(Test Bank) Accounting Principles Canadian Edition

Weygandt,Kieso,Kimme, 9

Business

Test Bank

9th Edition

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Test Bank for Accounting Principles Canadian Edition, The downloadable file consists of 1269 pages, and the total size of the file is 6.36 MB. Purchase now only for highly discounted price.

Author(s): Weygandt, Kieso, Kimme

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Test Bank for Accounting Principles, Ninth Canadian Edition CHAPTER 1 ACCOUNTING IN ACTION CHAPTER LEARNING OBJECTIVES 1. Identify the use s and users of accounting and the objective of fi nancial reporting. Accounting is the information system that identifi es, records, and communicates the economic events of an organization to a wide variety of interested users. Good accounting is important to people both inside and outside the organization. Internal users, such as management, use accounting information to plan, control, and evaluate business operations. External users include investors and creditors, among others. Accounting data are used by investors (owners or potential owners) to decide whether to buy, hold, or sell their fi nancial interests. Creditors (suppliers and bank ers) evaluate the risks of granting credit or lending money based on the accounting information. The objective of fi nancial reporting is to provide useful information to investors and creditors to make these decisions. Users need information about the bus iness’s ability to earn a profi t and generate cash. For our economic system to function smoothly, reliable and ethical accounting and fi nancial reporting are critical. 2. Compare the diff erent forms of business organization. The most common examples of bu siness organization are proprietorships, partnerships, and corporations. Proprietorships and partnerships are not separate legal entities but are separate entities for accounting purposes; income taxes are paid by the owners and owners have unlimited liability. Corporations are separate legal entities as well as separate entities for accounting purposes; income taxes are paid by the corporation and owners of the corporation have limited liability. 3. Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Generally accepted accounting principles are a common set of guidelines that are used to prepare and report accounting information. The conceptual framework outlines some of the body of theory used by accountants to fulfill their goal of providing useful accounting information to users. Ethical behaviour is fundamental to fulfilling the objective of financial accounting. Th e reporting entity concept requires the business activities of each reporting entity to be kept separate from the activities of its owner and other economic entities. Th e going concern assumption presumes that a business will continue operations for enough time to use its assets for their intended purpose and to fulfill its commitments. The periodicity concept requires businesses to divide up economic activities into distinct periods of time. Qualitative characteristics include fundamental and enhancing characteristics that help to ensure accounting information is use ful. Only events that cause changes in the business’s economic resources or changes to the claims on those resources are recorded. Recognition is the process of recording transactions and measurement is the process of determining the amount that should be recognized . The historical cost concept states that economic resources should be recorded at their historical (original) cost. Fair value may be Test Bank for Accounting Principles, Ninth Canadian Edition a more appropriate measure for certain types of resources . Generally , fair value is the amount the resource could be sold for in the market. The monetary unit concept requires that only transactions that can be expressed as an amount of money be included in the accounting records, and it assumes that the monetary unit is stable. The revenue recognition pr inciple requires companies to recognize revenue when a performance obligation(s) is satisfied. Th e matching concept requires that costs be recognized as expenses in the same period as revenue is recognized when there is a direct association between the cost incurred and revenue recognized. In Canada, there are two sets of standards for profi t-oriented businesses. Publicly accountable enterprises must follow International Financial Reporting Standards (IFRS) and private enterprises have the choice of following IFRS or Accounting Standards for Private Enterprises (ASPE). 4. Describe the elements of the fi nancial statements and explain the accounting equation. Assets, liabilities, and owner’s equity are reported on the balance sheet. Assets are present economic resources controlled by the business as a result of past events and have the potential to produce economic benefits. Liabilities are present obligations of a business to transfer an economic resource as a result of past events. Owner’s equity is the owner’s claim on the company’s assets and is equal to total assets minus total liabilities. Th e balance sheet is based on the accounting equation: Assets = Liabilities + Owner’s equity. The Income statement reports the profi t or loss for a specified period of time. Profit is equal to revenues minus expenses. Revenues are the increases in assets, or decreases in liabilities, that result from business activities that are undertaken to earn profit. Expenses are the cost of assets consumed or serv ices used in a company’s business activities. They are decreases in assets or increases in liabilities, excluding withdrawals made by the owners, and result in a decrease to owner’s equity. The statement of owner’s equity summarizes the changes in owner’s equity during the period. Owner’s equity is increased by investments by the owner and profits. It is decreased by drawings and losses. Investments are contributions of cash or other assets by owners. Drawings are withdrawals of cash or other assets from th e business for the owner’s personal use. Owner’s equity in a partnership is referred to as partners’ equity and in a corporation as shareholders’ equity. A cash fl ow statement summarizes information about the cash inflows (receipts) and outfl ows (payments) for a specifi c period of time. 5. Analyze the eff ects of business transactions on the accounting equation. Each business transaction must have a dual eff ect on the accounting equation. For example, if an individual asset is increased, there must be a corresponding (1) decrease in another asset, (2) increase in a liability, and/or (3) increase in owner’s equity. 6. Prepare fi nancial statements. Th e income statement is prepar ed fi rst. Expenses are deduc ted from revenues to calculate the profit or loss for a specific period of time. Th en the statement of owner’s equity is prepared using the profit or loss repor ted in the income statement . Th e profit is added to (losses are deducted from) the owner’s equity at the beginning of the period. Drawings are then deducted to calculate owner’s equity at the end of the period. A balance sheet reports the assets, liabilities, and owner’s equity of a business as at the end of the acc ounting period. Th e ow ner’s equity Test Bank for Accounting Principles, Ninth Canadian Edition at the end of the period, as calculated in the s tatement of owner’s equity, is reported on the balance sheet in the owner’s equity section. Test Bank for Accounting Principles, Ninth Canadian Edition TRUE -FALSE STATEMENTS 1. Accounting is the information system that identifies, records, and communicates the economic events of an organization to a wide variety of interested users. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Identify the uses and users of accounting and the objective of financial reporting. Section Reference: Why Is Accounting Important? CPA: Financial Reporting AACSB: Analytic 2. A working knowledge of accounting can be useful to doctors or lawyers. Answer : True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Identify the uses and users of accounting and the objective of financial reporting. Section Reference: Why Is Accounting Important? CPA: Financial Reporting AACSB: Analytic 3. The main obj ective of financial statements is to provide useful information to management. Answer: False Bloomcode: Knowledge Difficulty: Easy Learning Objective: Identify the uses and users of accounting and the objective of financial reporting. Section Reference: Why Is Accounting Important? CPA: Financial Reporting AACSB: Analytic 4. Sales managers are an example of an external user of accounting information. Answer: False Bloomcode: Knowledge Difficulty: Easy Test Bank for Accounting Principles, Ninth Canadian Edition Learning Objective: Identify the uses a nd users of accounting and the objective of financial reporting. Section Reference: Why Is Accounting Important? CPA: Financial Reporting AACSB: Analytic 5. Creditors are an example of an internal user of accounting information. Answer: False Bloomcode: Knowledge Difficulty: Easy Learning Objective: Identify the uses and users of accounting and the objective of financial reporting. Section Reference: Why Is Accounting Important? CPA: Financial Reporting AACSB: Analytic 6. Accounting informati on is used only by external users with a direct financial interest in a company. Answer: False Bloomcode: Knowledge Difficulty: Easy Learning Objective: Identify the uses and users of accounting and the objective of financial reporting. Section Reference: Why Is Accounting Important? CPA: Financial Reporting AACSB: Analytic 7. In a proprietorship, there may be two or more owners. Answer: False Bloomcode: Knowledge Difficulty: Easy Learning Objective: Compare the different forms of business organization. Section Reference: Forms of Business Organization CPA: Financial Reporting AACSB: Analytic 8. One of the disadvantages of a proprietorship is that there is unlimited liability for the owner. Answer: True Bloomcode: Knowledge Test Bank for Accounting Principles, Ninth Canadian Edition Difficulty: Easy Learning Objective: Compare the different forms of business organization. Section Reference: Forms of Business Organization CPA: Financial Reporting AACSB: Analytic 9. Under the proprietorship form of business organization, no legal distinction is made between the business as an economic unit and its owner. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Compare the different forms of business organization. Section Reference: Forms of Business Organization CPA: Financial Reporting AACSB: Analytic 10. A partnership must have at least two people in the partnership. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Compare the different forms of business organization. Section Reference: Forms of Business Organization CPA: Financial Reporting AACSB: Analytic 11. In a partnership, all of the partners will generally have unlimited liability for the debts of the partnerships. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Compare the different forms of business organization. Section Reference: Forms of Business Organization CPA: Financial Reporting AACSB: Analytic 12. A corporation may only be formed under federal legislation. Test Bank for Accounting Principles, Ninth Canadian Edition Answer: False Bloomcode: Comprehension Difficulty: Easy Learning Objective: Compare the different forms of business organization. Section Reference: Forms of Business Organization CPA: Financial Reporting AACSB: Analytic 13. A corporation is only subject to the federal laws of corporations. Answer: False Bloomcode: Comprehension Difficulty: Easy Learning Objective: Compare the different forms of business organization. Section Reference: Forms of Business Organization CPA: Financial Reporting AACSB: Analytic 14. A corporation may be formed under provincial , federal , or territorial legislation. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Compare the different forms of business organization. Section Reference: Forms of Business Organization CPA: Financial Reporting AACSB: Analytic 15. A corporation’s ownership is divided into transferable shares. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Compare the different forms of business organization. Sectio n Reference: Forms of Business Organization CPA: Financial Reporting AACSB: Analytic Test Bank for Accounting Principles, Ninth Canadian Edition 16. One of the main advantages of a corporation is limited liability for the shareholders of the corporation. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Compare the different forms of business organization. Section Reference: Forms of Business Organization CPA: Financial Reporting AACSB: Analytic 17. Owners of a corporation are responsible for reporting the business p rofits on their personal income tax returns . Answer: False Bloomcode: Knowledge Difficulty: Easy Learning Objective: Compare the different forms of business organization. Section Reference: Forms of Business Organization CPA: Financial Reporting AACSB: Analytic 18. An advantage of the corporation is that the shares of the corporation are easily transferable. Answer: True Bloomcode: Comprehension Difficulty: Easy Learning Objective: Compare the different forms of business organization. Section Reference: Forms of Business Organization CPA: Financial Reporting AACSB: Analytic 19. Ethics are critical in the preparation of accounting information. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Test Bank for Accounting Principles, Ninth Canadian Edition Section Reference: Generally Accepted Accounting Principles CPA: Professional and Ethical Behaviour AACSB: Ethics 20. Only the accountants should be concerned with ethics when the financial statements are being prepared. Answer: False Bloomcode: Comprehension Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Referenc e: Generally Accepted Accounting Principles CPA: Professional and Ethical Behaviour AACSB: Ethics 21. In a situation with an ethical consideration, there is only one ethical course of action that can be followed. Answer: False Bloomcode: Comprehension Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Professional and Ethical Behaviour AACSB: Ethics 22. A private company is one that issues shares to the public. Answer: False Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework . Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic Test Bank for Accounting Principles, Ninth Canadian Edition 23. GAAP stands for Generally Accepted Accounting Principles. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic 24. In Canada, the main standard -setting body is the Account ing Standards Board. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic 25. Corporations incorporated under provincial legislation report under ASPE and corporations incorporated under federal legislation report under IFRS. Answer: False Bloomcode: Comprehensio n Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic 26. Publicly traded corporations can choose to report under either ASPE or IFRS. Answer: False Bloomcode: Knowledge Difficulty: Easy Test Bank for Accounting Principles, Ninth Canadian Edition Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic 27. Both IFRS and ASPE are considered “principles -based” as opposed to “rules -based” standards. Answer: True Bloomcode: Comprehension Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic 28. The goi ng concern assumption is the assumption that a company will continue to operate in the foreseeable future. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic 29. The going concern assumption is the assumption that a company will NOT be successful in the foreseeable future. Answer: False Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual fram ework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic Test Bank for Accounting Principles, Ninth Canadian Edition 30. The reporting entity concept requires that an entity’s business activities be combined with the activities of its owner for financial reportin g purposes. Answer: False Bloomcode: Comprehension Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic 31. Recognition is the process of recording a transaction in the accounting records. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the building blocks of accounting: e thics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic 32. Measurement is the process of determining the amount that should be recognized. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic 33. Fair value measurements are always more relevant to users of the financial statements. Answer: False Test Bank for Accounting Principles, Ninth Canadian Edition Bloomcode: Comprehension Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic 34. The cost and fair value of an asset are the same at the time of acquisition and in all subsequent periods. Answer: False Bloomcode: Comprehension Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Prin ciples CPA: Financial Reporting AACSB: Analytic 35. The monetary unit concept assumes that all transactions take place in Canadian dollars. Answer: False Bloomcode: Comprehension Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic 36. The monetary unit concept prevents some relevant information from being rec orded in the accounting records. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Account ing Principles Test Bank for Accounting Principles, Ninth Canadian Edition CPA: Financial Reporting AACSB: Analytic 37. An accounting transaction occurs when assets, liabilities, or owner’s equity items change as the result of some economic event. Answer: True Bloomcode: Comprehension Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic 38. Assets are present oblig ations, arising from past events, to make a future payment or to provide services. Answer: False Bloomcode: Knowledge Difficulty: Easy Learning Objective: Describe the elements of the financial statements and explain the accounting equation. Section Reference: The Accounting Model CPA: Financial Reporting AACSB: Analytic 39. Liabilities are the resources controlled by a business that are expected to provide future economic benefits. Answer: False Bloomcode: Knowledge Difficulty: Easy Learning Objective: Describe the elements of the financial statements and explain the accounting equati on. Section Reference: The Accounting Model CPA: Financial Reporting AACSB: Analytic