Sample Questions

The following questions provide a reasonable cross section of the level of difficulty and the types of questions that you will encounter in ¢OIN - The Ontario CA Challenge. If you have any comments or concerns, please contact Jennifer Diebolt - Liaison Officer, at (416) 969-4295 or 1-800-387-0735 x295.

Please note that marks will not be deducted for wrong answers. All participants will be warned when there are five minutes remaining in the challenge and when there is one minute remaining.

1. On January 1st ten years ago, Carson Products Limited purchased a steel cutting machine for $100,000. At that time, the useful life was estimated to be 15 years, with no salvage value. On January 1st, of year 11, it was determined that the equipment was likely to have a useful life of 20 years, not 15. Which one of the following amounts is the depreciation expense for year 11?

  1. $0 - the machine has been depreciated too heavily in the past.
  2. $6,667
  3. $3,333
  4. $5,000

 

2. Generally Accepted Accounting Principles (GAAP) require that inventory be recorded at the lower of cost and market value. Which one of the following statements provides the best support for this?

  1. The principle of conservatism suggests that a write-down is appropriate and allows the users of the financial statements to determine if the future sales will generate a profit.
  2. Financial statements should always be based on fair values, not historical cost to provide useful information.
  3. Inventory will generally turnover in a year or less, so it is more useful to recognize the profit early.
  4. The cost principle allows for cost to be defined as the fair value to allow the current valuation of inventory to be used as a measurement basis since inventory is a current asset.

 

3. Which one of the following statements best describes the revenue recognition principle?

  1. The risks and rewards of ownership have passed to the purchaser and the bill has been sent to the purchaser, and the vendor has substantially performed their responsibilities.
  2. The risks and rewards of ownership have passed to the purchaser, collection is assured, the amount can be measured, and the purchaser has substantially performed their responsibilities.
  3. The risks and rewards of ownership have passed to the vendor, collection is assured, the amount can be measured, and the vendor has substantially performed their responsibilities.
  4. The risks and rewards of ownership have passed to the purchaser, collection is assured, the amount can be measured, and the vendor has substantially performed their responsibilities.

 

4. FIFO and LIFO are two methods used to calculate inventory valuation. In times when prices are rising and purchase volume is constant, the use of the FIFO method as opposed to the LIFO method will generally result in which one of the following?

  1. Lower cost of goods sold; higher inventory balances; lower net income.
  2. Lower cost of goods sold; higher inventory balances; higher net income.
  3. Higher cost of goods sold; higher inventory balances; higher net income.
  4. Higher cost of goods sold; lower inventory balances; lower net income.

 

5. Direct costing for inventory includes which of the following costs?

  1. All raw materials; all direct labour.
  2. All raw materials; all direct labour; an appropriate allocation of variable and fixed overhead.
  3. All raw materials; all direct labour; an appropriate allocation of variable overhead.
  4. All raw materials; all direct labour; all overhead.