(Test Bank) Financial Accounting With International Financial Reporting Standards

Weygandt, Kimmel, Kieso, 4

Business

Test Bank

4th Edition

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Author(s): Weygandt, Kimmel, Kieso

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Test Bank for Financial Accounting with International Financial Reporting Standards, 4e Weygandt, Kimmel, Kieso (All Chapters) CHAPTER 1 ACCOUNTING IN ACTION CHAPTER LEARNING OBJECTIVES 1. Identify the activities and users associated with accounting. Accounting is an information system that identifies, records, and communicates the economic events of an organization to interest ed users. The major users and uses of accounting are as follows: (a) Management uses accounting information to plan, organize, and run the business. (b) Investors (owners) decide whether to buy, hold, or sell their financial interests on the basis of accou nting data. (c) Creditors (suppliers and bankers) evaluate the risks of granting credit or lending money on the basis of accounting information. Other groups that use accounting information are taxing authorities, regulatory agencies, customers, and labor unions. 2. Explain the building blocks of accounting : ethics , principles , and assumptions . Ethics are the standards of conduct by which actions are judged as right or wrong. Effective financial reporting depends on sound ethical behavior. Accounting is bas ed on standards, such as International Financial Reporting Standards (IFRS). IFRS generally uses one of two measurement principles , historical cost or fair value principle . Two main assumptions are the monetary unit assumption and the economic entity assum ption. The monetary unit assumption requires that companies include in the accounting records only transaction data that can be expressed in terms of money. The economic entity assumption requires that the activities of each economic entity be kept separat e from the activities of its owner (s) and other economic entities. 3. State the accounting equation, and define its components. The basic accounting equation is: Assets = Liabilities + Equity Assets are resources a business owns. Liabilities are creditors ' claims on total assets. Equity is the ownership claim on total assets. The expanded accounting equation is: Assets = Liabilities + Share Capital —Ordinary + Revenues – Expenses – Dividends Share capital —ordinary is affected when the company issues new or dinary shares in exchange for cash. Revenues are the gr oss increase in equity resulting from business activities for the purpose of earning income. Expenses are the costs of assets consumed or services used in the process of earning revenue. Dividends are payments the company makes to its shareholders. Test Bank for Financial Accounting: IFRS Edition, 4e 1 - 2 4. Analyze the effects of business transactions on the accounting equation. Each business transaction must have a dual effect on the accounting equation. For example, if an individual asset increases, there must be a corresponding (1) decrease in another asset, or (2) increase in a specific liability, or (3) increase in equity. 5. Describe the five financial statements and how they are prepared. An income statement presents the revenues and expenses, and resu lting net income or loss, for a specific period of time. A retained earnings statement summarizes the changes in retained earnings for a specific period of time. A statement of financial position reports the assets, liabilities, and equity at a specific da te. A statement of cash flows summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time. A comprehensive income statement adds or subtracts any other comprehensive income to net income to arrive at compr ehensive Income. a6. Explain the career opportunities in accounting . Accounting offers many different jobs in fields such as public and private accounting, government, and forensic accounting. Accounting is a popular major because there are many different types of jobs, with unlimited potential for career advancement. TRUE -FALSE STATEMENTS 1. Owners of business firms are the only people who need accounting information. Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 2. Transactions that can be measured in dollars and cents are recorded in the financial information system. Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min AACSB: Reflective Thinking AIC PA BB: Critical Thinking AICPA FN: Reporting 3. The hiring of a new company president is an economic event recorded by the financial information system. Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 4. Management of a business enterprise is the major external user of information. Ans: F LO 1 BT: K Difficulty: Easy TOT: .5 min AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reportin g 5. Accounting communicates financial information about a business enterprise to both internal and external users. Ans: T LO 1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 6. Accounting information is used only by external users with a financial interest in a business enterprise. Ans: F LO 1 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Repo rting 7. Financial statements are the major means of communicating accounting information to interested parties. Ans: T LO 1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 8. Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process. Ans: F LO 1 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reportin g 9. The origins of accounting are attributed to Luca Pacioli, a famous mathematician. Accounting in A ction 1 - 3 Ans: T LO 1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 10. The State Administrat ion of Taxation in the People's Republic of China is an example of an internal user of accounting information. Ans: F LO 1 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 11. The German Confederation of Trade Unions is an example of an external user of accounting information. Ans: T LO 1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 12. Accou ntants rely on a fundamental business concept —ethical behavior —in reporting financial information. Ans: T LO 2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 13. The primary accounting standard -setting body in the United States is the International Accounting Standards Board. Ans: F LO 2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 14. The F inancial Accounting Standards Board is a part of the International Accounting Standards Board. Ans: F LO 2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 15. The two primar y accounting standard -setting bodies are the International Accounting Standards Board and the Financial Accounting Standards Board. Ans: T LO 2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICP A FN: Reporting 16. Most companies in the United States follow standards issued by the IASB. Ans: F LO 2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 17. International Financial Reporting Standards are determined by the IASB. Ans: T LO 2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 18. The process of reducing the differences between Ge nerally Accepted Accounting Principles and International Financial Reporting Standards is known as convergence. Ans: T LO 2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 19. IFRS follows one measurement principle known as the historical cost principle. Ans: F LO 2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 20. Even though a partnership i s not a separate legal entity, for accounting purposes the partnership affairs should be kept separate from the personal activities of the owners. Ans: T LO 2 BT: C Difficulty; Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical T hinking AICPA FN: Reporting 21. The economic entity assumption requires that the activities of an entity be kept separate and distinct from the activities of its owner and all other economic entities. Ans: T LO 2 BT: K Difficulty: Easy TOT : .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 22. The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records. Ans: T LO 2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 23. In order to possess future service potential, an asset must have physical substance. Ans: F LO 3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Test Bank for Financial Accounting: IFRS Edition, 4e 1 - 4 24. Owners' claims to total business assets take precedence over the claims of creditors because owners invest assets in the business and are liable for loss es. Ans: F LO 3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 25. The basic accounting equation states that Assets = Liabilities. Ans: F LO 3 BT: K Difficulty: Eas y TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 26. Share capital is the total amount paid in by shareholders for shares purchased. Ans: T LO 3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Ref lective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 27. The principal source of equity is amounts paid in by shareholders. Ans: F LO 3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thi nking AICPA FN: Reporting 28. Expenses are increases in equity that result from operating the business. Ans: F LO 3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 29. The two components of equity are retained earnings and share capital. Ans: T LO 3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 30. The purchase of an asset on account inc reases assets and decreases equity. Ans: F LO 4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 31. Providing services for cash increases assets and equity. Ans: T LO 4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 32. Accountants record both internal and external transactions. Ans: T LO 4 BT: K Difficulty: Easy TOT: .5 min. AACSB : Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 33. Internal transactions do not affect the basic accounting equation because they are economic events that occur entirely within one company. Ans: F LO 4 BT: C Difficult y: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 34. The purchase of store equipment for cash reduces the equity by an equal amount. Ans: F LO 4 BT: C Difficulty: Easy TOT: .5 min. AACS B: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 35. The purchase of office equipment on credit increases total assets and total liabilities. Ans: T LO 4 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinki ng AICPA BB: Critical Thinking AICPA FN: Reporting 36. The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company during a period. Ans: T LO 5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 37. Net income for the period is determined by subtracting total expenses and dividends from total revenues. Ans: F LO 5 BT: K Difficulty: Easy TO T: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 38. The ending retained earnings balance is reported on the statement of financial position. Ans: T LO 5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 39. The statement of financial position is also known as the balance sheet. Ans: T LO 5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Cri tical Thinking AICPA FN: Reporting 40 Compared to IFRS, GAAP tend to be simpler and less detailed. Ans: F LO 5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Accounting in A ction 1 - 5 41. Forei gn companies whose shares are traded on U.S. stock markets must use GAAP. Ans: F LO 5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting a42. The study of accounting is not us eful for a business career unless your career objective is to become an accountant. Ans: F LO 6 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting a43. Expressing an opinion as to the fairness of the information presented in financial statements is a service performed by CAs and CPAs. Ans: T LO 6 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Addit ional True -False Questions 44. Identifying is the process of keeping a chronological diary of events measured in dollars and cents. Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AIC PA FN: Reporting 45. Management consulting includes examining the financial statements of companies and expressing an opinion as to the fairness of their presentation. Ans: F LO 1 BT: K Difficulty; Easy TOT: .5 min. AACSB: Reflective Thinkin g AICPA BB: Critical Thinking AICPA FN: Reporting 46. Accountants do not have to worry about issues of ethics. Ans: F LO 2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Ethics AICPA BB: Critical Thinking AICPA FN: Reporting 47. The monetary unit assumption requires that all dollar amounts be rounded to the nearest dollar. Ans: F LO 2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 48. The basic accoun ting equation is in balance when the creditor and ownership claims against the business equal the assets. Ans: T LO 3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 49. External transactions involve economic events between the company and some other enterprise or party. Ans: T LO 4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 50. In the ret ained earnings statement, revenues are listed first, followed by expenses, and net income (or net loss). Ans: F LO 5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Test Bank for Financial Accounting: IFRS Edition, 4e 1 - 6 MULTIPLE CHOICE QUESTIONS 51. Accountants refer to an economic event as a a. purchase. b. sale. c. transaction. d. change in ownership. Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA F N: Reporting 52. The accounting process includes each of the following except a. communication. b. convergence. c. identification. d. recording. Ans: b LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Th inking AICPA FN: Reporting 53. Communication of economic events is the part of the accounting process that involves a. identifying economic events. b. quantifying transactions into dollars and cents. c. preparing accounting reports. d. recording and c lassifying information. Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA F N: Reporting 54. Which of the following events cannot be quantified into dollars and cents and recorded as an accounting transaction? a. The appointment of a new accounting firm to perform an audit. b. The purchase of a new computer. c. The sale of store equipment. d. Payment of income taxes. Ans: a LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 55. Recording of economic events involves a. keeping a systematic, chronological diary of events. b. analyzing reported information. c. explaining the meaning of reported data. d. preparing accounting reports. Ans: a LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA F N: Reporting 56. The accounting process involves all of the following except a. identifying econom ic events that are relevant to the business. b. communicating financial information to users by preparing financial reports. c. recording non −quantifiable economic events. d. analyzing and interpreting financial reports. Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Accounting in A ction 1 - 7 57. The accounting process is correctly sequenced as a. identification, communication, recording. b. recording, communication, identification. c. identification, recording, communication. d. communication, recording, identification. Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA F N: Reporting 58. Which of the following tech niques is not used by accountants to interpret and report financial information? a. Graphs. b. Special memos for each class of external users. c. Charts. d. Ratios. Ans: b LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AIC PA BB: Critical Thinking AICPA FN: Reporting 59. Bookkeeping primarily involves which of the following parts of the accounting process? a. Identification. b. Communication. c. Recording. d. Analysis. Ans: c LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 60. Which of the following would not be considered an external user of accounting data for the GHI Company? a. Taxing authority representative. b. Management. c. Cred itors. d. Customers. Ans: b LO 1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 61. Which of the following would not be considered internal users of accounting data for a company? a. The president of a company. b. The controller of a company. c. Creditors of a company. d. Salesmen of a company. Ans: c LO 1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Repor ting 62. Which of the following is an external user of accounting information? a. Labor unions. b. Finance directors. c. Company officers. d. Managers. Ans: a LO 1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Crit ical Thinking AICPA FN: Reporting Test Bank for Financial Accounting: IFRS Edition, 4e 1 - 8 63. Which one of the following is not an external user of accounting information? a. Regulatory agencies. b. Customers. c. Investors. d. All of these answer choices are correct. Ans: d LO 1 BT: C Difficulty: Ea sy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 64. Which of the following would not be considered an internal user of accounting data for GHI Company? a. President of the company. b. Production manage r. c. Merchandise inventory clerk. d. President of the employees' labor union. Ans: d LO 1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 65. Internal users of accounting inf ormation include all of following except the a. CEO of Sony. b. Human resources department at Hyundai. c. Marketing department at Braun. d. shareholders of Airbus. Ans: d LO 1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AIC PA BB: Critical Thinking AICPA FN: Reporting 66. Internal users of accounting information include a. the shareholders of Royal Dutch Shell. b. the State Administration of Taxation of China. c. the Chief Financial officer of Credit Suisse. d. the Inte rnational Accounting Standards Board. Ans: c LO 1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 67. External users of accounting information include all of following except a. the shareholders of Air Italy. b. the management of Pirelli. c. a potential customers of Olivetti. d. All of these answer choices are correct. Ans: b LO 1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Th inking AICPA FN: Reporting 68. External users of accounting information include the a. lnternational Accounting Standards Board. b. shareholders of Ferragamo. c. Marketing department at Olivetti. d. CEO of Air Italy. Ans: b LO 1 BT: C Difficulty : Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 69. The origins of accounting are generally attributed to the work of a. Christopher Columbus. b. Abner Doubleday. c. Luca Pacioli. d. Leonardo da Vi nci. Ans: c LO 1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Accounting in A ction 1 - 9 70. Financial accounting provides economic and financial information for each of the following except a. creditors. b. investors. c. managers. d. other external users. Ans: c LO 1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 71. The final step in solving an ethical dilemma is to a. identify and analyze the principal elements in the situation. b. recognize an ethical situation. c. identify the alternatives and weigh the impact of each alternative on stakeholders. d. recognize the ethical issues involved. Ans: c LO 2 BT: C Diff iculty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 72. The first step in solving an ethical dilemma is to a. identify and analyze the principal elements in the situation. b. identify the alterna tives. c. recognize an ethical situation and the ethical issues involved. d. weigh the impact of each alternative on various stakeholders. Ans: c LO 2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Ethics AICPA BB: Critical Thinking AICPA FN: R eporting 73. Ethics are the standards of conduct by which one's actions are judged as a. right or wrong. b. honest or dishonest. c. fair or unfair. d. All of these answer choices are correct. Ans: d LO 2 BT: C Difficulty: Easy TOT: 1.0 min. AAC SB: Ethics AICPA BB: Critical Thinking AICPA FN: Reporting 74. The historical cost principle requires that companies record assets at their a. appraisal value. b. cost. c. market price. d. list price. Ans: b LO 2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 75. IFRS are determined by the a. Internal Accounting Standards Body. b. International Accounting Studies Board. c. International Accounting Standards Board. d. International Auditors' Standards Body. Ans: c LO 2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 76. GAAP stands for a. Generally Accepted Auditing Procedures. b. Generally A ccepted Accounting Principles. c. Generally Accepted Auditing Principles. d. Generally Accepted Accounting Procedures. Ans: b LO 2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reportin g Test Bank for Financial Accounting: IFRS Edition, 4e 1 - 10 77. The Duce Company has five plants nationwide that cost $ 300 million. The current fair value of the plants is $500 million. The plants will be recorded and reported as assets at a. $300 million. b. $800 million. c. $200 million. d. $500 million. Ans: a LO 2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 78. Convergence refers to a. using the same accounting principles from one period to the next. b. use of the same acco unting principles by all companies. c. the elimination of all accounting standard -setting bodies except the International Accounting Standards Board. d. the process of reducing the differences between IFRS and GAAP. Ans: d LO 2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 79. The body that has the power to prescribe the accounting practices and standards used by most US companies is the a. FASB. b. IASB. c. GAAP. d. IFRS. Ans: a LO 2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 80. The fair value principle a. is one of the two costing principles followed by the IASB. b. is more useful than the historical cost principle for valuing some assets. c. dictates that an asset should be valued at the price at which it could be sold. d. All of these answer choices are correct. Ans: d LO 2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 81. Most assets are generally valued at cost because fair values a. are not useful for decision -making. b. may not be representationally faithful. c. are not relevant. d. may be higher or lowe r than historical cost. Ans: b LO 2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 82. Harrod's Inc. purchased land for ₤50,000 in 20 10. At December 31, 20 20, an appraisal determined the fair value of the land is ₤65,000. If Harrod's follows the historical cost principle, in the 20 20 financial statements, the land will be reported at a. ₤50,000 on the statement of financia l position. b. ₤65,000 on the statement of financial position . c. ₤50,000 on the income statement . d. ₤65,000 on the income statement . Ans: a LO 2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AIC PA FN: Reporting Accounting in A ction 1 - 11 83. Hyundai Inc. purchased land for W118,000,000 in 20 11. At December 31, 20 20, an appraisal determined the fair value of the land is W136,000,0000. If Hyundai follows the cost principle, the land will be reported on the statement of financial position at a. W100,000,000. b. W118,000,000. c. W136,000,000. d. W154,000,000. Ans: b LO 2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 84. Bumi Corporation purc hased an investment in the ordinary shares of another corporation for Rp250,000,000 in 2018. The shares are actively traded on the Indonesian Stock Exchange. The fair value of the investment at December 31, 2020 is Rp268,000,000. If the company follows the fair value principle, the investment will be reported in the 20 20 financial statement at a. Rp250,000,000 on the statement of financial position. b. Rp268,000,000 on the statement of financial position. c. Rp250,000,000 on the retained earnings statement. d. Rp268,000,000 on the retained earnings statement. Ans: b LO 2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 85. Asian Company purchased land for W92,000,000 in 200 3. At December 31, 2020, an appraisal determined the fair value of the land is W106,000,000. The company has an investment in the ordinary shares of another company for which it paid W49,000,000 in 2018. The shares are actively traded on the South Korea Stock Ex change. The fair value of the investment at December 31, 2020 is W63,000,000. The land and investment will be reported on the December 31, 2020 statement of financial position at a. W92,000,000 and W49,000,000, respectively. b. W92,000,000 and W63,000,000, respectively. c. W106,000,000 and W49,000,000, respectively. d. W106,000,000 and W63,000,000, respectively. Ans: b LO 2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 86. The proprietorship form of business organization a. must have at least three owners in most states. b. requires that the owner be personally liable for all debts of the business. c. combines the records of the business with the personal records of the owner. d. is characterized by a legal distinction between the business as an economic unit and the owner. Ans: b LO 2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 87. The economi c entity assumption requires that the activities a. of different entities can be combined if all the entities are corporations. b. must be reported to the Securities and Exchange Commission. c. of a sole proprietorship cannot be distinguished from the pers onal economic events of its owners. d. of an entity be kept separate from the activities of its owner. Ans: d LO 2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Test Bank for Financial Accounting: IFRS Edition, 4e 1 - 12 88. A busin ess organized as a corporation a. is not a separate legal entity in most countries. b. requires that shareholders be personally liable for the debts of the business. c. is owned by its shareholders. d. terminates when one of its original shareholders dies. Ans: c LO 2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 89. The partnership form of business organization a. is a separate legal entity. b. is a common form of organizati on for service -type businesses. c. enjoys an unlimited life. d. has limited liability. Ans: b LO 2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 90. Which of the following i s not an advantage of the corporate form of business organization? a. Limited liability of shareholders b. Transferability of ownership c. Unlimited personal liability for shareholders d. Unlimited life Ans: c LO 2 BT: K Difficulty: Easy TOT: 1.0 m in. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 91. A small neighborhood barber shop that is operated by its owner would likely be organized as a a. joint venture. b. partnership. c. corporation. d. proprietorship. Ans: d LO 2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 92. John and Sam met at law school and decide to start a small law practice after graduation. They agree to split re venues and expenses evenly. The most common form of business organization for a business such as this would be a a. joint venture. b. partnership. c. corporation. d. proprietorship. Ans: b LO 2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflecti ve Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 93. Which of the following is true regarding the corporate form of business organization? a. Corporations are the most prevalent form of business organization. b. Corporate businesses are g enerally smaller in size than partnerships and proprietor - ships. c. The revenues of corporations are greater than the combined revenues of partnerships and proprietorships. d. Corporations are separate legal entities organized exclusively under federal law . Ans: c LO 2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Accounting in A ction 1 - 13 94. A basic assumption of accounting that requires activities of an entity be kept separate from the activities of its owner is referred to as the a. stand alone concept. b. monetary unit assumption. c. corporate form of ownership. d. economic entity assumption. Ans: d LO 2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critica l Thinking AICPA FN: Reporting 95. The assumption that enables accounting to quantify (measure) economic events is the a. economic entity assumption. b. cost principle. c. historical cost principle. d. monetary unit assumption. Ans: d LO 2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 96. A business whose owners enjoy limited liability is a a. proprietorship. b. partnership. c. corporation. d. sole proprietorship. Ans: c LO 2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 97. The common characteristic possessed by all assets is a. long life. b. great monetary value. c. tangible nature. d. future economic benefit. Ans: d LO 3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 98. Equity is best depicted by the following: a. Assets = Liabilities. b. Liabilities + Asse ts. c. Residual equity + Assets. d. Assets – Liabilities. Ans: d LO 3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 99. The basic accounting equation may be expressed as a. Assets − Equity = Liabilities. b. Assets – Liabilities = Equity. c. Assets = Liabilities + Equity. d. All of these answer choices are correct. Ans: d LO 3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinki ng AICPA FN: Reporting 100. Liabilities a. are future economic benefits. b. are existing debts and obligations. c. possess service potential. d. are things of value used by the business in its operation. Ans: b LO 3 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Test Bank for Financial Accounting: IFRS Edition, 4e 1 - 14 101. Liabilities of a company would not include a. notes payable. b. accounts payable. c. wages payable. d. cash. Ans: d LO 3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 102. Liabilities of a company are owed to a. debtors. b. benefactors. c. creditors. d. underwriters. Ans: c LO 3 BT: K Difficulty: Easy TOT: 1.0 min. AA CSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 103. Equity can be described as a. creditorship claim on total assets. b. ownership claim on total assets. c. benefactor's claim on total assets. d. debtor claim on total asset s. Ans: b LO 3 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 104. Equity is often referred to as a. residual equity. b. leftovers. c. spoils. d. second equity. Ans: a LO 3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 105. When assets are distributed to the shareholders of a corporation, these distributions are termed a. depletions. b. consumpti ons. c. dividends. d. a credit line. Ans: c LO 3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 106. A dividend is a. a distribution of the company's earnings to its sharehol ders. b. equal to liabilities minus equity. c. equal to assets minus equity. d. equal to revenues less expenses. Ans: a LO 3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting 107. Revenues would not result from a. sale of merchandise. b. issuance of ordinary shares. c. performance of services. d. rental of property. Ans: b LO 3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting