (1), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item will not be marked. Incorrect answers will be marked as zero. Marks will not be awarded for explanations.
Note:
2 marks each
a.
Which of the following statements describes the effects of accounting for financial assets at fair value through profit and loss under IAS 39?
1)
2)
3)
4)
Tends to increase the volatility of other comprehensive income
Tends to decrease the volatility of other comprehensive income
Tends to increase the volatility of net income
Tends to decrease the volatility of net income
b. Which of the following statements describes post-announcement drift?
1) Prices of good news firms tend to drift upwards and prices of bad news firms drift downwards for
60 days beyond the earnings announcement date.
2) Future earnings are more highly correlated with current cash flows than current accruals.
3) Noise traders are more active after good news announcements than after bad news announcements. 4) Stock prices of firms announcing good earnings news increase and those of firms announcing bad earnings news fall, surrounding the earnings announcement date.
c.
Which of the following statements describes the features of a first-best contract between a risk-averse manager and a risk-neutral owner of an enterprise under direct monitoring?
1)
2)
3)
4)
The owner does not bear any risk and the manager bears all the risk.
The manager is never able to meet his or her reservation utility.
The owner bears all the risk and the manager does not bear any risk.
The manager is easily able to shirk.
d. Which of the following statements explains why firms with high levels of research and development
(R&D-intensive firms) exhibit a low level of association between net income and stock prices?
1) Net incomes of R&D-intensive firms are low, while stock prices react positively to the firms’
R&D activities.
2) R&D-intensive firms are low-risk firms.
3) R&D-intensive firms are high-growth firms.
4) R&D-intensive firms exhibit low recognition lags.
Which of the following statements explains why accounting policy changes required by accounting standards matter to management?
1)
2)
3)
4)
f.
New accounting policy rules affect net income.
New accounting rules lead to lower reliability of accounting numbers.
Managers do not believe markets are efficient.
New accounting rules interfere with existing contracts.
Hanna (1999) asserted that managers’ bonuses are often based on core earnings. Which of the following statements reflects one implication of this assertion?
1) Managers have a tendency to reduce core earnings.
2) Managers have a tendency to delay recognizing revenue.
3) Managers have a tendency to incur excessive amounts of non-recurring charges in the current period. 4) Managers have a tendency to increase operating earnings.
g. Which of the following statements describes what is meant by Positive Accounting Theory (PAT)?
1) PAT attempts to predict and explain the reasons why firms make income-increasing accounting policy choices.
2) PAT attempts to predict and explain the reasons why firms make income-decreasing accounting policy choices.
3) PAT attempts to predict and explain the reasons why firms make income-increasing as well as income-decreasing accounting policy choices.
4) PAT attempts to predict and explain the effects of accounting policy choices on debt covenants and managerial bonus
Related Documents: Accounting: Stock Market and Net Income Essay
In a classified balance sheet, companies classify assets as current assets; long-term investments; property, plant, and equipment; or intangibles. They classify liabilities as either current or long-term. A stockholders’ equity section shows common stock and retained earnings. 2. Identify and compute ratios for analyzing a company’s profitability. Profitability ratios, such as earnings per share (EPS), measure aspects of the operating success of a company for a given period of time. 3. Explain the…
business and Market Size Enron's life began in 1985 as an interstate pipeline company through the merger of Houston Natural Gas and Omaha-based InterNorth. Kenneth Lay, the former chief executive officer of Houston Natural Gas, became CEO, and the next year won the post of chairman. The firm's business model evolved to focus on two related themes: • the acquisition and operation of power plants and electric distribution companies, and • Trading operations in which Enron created markets for trading…
ease of transferability, ability to raise capital, and unlimited life. Page 8-9. 4. What goal should always motivate the actions of the firm’s financial manager? The goal of the financial manager is to maximize the current value per share of existing stock. Page 10. 5. Who owns a corporation? Describe the process whereby the owners control the firm’s management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can…
CHAPTER 1 Accounting as a Form of Communication OVERVIEW OF EXERCISES, PROBLEMS, AND CASES Estimated Time in Learning Outcomes Exercises Minutes Level 1. Identify the primary users of accounting information and their 1 5 Mod needs. 12* 10 Mod 14* 15 Mod 2. Explain the purpose of each of the financial statements 2 5 Easy and the relationships among them, and prepare a set of 3 15 Mod simple statements. 4 10 Mod 5 10 Mod 6 15 Easy 7 10 Easy 8 20 Diff 9 15 Mod 12*…
are focused on net income are referred to as - liquidity ratios the ratio related to the amount of profit a firm earns for every $1 in sales is called the profit margin the financial ratio measured as net income divided by total assets is known as a firms return on assets the amount of profit a firm earns for every $1 of equity is referref to as the - return on equity the ratios which involve the current price of one share of a firms common stock are referred to as - market value measures…
1. Which tax is calculated on the transfer of property and is normally determined by multiplying the value of the property transferred by a tax rate? Choose 1 answer A. income tax B. progressive tax C. excise tax D. FICA tax 2. Which two statements describe how taxes influence decisions made when filing a return for an individual taxpayer? Choose 2 answers A. Various tax credits, deductions, and exclusions are designed to encourage taxpayers to obtain additional education and…
Buena Vista Street, Burbank, California 91521 (818) 560-1000 Securities Registered Pursuant to Section 12(b) of the Act: I.R.S. Employer Identification No. 95-4545390 Name of Each Exchange on Which Registered New York Stock Exchange Title of Each Class Common Stock, $.01 par value Securities Registered Pursuant to Section 12(g) of the Act: None. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES 9 NO Indicate…
Citigroup’s balance sheet and income statement? Balance Sheet Asset Cash and due from banks Deposits with banks Federal funds sold and securities borrowed or purchased under agreements to resell Trading account assets Investments Total loans, net Liability Total deposits Short-term borrowings Long-term debt Equity Common stock Additional paid-in capital Retained earnings Income Statement Income Total revenue Total provisions Total operating expenses Net income These are primary…
Europe-Africa, Asia-Pacific, and Latin America. In fiscal year 2012, Digiekon regained profitability and posted a healthy increase in net income. This was due to placing tighter controls on production levels and sales expenditures, and improved analysis of the camera market. Digiekon will continue its strategy of low cost/high value for low-end cameras, and fair market price/high quality high-end cameras. Mission Statement Digiekon’s mission is to provide quality digital cameras at an affordable…