Type:
Test Bank
Resource:
Horngren_s Accounting, Volume 1
Edition:
11th Edition
Author(s):
Tracie Miller-Nobles Brenda Mattison Carol Meissner Peter Norwood
Horngren’s Accounting, Vol. 1, Cdn. Ed., 11e (Miller-Nobles) Chapter 1 Accounting and the Business Environment Objective 1-1 1) Financial statements provide information about business activities to decision makers. Answer: TRUE Type: TF CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Remember 2) Investors provide money to a business to assist with operations. Answer: TRUE Type: TF CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Remember 3) Not-for-profit organizations need accounting information, as do profit-oriented organizations. Answer: TRUE Type: TF CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Remember 4) The Canadian designation CPA stands for Certified Public Accountant. Answer: FALSE Type: TF CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Remember 5) Rules of professional conduct for accountants apply to accountants working in public practice but not for accountants employed by companies. Answer: FALSE Type: TF CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Remember
1 .
6) Some rules of conduct apply to accountants in public practice and not to those employed in industry. Answer: TRUE Type: TF CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Remember 7) Audits are conducted by accountants internal to the organization so that the users of the financial information can have confidence in the accuracy of the financial reporting. Answer: FALSE Type: TF CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Remember 8) Which of the following users of accounting information seek to assess the organization's ability to make scheduled payments? A) creditors B) taxing authorities C) government regulatory agencies D) employees Answer: A Type: MC CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Remember 9) The primary objective of financial reporting is to provide information: A) to the federal government. B) about the profitability of the business. C) regarding the cash flows of the business. D) useful for making investment decisions and for assessing management's stewardship. Answer: D Type: MC CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Remember
2 .
10) Which of the following statements best describes managerial accounting? A) Managerial accounting focuses on information for internal decision making. B) Managerial accounting focuses on outside investors and lenders. C) Managerial accounting provides information for the public. D) Managerial accounting provides information for taxing authorities. Answer: A Type: MC CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Remember 11) Which of the following is not addressed by rules of professional conduct? A) competence B) confidentiality C) number of clients D) compliance with professional standards Answer: C Type: MC CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Remember 12) The provincial securities commissions oversee operations of: A) all publicly accountable enterprises. B) banks and other federally constituted financial institutions. C) large investors from foreign counties. D) companies with publicly traded stock. Answer: D Type: MC CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Remember
3 .
13) Audits conducted by external accountants express an opinion: A) that evaluates the effectiveness of management. B) that taxing authorities use to ensure that the correct amount of tax owing has been calculated. C) that gives investors confidence their investment is not at risk. D) on whether or not the financial statements fairly reflect the economic events that occurred during the accounting period. Answer: D Type: MC CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Remember 14) Rules of professional conduct for accountants should: A) be considered a minimum standard of performance. B) not be seen as strict when the client requests certain requirements. C) be the same as those for lawyers or engineers. D) clearly spell out right from wrong in every situation. Answer: A Type: MC CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Remember 15) Describe the three forms of organizations and how they differ. Answer: A proprietorship has a single owner whereas a partnership has two or more individuals together as co-owners. In both of these forms of organization, the owners are individually liable for the debts of the business. A corporation is a business owned by shareholders, who may or may not have a part in the day-to-day operations of the business. The shareholders of a corporation are not legally liable for the debts of the business, and it is easier to transfer the ownership of a corporation than a proprietorship or partnership. Type: ES CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Understand
4 .
16) Why is it in the interest of a corporation for management to behave ethically? Answer: Since the financial health of a company is important to many different groups of users, these users must be confident that they can rely on the financial information they are given when they are making decisions. If the various stakeholders lose confidence then they will end their relationship with the company: shareholders may sell their investments or vote to replace the Board; lenders may stop lending or raise interest rates charged; regulators may impose fines or delist the company's stock from the exchange; employees may leave their positions. Type: ES CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Understand 17) The members of the Chartered Professional Accountants in Canada are all governed by rules of professional conduct created by the CPA organization. Describe two of the rules of professional conduct presented in the text book. Answer: These rules concern the confidentiality of information the accountant is privy to, maintenance of the reputation of the profession, the need to perform accountancy work with integrity and due care, competence, refusal to be associated with false or misleading information, and compliance by the accountant with professional standards. Other rules are applicable only to those members in public practice, and deal with things like the need for independence, and how to advertise, seek clients, and conduct a practice. Type: ES CPA Competency: 1.1.1 Evaluates financial reporting issues Objective: 1-1 Define accounting, and describe the users of accounting information Knowledge Taxon.: Factual Cognitive Taxon.: Remember Objective 1-2 1) A proprietorship can have two owners, so long as they are husband and wife. Answer: FALSE Type: TF CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-2 Compare and contrast the forms of business organizations Knowledge Taxon.: Factual Cognitive Taxon.: Remember 2) In a corporation, the shareholders have liability for the actions of the corporation that extends beyond their investment. Answer: FALSE Type: TF CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-2 Compare and contrast the forms of business organizations Knowledge Taxon.: Factual Cognitive Taxon.: Remember 5 .
3) All of the following are forms of business organizations except: A) proprietorship. B) partnership. C) corporation. D) governmental unit. Answer: D Type: MC CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-2 Compare and contrast the forms of business organizations Knowledge Taxon.: Factual Cognitive Taxon.: Remember 4) Which of the following forms of business organizations protect the personal assets of the owners from creditors of the business? A) proprietorship B) partnership C) corporation D) corporation and partnership Answer: C Type: MC CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-2 Compare and contrast the forms of business organizations Knowledge Taxon.: Factual Cognitive Taxon.: Remember 5) Which of the following types of organizations have the entity legally separate from its owners? A) corporation B) proprietorship C) partnership D) sole proprietorship Answer: A Type: MC CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-2 Compare and contrast the forms of business organizations Knowledge Taxon.: Factual Cognitive Taxon.: Remember
6 .
6) Which of the following sets of characteristics best describes those of a corporation? A) limited liability, definite life, shareholders are legally separate B) limited liability, indefinite life, shareholders are legally separate C) unlimited liability, definite life, shareholders are not legally separate D) unlimited liability, indefinite life, shareholders are not legally separate Answer: B Type: MC CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-2 Compare and contrast the forms of business organizations Knowledge Taxon.: Factual Cognitive Taxon.: Remember 7) Partnerships and proprietorships: A) are separate legal entities from their owners, are for small businesses, and for financial reporting purposes do not keep the business affairs separate from those of the owners. B) are separate legal entities from their owners, are for small to large businesses, and for financial reporting purposes keep the business affairs separate from those of the owners. C) are not separate legal entities from their owners, are for small to large businesses, and for financial reporting purposes do not keep the business affairs separate from those of the owners. D) are not separate legal entities from their owners, are for small to large businesses, and for financial reporting purposes keep the business affairs separate from those of the owners. Answer: D Type: MC CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-2 Compare and contrast the forms of business organizations Knowledge Taxon.: Factual Cognitive Taxon.: Remember 8) Which of the following is a feature of limited-liability partnerships? A) They are restricted to a limited number of partners who are liable for the business. B) Liability is limited to 150% of each partners investment in the business. C) Partner liability is unlimited but the liability of partner families is limited. D) Each partner is liable for his or her own actions. Answer: D Type: MC CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-2 Compare and contrast the forms of business organizations Knowledge Taxon.: Factual Cognitive Taxon.: Remember
7 .
9) Describe the three forms of business ownership and include how the owners' liability is affected by each form. Answer: Proprietorship A proprietorship has a single owner, called the proprietor, who often manages the business. Proprietorships tend to be small retail stores, restaurants, and service businesses, but also can be very large. From an accounting viewpoint, each proprietorship is distinct from its owner. Thus, the accounting records of the proprietorship do not include the proprietor's personal accounting records. However, from a legal perspective, the business is the proprietor, so if the business cannot pay its debts, lenders can take the proprietor's personal assets (cash and belongings) to pay the proprietorship's debt. Partnership A partnership joins two or more individuals together as co-owners. Accounting treats the partnership as a separate organization distinct from the personal affairs of each partner. But again, from a legal perspective, a partnership is the partners in a manner similar to a proprietorship. If the partnership cannot pay its debts, lenders can take each partner's personal assets to pay the partnership's debts. Corporation A corporation is a business owned by shareholders. These are the people or other corporations who own shares of ownership in the business. From a legal perspective, a corporation is formed when the federal government or a provincial government approves its articles of incorporation. Unlike a proprietorship or a partnership, once a corporation is formed, it is a legal entity separate and distinct from its owners. The corporation operates as an "artificial person" that exists apart from its owners and that conducts business in its own name. The corporation has many of the rights that a person has. For example, a corporation may buy, own, and sell property. The corporation may enter into contracts and sue and be sued. Since corporations are entities separate from their owners, they will prepare financial reports separate from their owners. Corporations differ significantly from proprietorships and partnerships in term of owners' liability. If a proprietorship or partnership cannot pay its debts, lenders can take the owners' personal assets to satisfy the business's obligations. But if a corporation goes bankrupt, lenders cannot take the personal assets of the shareholders. Type: ES CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-2 Compare and contrast the forms of business organizations Knowledge Taxon.: Factual Cognitive Taxon.: Remember Objective 1-3 1) An organization, for accounting purposes, stands apart from other organizations and individuals as a separate accounting entity. Answer: TRUE Type: TF CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-3 Describe some concepts and principles of accounting Knowledge Taxon.: Factual Cognitive Taxon.: Remember
8 .
2) The reliability characteristic means that accounting information is free from error and bias, i.e., objective. Answer: TRUE Type: TF CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-3 Describe some concepts and principles of accounting Knowledge Taxon.: Factual Cognitive Taxon.: Remember 3) The going-concern assumption states an entity will remain in operation for only the next accounting period. Answer: FALSE Type: TF CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-3 Describe some concepts and principles of accounting Knowledge Taxon.: Factual Cognitive Taxon.: Remember 4) Financial statement users having easier access to information is a reason for the development of Accounting Standards for Private Enterprises (ASPE). Answer: TRUE Type: TF CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-3 Describe some concepts and principles of accounting Knowledge Taxon.: Factual Cognitive Taxon.: Remember 5) The Accounting Standards Board is responsible for authorizing: A) the Canadian Institute of Chartered Accountants. B) the IFRS and ASPE accounting standards used in Canada. C) the code of professional conduct for accountants. D) the Securities and Exchange Commission. Answer: B Type: MC CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-3 Describe some concepts and principles of accounting Knowledge Taxon.: Factual Cognitive Taxon.: Remember
9 .
6) GAAP stands for: A) generally accepted auditing practices. B) generally accrued auditing procedures. C) generally accepted accounting principles. D) generally accrued accounting principles. Answer: C Type: MC CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-3 Describe some concepts and principles of accounting Knowledge Taxon.: Factual Cognitive Taxon.: Remember 7) According to GAAP, to be useful, accounting information must be all of the following except: A) relevant. B) comparable. C) subjective. D) reliable. Answer: C Type: MC CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-3 Describe some concepts and principles of accounting Knowledge Taxon.: Factual Cognitive Taxon.: Remember 8) Which of the following statements is false? A) Reliable data are verifiable. B) Reliable data may be supported by objective evidence. C) Owner opinions are one source of objective evidence. D) An independent appraisal is usually considered reliable. Answer: C Type: MC CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-3 Describe some concepts and principles of accounting Knowledge Taxon.: Factual Cognitive Taxon.: Remember
10 .
9) The principle that states that assets acquired by the business should be recorded at their exchange price is the: A) subjectivity principle. B) cost principle of measurement. C) revenue-recognition principle. D) matching principle. Answer: B Type: MC CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-3 Describe some concepts and principles of accounting Knowledge Taxon.: Factual Cognitive Taxon.: Remember 10) What is the qualitative characteristic that states that accounting records and statements are based on the most accurate and useful data available? A) Reliability B) Relevance C) Comparability D) Understandability Answer: A Type: MC CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-3 Describe some concepts and principles of accounting Knowledge Taxon.: Factual Cognitive Taxon.: Remember 11) The relevant measure of value of the assets of a company that is going out of business is: A) their current market value. B) their book value. C) their historical cost. D) the higher of their historical cost or current market value. Answer: A Type: MC CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-3 Describe some concepts and principles of accounting Knowledge Taxon.: Factual Cognitive Taxon.: Remember
11 .
12) Which of the following statements is true? A) The value of a dollar changes over time. B) German accountants record transactions in dollars. C) The stable-monetary-unit concept requires adjustments to the accounting records for the effects of inflation. D) High inflation rates indicate a dollar's purchasing power is stable. Answer: A Type: MC CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-3 Describe some concepts and principles of accounting Knowledge Taxon.: Factual Cognitive Taxon.: Remember 13) Which of the following statements is correct? A) Businesses classified as publicly accountable enterprises must use IFRS and other businesses must use ASPE. B) Businesses classified as publicly accountable enterprises may use IFRS or ASPE depending on their size. C) Businesses not classified as publicly accountable enterprises may not use IFRS. D) Businesses classified as publicly accountable enterprises must use IFRS and other businesses may use IFRS or ASPE. Answer: D Type: MC CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-3 Describe some concepts and principles of accounting Knowledge Taxon.: Factual Cognitive Taxon.: Remember
12 .
14) List and define three generally accepted accounting concepts/principles discussed in Chapter 1. Answer: • Economic-Entity Assumption — An accounting entity is an organization or a section of an organization that stands apart from other organizations and individuals as a separate economic unit. From an accounting perspective, sharp boundaries are drawn around each entity so as not to confuse its affairs with those of other entities. • Reliability characteristic — Accounting records and statements are based on the most reliable data available so that they will be as accurate and as useful as possible. • Cost principle of measurement — States that acquired assets and services should be recorded at their actual cost. The cost of an asset should be maintained in the accounting records for as long as the business holds the asset. • Going-Concern Assumption — Holds that the entity will remain in operation for the foreseeable future. • Stable-Monetary-Unit Assumption — Assumes that the dollar's purchasing power is relatively stable and thus ignores the effect of inflation in the accounting records. Type: ES CPA Competency: 1.1.2 Evaluates the appropriateness of the basis of financial reporting Objective: 1-3 Describe some concepts and principles of accounting Knowledge Taxon.: Factual Cognitive Taxon.: Remember Objective 1-4 1) The accounting equation can be stated as assets + liabilities = owner's equity. Answer: FALSE Type: TF CPA Competency: 1.3.1 Prepares financial statements Objective: 1-4 Use the accounting equation to analyze business transactions Knowledge Taxon.: Factual Cognitive Taxon.: Remember 2) Assets are economic resources of a business expected to be of benefit in the future. Answer: TRUE Type: TF CPA Competency: 1.3.1 Prepares financial statements Objective: 1-4 Use the accounting equation to analyze business transactions Knowledge Taxon.: Factual Cognitive Taxon.: Remember
13 .
3) Owner's equity is often referred to as net assets and represents the residual amount of business assets that can be claimed by the owner. Answer: TRUE Type: TF CPA Competency: 1.3.1 Prepares financial statements Objective: 1-4 Use the accounting equation to analyze business transactions Knowledge Taxon.: Factual Cognitive Taxon.: Remember 4) An owner investment would increase the assets and decrease the liabilities of the firm. Answer: FALSE Type: TF CPA Competency: 1.3.1 Prepares financial statements Objective: 1-4 Use the accounting equation to analyze business transactions Knowledge Taxon.: Conceptual Cognitive Taxon.: Remember 5) The purchase of supplies on account would have an effect on the owner's equity of the firm. Answer: FALSE Type: TF CPA Competency: 1.3.1 Prepares financial statements Objective: 1-4 Use the accounting equation to analyze business transactions Knowledge Taxon.: Conceptual Cognitive Taxon.: Remember 6) One way of increasing the equity of a business is to increase a liability. Answer: FALSE Type: TF CPA Competency: 1.3.1 Prepares financial statements Objective: 1-4 Use the accounting equation to analyze business transactions Knowledge Taxon.: Conceptual Cognitive Taxon.: Remember 7) The recording of an owner withdrawal has the same effect on owner's equity as the recording of an owner investment. Answer: FALSE Type: TF CPA Competency: 1.3.1 Prepares financial statements Objective: 1-4 Use the accounting equation to analyze business transactions Knowledge Taxon.: Conceptual Cognitive Taxon.: Remember
14 .