(Test Bank) Fundamental Accounting Principles Volume 1

Larson, 17

Business

Test Bank

17th Edition

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Description

Test Bank for Fundamental Accounting Principles Volume 1, The downloadable file consists of 876 pages, and the total size of the file is 6.95 MB. Purchase now only for highly discounted price.

Author(s): Larson

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Study Note Preview

Version 1 1 Chapter 01 - Accounting in Business TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Accounting is an information system that identifies, measures, records and communicates relevant information that objectively and correctly represents an organization's economic activities. ⊚ true ⊚ false 2) Accounting information helps people make better decisions about the performance of a business. ⊚ true ⊚ false 3) The main objective of accounting is to help people to invest in new products and businesses. ⊚ true ⊚ false 4) Recordkeeping" is another term for "accounting". ⊚ true ⊚ false 5) A sole proprietorship is a business owned by one or more persons. ⊚ true ⊚ false 6) A partnership requires no special legal requirements to start, other than to register the business name and obtain a business license. ⊚ true ⊚ false Version 1 2 7) Ownership of a corporation is divided into units called shares. ⊚ true ⊚ false 8) In the partnership form of business, the owners of a business are called shareholders. ⊚ true ⊚ false 9) Unlimited liability is an advantage for both a proprietorship and a partnership. ⊚ true ⊚ false 10) Although a proprietorship is not a separate legal entity, a partnership is. ⊚ true ⊚ false 11) A corporation is responsible for its actions and any debts incurred. It can enter into its own contracts, and it can buy, own, and sell property. ⊚ true ⊚ false 12) Non-business organizations often operate educational and religious services for profit. ⊚ true ⊚ false 13) Sole proprietorships and partnerships are not subject to income tax in Canada. ⊚ true ⊚ false Version 1 3 14) External users include lenders such as banks, and other creditors such as suppliers and bondholders. ⊚ true ⊚ false 15) Internal users include creditors, shareholders, internal auditors, and managers. ⊚ true ⊚ false 16) Managerial accounting provides special-purpose reports customized to meet the information needs of internal users. ⊚ true ⊚ false 17) Internal operating functions include research and development, distribution, and human resources. ⊚ true ⊚ false 18) Internal controls include procedures to protect assets and prevent fraud. ⊚ true ⊚ false 19) Career opportunities in accounting include auditing, forensic accounting, and tax planning. ⊚ true ⊚ false Version 1 4 20) Budgeting is the process of developing formal plans for an organization's future activities. ⊚ true ⊚ false 21) At the request of the Board of Directors, internal auditors perform the audit function to protect shareholder interests. ⊚ true ⊚ false 22) The purpose of an audit is to add credibility to the financial statements. ⊚ true ⊚ false 23) Private accountants work for several employers. ⊚ true ⊚ false 24) In Canada, Chartered Professional Accountants of Canada is the national organization that has been established to train and monitor its highly qualified professionals. ⊚ true ⊚ false 25) External auditors perform an audit at the request of the board of directors to protect investor interests. ⊚ true ⊚ false 26) The preferred ethical path is to take a course of action that avoids casting doubt on one's decisions.Version 1 5 ⊚ true ⊚ false 27) Ethics and laws often differ. ⊚ true ⊚ false 28) Ethics and social responsibility are incidental to the primary functions of accounting. ⊚ true ⊚ false 29) Ethical practices are not necessary to build trust and long-term relationships with customers. ⊚ true ⊚ false 30) Social responsibility is a concern for the impact of our actions on society as a whole. ⊚ true ⊚ false 31) The underlying concepts that make up acceptable accounting practices are referred to as generally accepted accounting principles (GAAP). ⊚ true ⊚ false 32) Verifiability ensures that information is complete, neutral, and free from error. ⊚ true ⊚ false Version 1 6 33) The Accounting Standards Board (AcSB), is the body that developed the International Financial Reporting Standards. ⊚ true ⊚ false 34) The Accounting Standards Board (AcSB), is the body that developed accounting standards for private enterprises (ASPE). ⊚ true ⊚ false 35) International Accounting Standards have been created to improve comparability of accounting information across countries. ⊚ true ⊚ false 36) Private enterprises are all required to report using International Financial Reporting Standards (IFRS). ⊚ true ⊚ false 37) The primary purpose of Generally Accepted Accounting Principles is to ensure the usefulness of financial information. ⊚ true ⊚ false 38) The Historical cost principle states that if no cash is involved in a transaction the cash-equivalent value must be used. ⊚ true ⊚ false Version 1 7 39) The currency principle means that transactions are expressed using units of money as the common denominator. ⊚ true ⊚ false 40) The assumption that a business will continue to operate until it can sell its assets to pay its creditors underlies the going concern principle. ⊚ true ⊚ false 41) According to the historical cost principle, it is acceptable for managers to use their own estimate of an asset's value when recording the purchase. ⊚ true ⊚ false 42) The reporting entity principle requires that an owner keep accounting records separate from personal records or records of any other businesses owned. ⊚ true ⊚ false 43) As a rule, revenues should not be recognized in the accounting records until received in cash. ⊚ true ⊚ false 44) The primary qualitative characteristics of financial information are relevance and faithful representation. ⊚ true ⊚ false Version 1 8 45) A company that is currently in the process of liquidating is considered to be a going concern. ⊚ true ⊚ false 46) The conceptual framework summarizes the qualitative characteristics and supportive building blocks that are required to prepare financial information. ⊚ true ⊚ false 47) Financial statements are an organization's primary means of financial communication and are the end result of a process, or a cycle, which begins with a business transaction like a sale. ⊚ true ⊚ false 48) A balance sheet covers a period of time such as a month or year. ⊚ true ⊚ false 49) The legitimate claims of a business's creditors take precedence over the claims of the business owner or owners. ⊚ true ⊚ false 50) The income statement is a financial statement that shows revenues earned and expenses incurred by a business over a specified period of time. ⊚ true ⊚ false Version 1 9 51) Profit is the excess of expenses over revenues, whereas net loss is the excess of revenues over expenses. ⊚ true ⊚ false 52) The natural business year for businesses is always the same as the calendar year. ⊚ true ⊚ false 53) The balance sheet shows whether or not the firm achieved its primary objective of earning a profit. ⊚ true ⊚ false 54) Expenses are costs incurred or the using up of assets from generating revenue. ⊚ true ⊚ false 55) Liabilities are defined as "the residual interest in the assets of an entity that remains after deducting its equity". ⊚ true ⊚ false 56) A characteristic of assets is their ability to provide current benefits to the business. ⊚ true ⊚ false 57) The statement of cash flows measures the net effect of revenues and expenses for a specified period.Version 1 10 ⊚ true ⊚ false 58) A liability expressed by a written promise to make a future payment is usually called an account payable. ⊚ true ⊚ false 59) The balance sheet is also called the statement of financial position because it shows the financial position of the business on a particular date. ⊚ true ⊚ false 60) Revenues are the value of assets received or receivable as a result of selling goods or services to customers. ⊚ true ⊚ false 61) The balance sheet can be used in order to assess the creditworthiness of potential customers. ⊚ true ⊚ false 62) Withdrawals represent distributions from a corporation to its owners. ⊚ true ⊚ false 63) Dividends represent distributions of profits to the partners of a business. ⊚ true ⊚ false Version 1 11 64) Equity is increased by owner investments, profit, and withdrawals. ⊚ true ⊚ false 65) Although, in a sole proprietorship, owner investments are not recorded as revenue, any withdrawals are recorded as expenses. ⊚ true ⊚ false 66) An owner's cash investment in a business creates an asset (cash), a liability (note payable), and equity (owner investments). ⊚ true ⊚ false 67) The first section of the income statement reports cash from operating activities. ⊚ true ⊚ false 68) Individuals and organizations who own the right to receive payments from a business are called its debtors. ⊚ true ⊚ false 69) A loss arises when there is a distribution of cash or other assets from a proprietorship to its owner. ⊚ true ⊚ false Version 1 12 70) A characteristic of liabilities is their capacity to reduce future assets. ⊚ true ⊚ false 71) Profit on the income statement results in an increase in equity on the balance sheet due to profitable operating activities over a period of time. ⊚ true ⊚ false 72) The equity in a partnership belongs to one owner. ⊚ true ⊚ false 73) Chuck Taylor invested $8,000 in cash in FastForward. This amount would be reported in the statement of cash flows under financing. ⊚ true ⊚ false 74) Chuck Taylor withdrew $6,000 in cash for his personal use from his business. This amount should be included as an expense on the income statement. ⊚ true ⊚ false 75) Equity is increased when cash is received from customers in payment of a previously recorded accounts receivable. ⊚ true ⊚ false 76) Transactions that impact only assets do not require the accounting equation to stay in balance.Version 1 13 ⊚ true ⊚ false 77) The financing side of the accounting equation describes where the assets came from. ⊚ true ⊚ false 78) The accounting equation describes the relationship between a company's assets, liabilities, and equity. ⊚ true ⊚ false 79) The accounting equation can be restated as assets - equity = liabilities. ⊚ true ⊚ false 80) Liabilities represent non-owner financing. ⊚ true ⊚ false 81) Business transactions are exchanges of economic consideration between two parties. ⊚ true ⊚ false 82) Business events do not affect the accounting equation. ⊚ true ⊚ false Version 1 14 83) The purchase of supplies for cash impacts both the investing and financing sides of the accounting equation. ⊚ true ⊚ false 84) Items such as sales slips, invoices, cheques, purchase orders, and employee earnings records are also called source documents. ⊚ true ⊚ false 85) Payment of accounts payable decreases both liabilities and assets. ⊚ true ⊚ false MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 86) Joe Bob has prepared the following analysis of September transactions for his business, Joe Bob's Spareribs. Unfortunately, he has lost some information. Calculate the missing information. Date Cash A/R Inventory A/P Notes Pay Equity Sep 2 4,000 2,100 1,000 ? 500 4,000 Sep 6 -1,000 -0- 4,000 ? -0- -0- Sep 10 500 300 -300 -0- -0- ? A)Sept 2 Sept 6 Sept 10 2,600 3,000 2,000 B)Sept 2 Sept 6 Sept 10 1,000 4,000 200 C)Version 1 15 Sept 2 Sept 6 Sept 10 300 2,000 600 D)Sept 2 Sept 6 Sept 10 1,500 1,000 400 E)Sept 2 Sept 6 Sept 10 2,600 3,000 500 87) At the end of its first year of operations, Lockerbie and Role Company have total assets of $3,000,000 and total liabilities of $1,200,000. The owner originally invested $200,000 in the business, but has not made any further investments or taken any withdrawals. What is the first year's profit for Lockerbie and Role Company? A) $1,600,000 B) $1,800,000 C) $1,000,000 D) $3,000,000 E) $3,200,000 88) If assets are $144,000 and liabilities are $37,000, then equity equals A) $37,000 B) $74,000 C) $107,000 D) $144,000 E) $181,000 89) The assets of a business total $20,000; the liabilities, $8,000. The claims of the owners are