Type:
Test Bank
Resource:
Financial Accounting, IFRS Edition
Edition:
2nd Edition
Author(s):
Jerry J. Weygandt Paul D. Kimmel Donald E. Kieso
CHAPTER 1 ACCOUNTING IN ACTION CHAPTER LEARNING OBJECTIVES 1. Explain what accounting is. Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users. 2. Identify the users and uses of accounting. 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 accounting 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, labor unions, and economic planners. 3. Understand why ethics is a fundamental business concept. Ethics are the standards of conduct by which actions are judged as right or wrong. Effective financial reporting depends on sound ethical behavior. 4. Explain accounting standards and the measurement principles. Accounting is based on standards, such as International Financial Reporting Standards (IFRS). IFRS generally uses one of two measurement principles, the historical cost principle or the fair value principle. Selection of which principle to follow generally relates to trade-offs between relevance and faithful representation. 5. Explain the monetary unit assumption and the economic entity assumption. 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 separate from the activities of its owners and other economic entities. 6. 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 ordinary shares in exchange for cash. Revenues are increases in assets resulting from income−earning activities. 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.
1-2
Test Bank for Financial Accounting: IFRS Edition, 2e
7. 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. 8. Understand the four financial statements and how they are prepared. An income statement presents the revenues and expenses, and resulting 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 date. A statement of cash flows summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time. a
9. 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 AICPA 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 LO2 BT: K Difficulty: Easy TOT: .5 min AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
5.
Accounting communicates financial information about a business enterprise to both internal and external users. Ans: T LO2 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 LO2 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
7.
Financial statements are the major means of communicating accounting information to interested parties. Ans: T LO2 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 LO2 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
9.
The origins of accounting are attributed to Luca Pacioli, a famous mathematician. Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
Accounting in Action 10.
1-3
The State Administration of Taxation in the People's Republic of China is an example of an internal user of accounting information. Ans: F LO2 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 LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
12.
Accountants rely on a fundamental business concept—ethical behavior—in reporting financial information. Ans: T LO3 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 LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
14.
The Financial Accounting Standards Board is a part of the International Accounting Standards Board. Ans: F LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
15.
The two primary accounting standard-setting bodies are the International Accounting Standards Board and the Financial Accounting Standards Board. Ans: T LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
16.
Most companies in the United States follow standards issued by the IASB. Ans: F LO4 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 LO4 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 Generally Accepted Accounting Principles and International Financial Reporting Standards is known as convergence. Ans: T LO4 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 LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
20.
Even though a partnership is not a separate legal entity, for accounting purposes the partnership affairs should be kept separate from the personal activities of the owners. Ans: T LO5 BT: C Difficulty; Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking 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 LO5 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 LO5 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 LO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
1-4 24.
Test Bank for Financial Accounting: IFRS Edition, 2e Owners' claims to total business assets take precedence over the claims of creditors because owners invest assets in the business and are liable for losses. Ans: F LO6 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 LO6 BT: K Difficulty: Easy 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 LO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
27.
The principal source of equity is amounts paid in by shareholders. Ans: F LO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
28.
Expenses are increases in equity that result from operating the business. Ans: F LO6 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 LO6 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 increases assets and decreases equity. Ans: F LO7 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 LO7 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 LO7 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 LO7 BT: C Difficulty: 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 LO7 BT: C Difficulty: Easy TOT: .5 min. AACSB: 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 LO7 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking 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 LO8 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 LO8
38.
BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
The ending retained earnings balance is reported on the statement of financial position. Ans: T LO8 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 LO8
40
BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
Compared to IFRS, GAAP tend to be simpler and less detailed. For Instructor Use Only
Accounting in Action
1-5
Ans: F LO8 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
41.
Foreign companies whose shares are traded on U.S. stock markets must use GAAP. Ans: F LO8
a
42.
BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
The study of accounting is not useful for a business career unless your career objective is to become an accountant. Ans: F LO9 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
a
43.
Expressing an opinion as to the fairness of the information presented in financial statements is a service performed by CAs and CPAs. Ans: T LO9 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
Additional 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 AICPA 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 LO2 BT: K Difficulty; Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
46.
Accountants do not have to worry about issues of ethics. Ans: F LO3 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 LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
48.
The basic accounting equation is in balance when the creditor and ownership claims against the business equal the assets. Ans: T LO6 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 LO7 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
50.
In the retained earnings statement, revenues are listed first, followed by expenses, and net income (or net loss). Ans: F LO8 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
Answers to True-False Statements Item
1. 2. 3. 4. 5. 6. 7. 8.
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
F T F F T F T F
9. 10. 11. 12. 13. 14. 15. 16.
T F T T F F T F
17. 18. 19. 20. 21. 22. 23. 24.
T T F T T T F F
25. 26. 27. 28. 29. 30. 31. 32.
F T F F T F T T
33. 34. 35. 36. 37. 38. 39. 40.
F F T T F T T F
41. 42. 43. 44. 45. 46. 47. 48.
F F T F F F F T
49. 50.
T F
For Instructor Use Only
1-6
Test Bank for Financial Accounting: IFRS Edition, 2e
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 FN: 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 Thinking 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 classifying information. Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: 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 FN: Reporting
56.
The accounting process involves all of the following except a. identifying economic 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
For Instructor Use Only
Accounting in Action 57.
1-7
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 FN: Reporting
58.
Which of the following techniques 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 AICPA 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. Creditors. d. Customers. Ans: b LO2 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 LO2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
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 LO2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
1-8 63.
Test Bank for Financial Accounting: IFRS Edition, 2e 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 LO2 BT: C Difficulty: Easy 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 manager. c. Merchandise inventory clerk. d. President of the employees' labor union. Ans: d LO2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
65.
Internal users of accounting information 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 LO2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA 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 International Accounting Standards Board. Ans: c LO2 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 LO2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking 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 LO2 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 Vinci. Ans: c LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
Accounting in Action 70.
1-9
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 LO2 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 LO3 BT: C Difficulty: 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 alternatives. c. recognize an ethical situation and the ethical issues involved. d. weigh the impact of each alternative on various stakeholders. Ans: c LO3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Ethics AICPA BB: Critical Thinking AICPA FN: Reporting
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 LO3 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: 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 LO4 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 LO4 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 Accepted Accounting Principles. c. Generally Accepted Auditing Principles. d. Generally Accepted Accounting Procedures. Ans: b LO4 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
1 - 10 77.
Test Bank for Financial Accounting: IFRS Edition, 2e The Duce Company has five plants nationwide that cost $200 million. The current fair value of the plants is $500 million. The plants will be recorded and reported as assets at a. $200 million. b. $700 million. c. $300 million. d. $500 million. Ans: a LO4 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 accounting 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 LO4 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 LO4 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 LO4 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
81.
Most assets should be 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 lower than historical cost. Ans: b LO4 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 ₤55,000 in 2004. At December 31, 2014, an appraisal determined the fair value of the land is ₤65,000. If Harrod's follows the historical cost principle, in the 2014 financial statements, the land will be reported at a. ₤55,000 on the statement of financial position. b. ₤65,000 on the statement of financial position. c. ₤55,000 on the income statement. d. ₤65,000 on the income statement. Ans: a LO5 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
Accounting in Action 83.
1 - 11
Hyundai Inc. purchased land for W118,000,000 in 2005. At December 31, 2014, 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 LO4 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
84.
Bumi Corporation purchased an investment in the ordinary shares of another corporation for Rp250,000,000 in 2012. The shares are actively traded on the Indonesian Stock Exchange. The fair value of the investment at December 31, 2014 is Rp268,000,000. If the company follows the fair value principle, the investment will be reported in the 2014 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 LO4 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 2000. At December 31, 2014, 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 2012.The shares are actively traded on the South Korea Stock Exchange. The fair value of the investment at December 31, 2014 is W63,000,000. The land and investment will be reported on the December 31, 2014 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 LO5 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 LO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
87.
The economic 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 personal economic events of its owners. d. of an entity be kept separate from the activities of its owner. Ans: d LO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
1 - 12 88.
Test Bank for Financial Accounting: IFRS Edition, 2e A business 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 LO5 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 organization for service-type businesses. c. enjoys an unlimited life. d. has limited liability. Ans: b LO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
90.
Which of the following is 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 LO5 BT: K Difficulty: Easy TOT: 1.0 min. 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 LO5 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 revenues 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 LO5 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective 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 generally smaller in size than partnerships and proprietorships. 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 LO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
Accounting in Action 94.
1 - 13
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 LO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical 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 LO5 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 LO5 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 LO6 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 + Assets. c. Residual equity + Assets. d. Assets – Liabilities. Ans: d LO6 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 LO6 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking 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 LO6 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
1 - 14 101.
Test Bank for Financial Accounting: IFRS Edition, 2e Liabilities of a company would not include a. notes payable. b. accounts payable. c. wages payable. d. cash. Ans: d LO6 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 LO6 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: 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 assets. Ans: b LO6 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 LO6 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. consumptions. c. dividends. d. a credit line. Ans: c LO6 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 shareholders. b. equal to liabilities minus equity. c. equal to assets minus equity. d. equal to revenues less expenses. Ans: a LO6 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 LO6 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
Accounting in Action 108.
1 - 15
Sources of increases to equity are a. issuance of shares. b. purchases of merchandise. c. dividends. d. expenses. Ans: a LO6 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
109.
The basic accounting equation cannot be restated as a. Assets – Liabilities = Equity. b. Assets – Equity = Liabilities. c. Equity + Liabilities = Assets. d. Assets + Liabilities = Equity. Ans: d LO6 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
110.
Equity is decreased by all of the following except a. issuance of shares. b. dividends. c. expenses. d. net losses. Ans: a LO6 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
111.
If total liabilities increased by ¥35,000 and equity increased by ¥10,000 during a period of time, then total assets must change by what amount and direction during that same period? a. ¥45,000 decrease b. ¥45,000 increase c. ¥60,000 increase d. ¥70,000 increase Ans: b LO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
112.
If total liabilities decreased by ¥35,000 and equity increased by ¥10,000 during a period of time, then total assets must change by what amount and direction during that same period? a. ¥45,000 increase b. ¥25,000 decrease c. ¥25,000 increase d. ¥35,000 decrease Ans: b LO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
113.
If total liabilities decreased by ¥30,000 and equity increased by ¥5,000 during a period of time, then total assets must change by what amount and direction during that same period? a. ¥25,000 decrease b. ¥25,000 increase c. ¥30,000 increase d. ¥35,000 increase Ans: a LO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
1 - 16 114.
Test Bank for Financial Accounting: IFRS Edition, 2e If total liabilities decreased by ¥35,000 and equity decreased by ¥10,000 during a period of time, then total assets must change by what amount and direction during that same period? a. ¥45,000 increase b. ¥25,000 increase c. ¥45,000 decrease d. ¥25,000 decrease Ans: c LO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
115.
If total liabilities increased by ¥26,000 during a period of time and equity decreased by ¥9,000 during the same period, then the amount and direction of the period’s change in total assets is a(n) a. ¥26,000 increase. b. ¥35,000 increase. c. ¥17,000 decrease. d. ¥17,000 increase. Ans: d LO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
116.
The equity section of a statement of financial position has two components: a. share capital and liablities. b. assets and liablities. c. share capital and retained earnings. d. share capital and assets. Ans: c LO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
117.
A company increases its share capital by a. selling ordinary shares to its investors. b. performing services for cash. c. selling goods on account. d. paying dividends to its shareholders. Ans: a LO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
118.
The retained earnings section of the statement of financial position is determined by a. assets,liabilities and share capital. b. revenues, expenses and share capital. c. share capital, dividends and residual equity. d. revenues, expenses and dividends. Ans: d LO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
119.
All of the following transactions increase revenue except the a. sale of additional ordinary shares by British Airways. b. sale of clothing by the French Connection. c. performance of acccounting services by PricewaterhouseCoopers. d. sale of pertroleum by Royal Dutch Shell. Ans: a LO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
Accounting in Action 120.
1 - 17
As of December 31, 2014, Dolce & Gabanna Inc. had assets of €7,600,000, share capital of €2,800,000 and retained earnings of €3,200,000. Total liabilities as of that date are a. €0. b. €1,600,000. c. €4,800,000. d. €13,600,000. Ans: b LO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
121.
On its December 31, 2014 statement of financial position, Adaro Corporation reported liabilities of Rp5,132,000,000, share capital of Rp2,662,000,000 and retained earnings of Rp4,202,000,000. Total assets as of December 31, 2014 are a. Rp1,732,000,000. b. Rp4,202,000,000. c. Rp6,864,000,000. d. Rp11,996,000,000. Ans: d LO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
122.
As of December 31, 2014, Oxford-welsh Inc. had assets of ₤6,520,000, liabilities of ₤1,980,000, and share capital of ₤2,820,000. Retained earnings as of that date are a. ₤1,720,000. b. ₤3,700,000. c. ₤4,540,000. d. ₤6,520,000. Ans: a LO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
123.
As of December 31, 2014, Thames Company reported assets of ₤6,480,000, liabilities of ₤1,920,000 and retained earnings of ₤3,315,000. Share capital reported on the December 31, 2014 statement of financial position is a. ₤1,245,000. b. ₤1,395,000. c. ₤5,235,000. d. ₤9,795,000. Ans: a LO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
124.
As of December 31, 2014, Deitrich Inc. had assets of €13,050,000, liabilities of €4,650,000, share capital of ₤3,300,000 and retained earnings of €5,100,000. Total equity as of that date is a. €3,300,000. b. €3,750,000. c. €8,400,000. d. €13,050,000. Ans: c LO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
125.
As of December 31, 2014, Lojas Company reported assets of R$7,400,000, liabilities of R$2,200,000, share capital of R$1,980,000 and retained earnings of R$3,220,000. Total equity reported on the statement of financial position as of that date is a. R$1,240,000. b. R$5,200 000. c. R$5,400 000. d. R$7,400.000. Ans: b LO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
1 - 18 126.
Test Bank for Financial Accounting: IFRS Edition, 2e On January 11, 2014, Britannica Corporation sold ordinary shares to investors for ₤6,550,000. This transaction will increase assets and a. decrease liabilities by ₤6,550,000. b. decrease equity by ₤6,550,000. c. increase revenues by ₤6,550,000. d. increase equity by ₤6,550,000. Ans: d LO7 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
127.
Burgundy Inc. purchased supplies on account for €26,000. This transaction will a. increase liabilities and decrease equity by €26,000. b. increase assets and decrease equity by €26,000. c. increase assets and increase liabilities by €26,000. d. have no effect on the accounting equation. Ans: c LO7 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
128.
Sao Paulo Company performed services on account for R$160,000. This transaction will a. increase assets and liabilities by R$160,000. b. increase assets and equity by R$160,000. c. increase liabilities and equity by R$160,000. d. have no effect on the accounting equation. Ans: b LO7 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
129.
Bennoit Corporation paid dividends totaling €295,000 to its shareholders. This transaction will decrease assets and a. decrease equity by €295,000. b. decrease liabilities by €295,000. c. increase expenses by €295,000. d. have no effect on the accounting equation. Ans: a LO7 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
130.
Gafisa Inc. performed services for R$195,000. The company collected R$65,000 in cash. The balance will be collected in 30 days. Performing services for R$195,000 will increase a. assets by R$65,000 and equity by R$130,000. b. assets by R$65,000, liablities by R$130,000 and equity by R$195,000. c. liabilites and equity by R$195,000. d. assets and equity by R$195,000. Ans: d LO7 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
131.
On June 6, Wing Wah Inc. purchased supplies on account for HK$60,000. On June 30, the company paid half of the balance due. The June 30 payment will a. decrease Cash and increase Supplies Expense by HK$ 60,000. b. increase Cash and decrease Accounts Receivable by HK$30,000. c. decrease Cash and decrease Accounts Payable by HK$30,000. d. decrease Supplies and increase Supplies Expense by HK$30,000. Ans: c LO7 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
Accounting in Action 132.
1 - 19
On November 4, Vivo Company performed services on account for R$295,000. On November 26, the company collected the balance due. The November 26 transaction will increase a. Cash and Accounts Payable by R$295,000. b. Accounts Receivable and Service Revenue by R$295,000 c. Cash and decrease Accounts Receivable by R$295,000 d. Service Revenue and decrease Accounts Receivable by R$295,000. Ans: c LO7 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
133.
Freirs Company paid the monthly rent of €6,000. This transaction will a. increase Cash and decrease Rent Expense by €6,000. b. decrease Cash and decrease Rent Expense by €6,000. c. decrease Cash and increase Rent Expense by €6,000. d. have no effect on the accounting equation. Ans: c LO7 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
134.
Vita Corporation performed services on account for €22,000. This transaction will a. increase Cash and increase Service Revenue by €22,000. b. increase Accounts Receivable and increase Service Revenue by €22,000. c. decrease Accounts Payable and increase Cash by €22,000. d. increase Cash and decrease Accounts Receivable by €22,000. Ans: b LO7 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
135.
On February 1, Potter Company paid £900 for advertisements to run during the month of February. This transaction will a. decrease Cash and increase Advertising Expense by £900. b. increase Advertising Expense and increase Accounts Payable by £900. c. decrease Accounts Payable and decrease Cash by £900. d. decrease Cash and decrease Advertising Expense by £900. Ans: a LO7 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
136.
McDonagal Inc. sold ordinary shares for £2,200,000. This transaction will increase a. Cash and increase Retained Earnings by £2,200,000. b. Cash and increase Share Capital by £2,200,000. c. Service Revenue and increase Share Capital by £2,200,000. d. Service Revenue and increase Cash by £2,200,000. Ans: b LO7 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
137.
An investment of cash by an owner of a business increases assets and a. increases liabilities. b. increases equity. c. decreases equity. d. decreases liabilities. Ans: b LO7 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
1 - 20
Test Bank for Financial Accounting: IFRS Edition, 2e
138.
The purchase of supplies on account increases assets and a. also decreases assets so there is no net change. b. increases liabilities. c. decreases equity. d. increases equity.
Ans: b LO7 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
139.
A payment on account decreases a. assets and equity. b. liabilities and equity. c. assets and liabilities. d. assets, liabilities and equity. Ans: c LO7 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
140.
The accounting equation for Gudgeyes Enterprises is as follows: Assets Liabilities $140,000 = $60,000 +
Equity $80,000
If Gudgeyes purchases office equipment on account for $12,000, the accounting equation will change to Assets Liabilities Equity a. $140,000 = $60,000 + $80,000 b. $152,000 = $60,000 + $92,000 c. $152,000 = $76,000 + $76,000 d. $152,000 = $72,000 + $80,000 Ans: d LO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
141.
As of June 30, 2014, Dallas Company has assets of $140,000 and equity of $10,000. What are the liabilities for Dallas Company as of June 30, 2014? a. $150,000 b. $120,000 c. $130,000 d. $140,000 Ans: c LO7 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
142.
Equity is increased by a. dividends. b. revenues. c. expenses. d. liabilities. Ans: b LO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
143.
Equity is decreased by a. assets. b. revenues. c. expenses. d. liabilities. Ans: c LO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
Accounting in Action 144.
1 - 21
If total liabilities increased by $6,000, then a. assets must have decreased by $6,000. b. equity must have increased by $6,000. c. assets must have increased by $6,000, or equity must have decreased by $6,000. d. assets and equity each increased by $3,000. Ans: c LO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
145.
Collection of a $500 accounts receivable a. increases an asset $500; decreases an asset $500. b. increases an asset $500; decreases a liability $500. c. decreases a liability $500; increases equity $500. d. decreases an asset $500; decreases a liability $500. Ans: a LO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
146.
Revenues are a. the cost of assets consumed during the period. b. gross increases in equity resulting from business activities. c. the cost of services used during the period. d. actual or expected cash outflows. Ans: b LO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
147.
If an individual asset is increased, then a. there must be an equal decrease in a specific liability. b. there must be an equal decrease in equity. c. there must be an equal decrease in another asset. d. None of these answer choices are correct. Ans: c LO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
148.
If services are rendered for credit, then a. assets will decrease. b. liabilities will increase. c. equity will increase. d. liabilities will decrease. Ans: c LO7 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
149.
If expenses are paid in cash, then a. assets will increase. b. liabilities will decrease. c. equity will increase. d. assets will decrease. Ans: d LO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
150.
If a corporation distributes cash to its shareholders, then a. there has been a violation of accounting principles. b. equity will increase. c. equity will decrease. d. there will be a new liability showing the shareholders owe money to the business. Ans: c LO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
1 - 22 151.
Test Bank for Financial Accounting: IFRS Edition, 2e As of December 31, 2014, Sievers Company has assets of ₤90,000 and equity of ₤40,000. What are the liabilities for Sievers Company as of December 31, 2014? a. ₤50,000. b. ₤20,000. c. ₤30,000. d. ₤40,000. Ans: a LO7 BT: AN Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
152.
Which of the following events is not a business transaction? a. Issuance of shares in exchange for cash b. Hired employees c. Incurred utility expenses for the month d. Earned revenue for services provided Ans: b LO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
153.
Net income results when a. Assets > Liabilities. b. Revenues = Expenses. c. Revenues > Expenses. d. Revenues < Expenses. Ans: c LO8 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
154.
Retained earnings at the end of the period is equal to a. retained earnings at the beginning of the period plus net income minus liabilities. b. retained earnings at the beginning of the period plus net income minus dividends. c. net income. d. assets plus liabilities. Ans: b LO8 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
155.
A statement of financial position shows a. revenues, liabilities, and equity. b. expenses, dividends and equity. c. revenues, expenses, and dividends. d. assets, liabilities, and equity. Ans: d LO8 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
156.
An income statement a. summarizes the changes in equity for a specific period of time. b. reports the changes in assets, liabilities, and equity over a period of time. c. reports the assets, liabilities, and equity at a specific date. d. presents the revenues and expenses for a specific period of time. Ans: d LO8 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
157.
If the retained earnings account increases from the beginning of the year to the end of the year, then a. net income is less than dividends. b. net loss is less than dividends. c. the company must have sold shares. d. net income is greater than dividends. Ans: d LO8 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only