(Test Bank) Financial Accounting, Canadian edition

Libby, Libby, Hodge, Kanaan, Sterling, 7

Business

Test Bank

7th Edition

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Test Bank for Financial Accounting, Canadian edition, The downloadable file consists of 1095 pages, and the total size of the file is 3.67 MB. Purchase now only for highly discounted price.

Author(s): Libby, Libby, Hodge, Kanaan, Sterling

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Study Note Preview

Chapter 01 - Financial Statements and Business Decisions 1-1 Chapter 01 Financial Statements and Business Decisions True / False Questions 1. Accounting is a system that collects and processes financial information about an organization and reports that information to decision makers. TRUE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -01 The Four Basic Financi al Statements: An Overview 2. External users of accounting information include the managers who plan, organize, and run a business. FALSE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01 -01 Recognize both th e information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -01 The Four Basic Financial Statements: An Overview 3. In accounti ng and reporting for a business entity, the accounting and reporting for the business must be kept separate from other economic affairs of its owners. TRUE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -01 The Four Basic Financial Statements: An Overvie w Chapter 01 - Financial Statements and Business Decisions 1-2 4. Accounting communicates financial information about a business to both internal and external users. TRUE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -01 The Four Basic Financial Statements: An Overview 5. A statement of financial position sho uld be dated for a period (such as "For the year ended December 31, 20X1"), whereas a statement of earnings should be dated at a point in time (such as "At December 31, 20X1"). FALSE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Med ium Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -01 The Four Basic Fin ancial Statements: An Overview 6. Expenses are the cost of assets consumed or services used in the process of generating revenue. TRUE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -06 The Statement of Earnings Chapter 01 - Financial Statements and Business Decisions 1-3 7. Generally speaking, a financially success business will have positive cash flows from operating activities. TRUE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Hard Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial st atements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -12 The Statement of Cash Flows 8. The issuance of additional common shares is a financing activity that generates positive cash flow to the firm. TRUE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Hard Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -12 The Statement of Cash Flows 9. Borrowing money and issuing shares are examples of financing activities TRUE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Hard Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -12 The Statement of Cash Flows Chapter 01 - Financial Statements and Business Decisions 1-4 10. Total assets are $60,000, total liabilities, $30,000, and share capital is $20,000; therefore, retained earnings is $5,000. FALSE Calculation: $60,000 - $30,000 - $20,000 = $10,000. Accessibility: Keyboard Navigation Blooms: Apply Difficul ty: Medium Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -02 The Stateme nt of Financial Position 11. Investing activities involve collecting the necessary funds to operate the business. FALSE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 01 -01 Recognize both the information co nveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -12 The Statement of Cash Flows 12. The purchase of equipment is an example of a fi nancing activity. FALSE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -12 The Statement of Cash Flows Chapter 01 - Financial Statements and Business Decisions 1-5 13. The reasons for a decrease in cash can be determined by examining the statement of earnings. FALSE Accessibility: Keyboard Navigation Blooms : Remember Difficulty: Medium Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic : 01-12 The Statement of Cash Flows 14. Economic resources that are owned by a business are called shareholders' equity. FALSE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01 -01 Recognize both the informati on conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -09 The Statement of Changes in Equity 15. The accounting model for the statem ent of financial position is: Assets + Liabilities - Shareholders' Equity. FALSE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -02 The Statement of Financial Position 16. Assets are resources owned by a business that provide current services or benefits to the business. FALSE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -02 The Statement of Financial Pos ition Chapter 01 - Financial Statements and Business Decisions 1-6 17. Profit is the excess of total revenues over total expenses incurred to generate revenue during a specific period. TRUE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01 -01 Recognize both the info rmation conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -06 The Statement of Earnings 18. The financial statements prepared by a corporation include a statement of financial position, statement of earnings, statement of cash flows, and statement of money. FALSE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01 -01 Recognize both the infor mation conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -17 Summary of the Four Basic Financial Statements 19. A banker who is con sidering making a loan to a corporation would be one of the corporation's internal decision makers. FALSE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01 -01 Recognize both the information conveyed in each o f the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -02 The Statement of Financial Position Chapter 01 - Financial Statements and Business Decisions 1-7 20. Assets are economic resources controlled by the entity as a result of past transactions or events and from which future economic benefits can be obtained. TRUE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01 -01 Recognize both the information conveyed in each o f the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -04 Elements 21. The financial statement that shows an entity's economic resources and its liabilit ies is the statement of retained earnings. FALSE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -02 The Statement of Financial Position 22. The statement of comprehensive income reports the change in shareholders' equity during a period from business activities other than investments by shareholders or distributions to shareholders. TRUE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -06 The Statement of Earnings Chapter 01 - Financial Statements and Business Decisions 1-8 23. A note payable is a borrowing instrument that generally does not involve the pay ment of interest. FALSE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Hard Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -02 The Statement of Financial Position 24. If a corporation does not pay its obligations when they are due, its creditors may be able to force the sale of the business's assets to pay their claims. TRUE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -02 The Statement of Finan cial Position 25. The fiscal year end of a given business must be December 31, the calendar year end. FALSE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01 -01 Recognize both the information conveyed in ea ch of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -02 The Statement of Financial Position 26. A net loss in a given accounting period will shrink the retained earnings account. TRUE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -06 The Statement of Earnings Chapter 01 - Financial Statements and Business Decisions 1-9 27. A plane ticket sold by Air Canada in the fall for going home during Christmas immediately gets recorded as revenue. FALSE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -06 The Statement of Earnings 28. When a company ships products to a customer and bills the customer, the company should recognize revenue as earned. TRUE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (i nvestors, creditors, and managers). Topic: 01 -06 The Statement of Earnings 29. The amount of cash paid by a business for office rent would be reported on the statement of cash flows as a financing activity. FALSE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Hard Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -12 The Statement of Cash Flows Chapter 01 - Financial Statements and Business Decisions 1-10 30. Repayment of a bank loan is classified on the statement of cash flows as an operating activity. FALSE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01 -01 Reco gnize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -12 The Statement of Cash Flows 31. Liabilities are th e entity's legal obligations that result from past business events. TRUE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statem ents and describe how the information is used by different decision makers (investors, creditors, and managers). Topic: 01 -02 The Statement of Financial Position 32. International Financial Accounting Standards are produced by the International Accountin g Standards Board (IASB), which is an independent standard -setting board consisting of 15 members from twelve countries. TRUE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01 -02 Identify the role of Internatio nal Financial Reporting Standards (IFRS) in determining the content of financial statements and how companies ensure the accuracy of their financial statements. Topic: 01 -19 International Financial Reporting Standards (IFRS) 33. Financial accounting is based on man -made rules that sometimes undergo change. TRUE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01 -02 Identify the role of International Financial Reporting Standards (IFRS) i n determining the content of financial statements and how companies ensure the accuracy of their financial statements. Topic: 01 -19 International Financial Reporting Standards (IFRS) Chapter 01 - Financial Statements and Business Decisions 1-11 34. Auditors are responsible for expressing an opinion of the consolid ated financial statements based on their audits. TRUE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01 -02 Identify the role of International Financial Reporting Standards (IFRS) in determining the content of financial statements and how companies ensure the accuracy of their financial statements. Topic: 01 -18 Responsibilities for the Accounting Communication Process 35. Primary responsibility for the information in the financial statements lies with audit ors. FALSE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01 -02 Identify the role of International Financial Reporting Standards (IFRS) in determining the content of financial statements and how companies e nsure the accuracy of their financial statements. Topic: 01 -18 Responsibilities for the Accounting Communication Process 36. The AcSB is currently the body responsible for establishing accounting standards. TRUE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01 -02 Identify the role of International Financial Reporting Standards (IFRS) in determining the content of financial statements and how companies ensure the accurac y of their financial statements. Topic: 01 -18 Responsibilities for the Accounting Communication Process 37. The Accounting Standards Board (AcSB) is an agency of the federal government that establishes generally accepted accounting principles for busines ses. FALSE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 01 -02 Identify the role of International Financial Reporting Standards (IFRS) in determining the content of financial statements and how companies ens ure the accuracy of their financial statements. Topic: 01 -18 Responsibilities for the Accounting Communication Process Chapter 01 - Financial Statements and Business Decisions 1-12 38. Generally accepted accounting principles are essentially identical in most developed countries. FALSE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 01 -02 Identify the role of International Financial Reporting Standards (IFRS) in determining the content of financial statements and how companies ensure the accuracy of their financial sta tements. Topic: 01 -19 International Financial Reporting Standards (IFRS) 39. One of the disadvantages of a corporation when compared to a partnership is the limited liability of the owners. FALSE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01 -S1 Describe the different types of business entities. Topic: 01 -27 Appendix 1A: Types of Business Entities 40. Corporations have the advantage of having limited liability. TRUE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01 -S1 Describe the different types of business entities. Topic: 01 -27 Appendix 1A: Types of Business Entities 41. In a partnership, the creditor can come after the personal assets of either partner sh ould the business default on its debt. TRUE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 01 -S1 Describe the different types of business entities. Topic: 01 -27 Appendix 1A: Types of Business Entities Chapter 01 - Financial Statements and Business Decisions 1-13 42. In a sole proprietorship the owner is often an employee of the business. TRUE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01 -S1 Describe the different types of business entities. Topic: 01 -27 Appendix 1A: Types of Business Entities 43. A partnership is an incorporated entity that has more than one owner. FALSE Accessib ility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01 -S1 Describe the different types of business entities. Topic: 01 -27 Appendix 1A: Types of Business Entities 44. Independent CPAs in the public practice of accounting are v iewed as employees of their clients. FALSE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01 -02 Identify the role of International Financial Reporting Standards (IFRS) in determining the content of financia l statements and how companies ensure the accuracy of their financial statements. Topic: 01 -29 Practice of Public Accounting 45. An audit involves the examination of the financial reports (prepared by the management of the company) to ensure that they re present what they claim and conform with IFRS. TRUE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01 -02 Identify the role of International Financial Reporting Standards (IFRS) in determining the content of financial statements and how companies ensure the accuracy of their financial statements. Topic: 01 -29 Practice of Public Accounting Chapter 01 - Financial Statements and Business Decisions 1-14 46. Many opportunities exist for managers to intentionally prepare misleading financial reports. TRUE Accessibility : Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01 -02 Identify the role of International Financial Reporting Standards (IFRS) in determining the content of financial statements and how companies ensure the accuracy of their financial statements. Topic: 01 -29 Practice of Public Accounting 47. Failure to comply with professional rules of conduct can result in serious penalties for professional accountants, but not the rescinding of the professional designation of an offending member. FALSE Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01 -02 Identify the role of International Financial Reporting Standards (IFRS) in determining the content of financial statements and how compani es ensure the accuracy of their financial statements. Topic: 01 -29 Practice of Public Accounting 48. High ethical standards are required for preparers of financial information. TRUE Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medi um Learning Objective: 01 -02 Identify the role of International Financial Reporting Standards (IFRS) in determining the content of financial statements and how companies ensure the accuracy of their financial statements. Topic: 01 -29 Practice of Public Acc ounting Chapter 01 - Financial Statements and Business Decisions 1-15 Multiple Choice Questions 49. What is the primary purpose of the statement of financial position? A. To measure the profit of a business up to a particular point in time. B. To report the difference between cash inflows and cash outflows for the period. C. To report the financial position of the reporting entity at a particular point in time. D. To report assets at their current market value at a particular point in time. Accessibil ity: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, cr editors, and managers). Topic: 01 -02 The Statement of Financial Position 50. On January 1, 20X1, two individuals invested $150,000 each to form Hornbeck Corporation. Hornbeck had total revenues of $15,000 during 20X1 and $40,000 during 20X2. Total expens es for the same periods were $8,000 and $22,000, respectively. Cash dividends paid out to shareholders totaled $6,000 in 20X1 and $12,000 in 20X2. What was the ending balance in Hornbeck's retained earnings account at the end of 20X1 and 20X2? A. $1,000 a nd $6,000 respectively. B. $1,000 and $7,000, respectively. C. $7,000 and $19,000 respectively. D. $301,000 and $306,000 respectively. Calculation: $15,000 - $8,000 - $6,000 = $1,000; $1,000 + $40,000 - $22,000 - $12,000 = $7,000. Accessibility: Keyboar d Navigation Blooms: Apply Difficulty: Hard Learning Objective: 01 -01 Recognize both the information conveyed in each of the four basic financial statements and describe how the information is used by different decision makers (investors, creditors, and ma nagers). Topic: 01 -09 The Statement of Changes in Equity