Fundamental Accounting Principles, Volume 1, 15th Canadian Edition Test Bank

Fundamental Accounting Principles, Volume 1, 15th Canadian Edition Test Bank is packed with helpful insights, covering everything from basic concepts to advanced problem-solving techniques.

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ExamName___________________________________TRUE/FALSE.Write 'T' if the statement is true and 'F' if the statement is false.1)Accounting is an information system that identifies, measures, records andcommunicates relevant information that faithfully represents an organization's economicactivities.1)_______2)Accounting information is only relevant for people in business.2)_______3)The primary objective of accounting is to help people make better decisions.3)_______4)"Bookkeeping" is another term for "accounting".4)_______5)A sole proprietorship is a business owned by one or more persons.5)_______6)A partnership is a business owned by two or more people.6)_______7)Ownership of a corporation is divided into units called shares.7)_______8)In the partnership form of business, the owners of a business are called shareholders.8)_______9)Unlimited liability is an advantage for both a proprietorship and a partnership.9)_______10)Although a proprietorship is not a separate legal entity, a partnership is.10)______11)Limited liability is a key consideration as to why corporations can raise resources fromshareholders.11)______12)Non-business organizations often operate educational and religious services for profit.12)______13)Sole proprietorships and partnerships are not subject to income tax in Canada.13)______14)External users include creditors, shareholders, suppliers, and lawyers.14)______15)Internal users include creditors, shareholders, internal auditors and managers.15)______16)Managerial accounting is an area of accounting that provides internal reports to assist thedecision-making needs of internal users.16)______17)Internal operating functions include research and development, distribution, and humanresources.17)______18)Internal controls include procedures to protect assets and prevent fraud.18)______19)Career opportunities in accounting include auditing, forensic accounting, and taxplanning.19)______20)Budgeting is the process of developing formal plans for an organization's futureactivities.20)______21)At the request of the Board of Directors, internal auditors perform the audit function toprotect

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shareholderinterests.21)______22)The purpose of an audit is to add credibility to the financial statements.22)______23)Private accountants work for several employers.23)______24)The Canadian accounting profession was recently united and grants the CharteredProfessional Accountant (CPA) designation.24)______25)To perform public accounting tasks, accountant must be licenced by their professionalbodies in the province within which they work.25)______26)The preferred ethical path is to take a course of action that avoids casting doubt on one'sdecisions.26)______27)Ethics and laws often differ.27)______28)Ethics and social responsibility are incidental to the primary functions of accounting.28)______29)Ethical practices are not necessary to build trust and long-term relationships withcustomers.29)______30)Social responsibility is concern for the impact of our actions on society as a whole.30)______31)The underlying concepts that make up acceptable accounting practices are referred to asgenerally accepted accounting principles (GAAP).31)______32)Verifiability ensures that information is complete, neutral and free from error.32)______33)The Accounting Standards Board (AcSB), is the body that developed the InternationalFinancial Reporting Standards.33)______34)The Accounting Standards Board (AcSB), is the body that developed accountingstandards for private enterprises (ASPE).34)______35)International Accounting Standards have been created to improve comparability ofaccounting information across countries.35)______36)Private enterprises are all required to report using International Financial ReportingStandards (IFRS).36)______37)The primary purpose of Generally Accepted Accounting Principles is to ensure theusefulness of financial information.37)______38)The cost principle states that if no cash is involved in a transaction the cash-equivalentvalue must be used.38)______39)The monetary unit principle means that transactions are expressed using units of moneyas the common denominator.39)______

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40)The assumption that a business will continue to operate until it can sell its assets to payits creditors underlies the going concern principle.40)______41)According to the cost principle, it is acceptable for managers to use their own estimate ofan asset's value when recording the purchase.41)______42)The business entity principle requires that an owner keep accounting records separatefrom personal records or records of any other businesses owned.42)______43)As a rule, revenues should not be recognized in the accounting records until received incash.43)______44)The primary qualitative characteristics of financial information are relevance and faithfulrepresentation.44)______45)A company that is currently in the process of liquidating is considered to be a goingconcern.45)______46)The conceptual framework summarizes the qualitative characteristics and supportivebuilding blocks that are required to prepare financial information.46)______47)Financial statements are an organization's primary means of financial communicationand are the end result of a process, or a cycle, which begins with a business transactionlike a sale.47)______48)A balance sheet covers a period of time such as a month or year.48)______49)The legitimate claims of a business's creditors take precedence over the claims of thebusiness owner or owners.49)______50)The income statement is a financial statement that shows revenues earned and expensesincurred by a business over a specified period of time.50)______51)Net income is the excess of expenses over revenues, whereas net loss is the excess ofrevenues over expenses.51)______52)The natural business year for businesses is always the same as the calendar year.52)______53)The balance sheet shows whether or not the firm achieved its primary objective ofearning a profit.53)______54)Expenses are costs incurred or the using up of assets from generating revenue.54)______55)Liabilities are defined as "the residual interest in the assets of an entity that remains afterdeducting its equity".55)______56)A characteristic of assets is their ability to provide current benefits to the business.56)______57)The statement of cash flows measures the net effect of revenues and expenses for aspecified period.57)______

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58)A liability expressed by a written promise to make a future payment is usually called anaccount payable.58)______59)The balance sheet is also called the statement of financial position because it shows thefinancial position of the business on a particular date.59)______60)Revenues are the value of assets exchanged for products or services provided tocustomers as part of the major operations of the business.60)______61)The balance sheet can be used in order to assess the creditworthiness of potentialcustomers.61)______62)Withdrawals represent distributions from a corporation to its owners.62)______63)Dividends represent distributions of profits to the partners of a business.63)______64)Equity is increased by owner investments, net income and withdrawals.64)______65)Although, in a sole proprietorship, owner investments are not recorded as revenue, anywithdrawals are recorded as expenses.65)______66)An owner's cash investment in a business creates an asset (cash), a liability (notepayable), and equity (owner investments).66)______67)The first section of the income statement reports cash from operating activities.67)______68)Individuals and organizations who own the right to receive payments from a business arecalled its debtors.68)______69)A loss arises when revenues are higher than expenses.69)______70)A characteristic of liabilities is their capacity to reduce future assets.70)______71)Net income is equal to the change in equity due to operating activities over a period oftime.71)______72)The equity in a partnership belongs to one owner.72)______73)Chuck Taylor invested $8,000 in cash in FastForward. This amount would be reported inthe statement of cash flows under financing.73)______74)Chuck Taylor withdrew $6,000 in cash for his personal use from his business. Thisamount should be included as an expense on the income statement.74)______75)Equity is increased when cash is received from customers in payment of a previouslyrecorded accounts receivable.75)______76)Transactions that impact only assets do not require the accounting equation to stay inbalance.76)______77)The financing side of the accounting equation describes where the assets came from.77)______

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78)The accounting equation is the link between a company's assets, liabilities and equity.78)______79)The accounting equation can be restated as assets-equity = liabilities.79)______80)Liabilities represent non-owner financing.80)______81)Business transactions are exchanges of economic consideration between two parties.81)______82)Business events do not affect the accounting equation.82)______83)The purchase of supplies for cash impacts both the investing and financing sides of theaccounting equation.83)______84)Items such as sales slips, invoices, cheques, purchase orders, and employee earningsrecords are also called source documents.84)______85)Payment of accounts payable decreases both liabilities and assets.85)______MULTIPLE CHOICE.Choose the one alternative that best completes the statement or answers the question.86)Joe Bob has prepared the following analysis of September transactions for his business,Joe Bob's Spareribs. Unfortunately, he has lost some information. Calculate the missinginformation.DateCashA/RInventoryA/PNotes PayEquitySep 24,0002,1001,000?5004,000Sep 6-1,000-0-4,000?-0--0-Sep 10500300-300-0--0-?86)______A)Sept 2Sept 6Sept 103002,000600B)Sept 2Sept 6Sept 102,6003,000500C)Sept 2Sept 6Sept 101,0004,000200D)Sept 2Sept 6Sept 102,6003,0002,000E)Sept 2Sept 6Sept 101,5001,00040087)At the end of its first year of operations, Lockerbie and Role Company has total assets of$3,000,00

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0 andtotalliabilities of$1,200,000. Theowneroriginallyinvested$200,000 in thebusiness, but hasnotmadeanyfurtherinvestments ortakenanywithdrawals.What isthe firstyear'snetincomeforLockerbie andRoleCompany?87)______A)$1,600,000.B)$1,800,000.C)$1,000,000.D)$3,200,000.E)$3,000,000.88)If assets are $144,000 and liabilities are $37,000, then equity equals:88)______A)$107,000.B)$181,000.C)$37,000.D)$144,000.E)$74,000.89)The assets of a business total $20,000; the liabilities, $8,000. The claims of the ownersare:89)______A)$12,000.B)$0.C)$28,000.D)$8,000.E)$20,000.

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90)The FastForward Company balance sheet shows cash $5,000, accounts receivable$7,000, office equipment $3,000, and accounts payable $4,000. What is the amount ofequity?90)______A)$1,000.B)$19,000.C)$12,000.D)$11,000.E)$15,000.91)If assets are $175,000 and equity is $47,000, then liabilities equal:91)______A)$128,000.B)$175,000.C)$47,000.D)$222,000.E)$204,000.92)The following information is available for Isla Company for last May. How much is thenet income for the month?Employee salaries$15,000Interest paid on bank loan2,500Rent paid to landlord12,500Service Revenue50,00092)______A)$35,000.B)$10,000.C)$20,000.D)$0E)$30,000.93)Reese's Company reported equity of $22,000 on its December 31, 2014 balance sheet.The following information is available for the year ended December 31, 2015:Revenues$73,000Expenses59,000Liabilities11,000What are the total assets of Reese's Company at December 31, 2015?93)______A)$47,000.B)$14,000.C)$35,000.D)$25,000.E)$57,000.94)If a parcel of land is offered for sale at $45,000, is assessed for tax purposes at $20,000,is considered by its purchasers to be worth $36,000, and is purchased for $34,000, theland should be recorded in the purchaser's books at:94)______A)$54,000.B)$20,000.C)$36,000.D)$34,000.E)$45,000.95)If equity is $30,000 and liabilities are $73,000, then assets equal:95)______A)$40,000.B)$60,000.C)$73,000.D)$103,000.E)$30,000.96)From the following information taken from the records of Peach Company at December31 of this year, calculate equity.Liabilities$1,000Cash3,000Accounts Receivable2,000BuildingsEquity96)

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______A)$1,500.B)$6,000.C)$2,500.D)$3,500.E)$7,500.97)Willie's Attic has the following account balances for the dates given:Cash, Sept 1$40,000Cash, Sept 3060,000Accounts receivable, Sept 110,000Accounts receivable, Sept 3014,000Capital, Sept 1?Capital, Sept 30?Supplies, Sept 130,000Supplies, Sept 3024,000Accounts payable, Sept 16,000Accounts payable, Sept 30?Net income for September20,000What would equity be on September 1 and September 30?97)______A)$74,000; $106,000.B)$74,000; $4,000.C)$86,000; $106,000.D)$86,000; $4,000.E)None of these answers is correct.98)An exchange between two parties of economic consideration such as goods, services,money, or rights to collect money is called:98)______A)Bookkeeping.B)A gift.C)An audit.D)The accounting equation.E)A business transaction.99)Under which one of the following situations can a company recognize revenue underGenerally Accepted Accounting Principles?99)______A)A company receives a cash deposit from a customer to deliver goods in two weeks.B)A company ships the goods for which it received a deposit two weeks ago.C)A company completes production of a customer order to be delivered in two weeks.D)A customer signs a contract to purchase goods to be delivered in two weeks.E)A company purchased raw materials to complete production of a customer order.100)The rules adopted by the accounting profession as guides in measuring, recording, andreporting the financial affairs and activities of a business are:100)_____A)Intended to make information in financial statements relevant and faithfullyrepresented.B)Both broad and specific principles.C)Known as generally accepted accounting principles.D)Abbreviated as GAAP.E)All of these answers are correct.101)Which of the following business transactions would increase the equity of ABCLimited?101)_____

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A)ABC billed a customer $14,800 for consulting services provided during the month.B)ABC Limited's owner withdrew $900 cash to cover personal living expenses.C)ABC purchased a building for $100,000 on account.D)ABC purchased a new machine for $45,000 on account.E)ABC received a $1,200 cash payment on account from a customer.102)Something of value, such as products, services and money, is called a(n):102)_____A)Business event.B)Source document.C)Accounting equation.D)Economic consideration.E)Business transaction.103)How would the accounting equation of Lenore Turner's consulting business be affectedby the billing of a client for $2,000 for consulting work completed?103)_____A)Accounts receivable, $2,000 increase, equity, $2,000 increase.B)Accounts receivable, $2,000 increase, liabilities, $2,000 increase.C)Accounts receivable, $2,000 increase, liabilities, $2,000 decrease.D)Accounts receivable, $2,000 increase, cash, $2,000 increase.E)Accounts receivable, $2,000 increase, cash, $2,000 decrease.104)Which of the following items does not appear on the balance sheet?104)_____A)Notes payable.B)Withdrawals.C)Cash.D)Accounts payable.E)Accounts receivable.105)Social responsibility:105)_____A)Allows Canada Revenue Agency to regulate businesses.B)Requires that all businesses conduct social audits.C)Is a concern for the impact of our actions on society as a whole.D)Is a code that helps accountants when dealing with confidential information.E)Requires analysts to report information favourable to their companies.106)Ethical behaviour requires:106)_____A)Purchasing agents to favour certain suppliers.B)Accountants to keep business information confidential.C)The government to regulate businesses.D)Auditors to invest in businesses they audit.E)Analysts to report information favourable to their companies.107)Generally accepted accounting principles are:107)_____A)Required to make financial statement information relevant and faithfullyrepresented.B)Only used for reporting to Canada Revenue Agency.C)Only used by auditors.D)Only used for internal reporting.E)Not used in the real world.108)The accounting equation can be stated as:108)_____

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A)Liabilities = assets-equity.B)Assets = liabilities + equity.C)Assets = non-owner equity + equity.D)Equity = assets-liabilities.E)All of these answers are correct.109)Today, Cedar Park Company paid $600 of its accounts payable in cash. What is theeffect on the accounting equation?109)_____A)Assets, $600 decrease; liabilities, $600 decrease; equity, no effect.B)Assets, no effect; liabilities, $600 decrease; equity, $400 increase.C)Assets, $600 increase; liabilities, no effect; equity, $600 increase.D)Assets, $600 decrease; liabilities, $400 increase; equity, $200 decrease.E)No effect.110)The area of accounting aimed at serving the decision-making needs of internal users is:110)_____A)Internal control.B)Marketing.C)Managerial accounting.D)Auditing.E)Financial accounting.111)The financial statement that describes where a company's cash came from and where itwent during the period is the:111)_____A)Statement of changes in equity.B)Balance sheet.C)Income statement.D)Statement of cash flows.E)Statement of financial position.112)The financial statement that shows the beginning balance of equity, the changes in equitythat resulted from new investments by the owner, net income (or net loss), withdrawals,and the ending balance of equity is the:112)_____A)Balance sheet.B)Statement of changes in equity.C)Statement of cash flows.D)Statement of financial position.E)Income statement.113)Which of the following is an example of a source document?113)_____A)Employee earnings records.B)Invoice.C)Cheque.D)Bank statement.E)All of these answers are correct.114)To include the personal assets and transactions of a business's owner in the records andreports of the business would be in conflict with the:114)_____A)Monetary unit principle.B)Going concern principle.C)Business entity principle.D)Revenue recognition principle.

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E)Cost principle.115)The description of the relationship between a company's assets, liabilities, and equity,which is expressed as Assets = Liabilities + Equity, is known as the:115)_____A)Accounting equation.B)Business equation.C)Net income.D)Liability equation.E)Balance sheet.116)Revenues are:116)_____A)Business events.B)Net assets.C)The amount a business earns after subtracting all expenses from sales.D)Profits.E)The value of assets exchanged for goods or services provided to the customer.117)Exchanges between the entity and some other person or organization are:117)_____A)External transactions.B)Investments.C)Internal transactions.D)Business papers.E)Source documents.118)A business activity that does not involve an exchange of economic considerationbetween two parties is called a(n):118)_____A)Account receivable.B)Business transaction.C)Equity transaction.D)Business event.E)Withdrawal.119)Which of the following statements is correct regarding sales invoices?119)_____A)A sales invoice is a type of source document.B)They are required for information to be objective.C)Buyers use them for recording purchases.D)Sellers use them for recording sales.E)All of these answers are correct.120)A business:120)_____A)Is one or more individuals selling products or services for profit.B)Has to issue shares before it opens.C)Can only have one legal form of organization.D)Is one or more individuals selling products or services for profit and has to issueshares before it opens.E)Can have adequate financial records without a formal accounting system.121)Source documents:121)_____A)Are only used for audit purposes.B)Do not provide objective evidence about transactions.C)Can only be in electronic form.

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D)Are acceptable as a substitute for financial statements.E)Are a source of accounting information.122)Professional accountants can be:122)_____A)Certified Management Accountants.B)Chartered Accountants.C)Certified General Accountants or Chartered Accountants.D)Certified General Accountants.E)Any of the above.123)Source documents include all of the followingexcept:123)_____A)Bank statements.B)Financial statements.C)Purchase orders.D)Sales invoices.E)Cheques.124)Accounting is an information and measurement system that:124)_____A)Identifies and records economic activities.B)Records economic activities.C)Identifies economic activities.D)Communicates economic information.E)All of these answers are correct.125)An individual or organization entitled to receive payments from a business is known tothe business as a:125)_____A)Debtor.B)Bookkeeper.C)Creditor.D)Shareholder.E)Controller.126)An individual or organization that owes an amount to a business is known to the businessas a:126)_____A)Shareholder.B)Bookkeeper.C)Creditor.D)Controller.E)Debtor.127)Career opportunities in accounting include:127)_____A)Management consulting.B)Budgeting.C)Auditing.D)Cost accounting.E)All of these answers are correct.128)Which of the following accounting principles would require that all goods and servicespurchased be recorded at cost?128)_____A)Monetary unit principle.B)Business entity principle.

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C)Going concern principle.D)Revenue recognition principle.E)Cost principle.129)External users of accounting information include:129)_____A)Shareholders.B)Creditors.C)The press.D)Customers.E)All of these answers are correct.130)A primary operating objective of a business is to increase the equity of its owner orowners by:130)_____A)Incurring liabilities.B)Earning a profit.C)Incurring expenses.D)Acquiring assets.E)Increasing retained earnings.131)The difference between a company's assets and its liabilities, or the residual interest inthe assets of an entity that remains after deducting its liabilities, is called:131)_____A)Net loss.B)Equity.C)Shares.D)Revenue.E)Net income.132)Profit is another name for:132)_____A)Net income.B)The income statement.C)Equity.D)Assets.E)A business transaction.133)A payment from a proprietorship or partnership to its owner or owners is called a(n):133)_____A)Expense.B)Cheque.C)Withdrawal.D)Dividend.E)Equity.134)Information that is representationally faithful is:134)_____A)CompleteB)Free from Error.C)NeutralD)All of these answers are correct.E)None of these answers is correct.135)The accounting principle that requires that transactions are expressed using units ofmoney as the common denominator is the:135)_____A)Going concern principle.

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B)Cost principle.C)Revenue recognition principle.D)Monetary unit principle.E)Business entity principle.136)The accounting principle that states that revenue is recorded at the time that it is earnedregardless of whether cash or another asset has been exchanged is the:136)_____A)Monetary unit principle.B)Cost principle.C)Revenue recognition principle.D)Business entity principle.E)Going concern principle.137)The accounting principle that requires financial statements to reflect the assumption thatthe business will continue operating instead of being closed or sold, unless evidenceshows that it will not continue, is the:137)_____A)Cost principle.B)Business entity principle.C)Monetary unit principle.D)Revenue recognition principle.E)Going concern principle.138)The accounting principle that requires financial statement information to be based oncosts incurred in business transactions, and requires assets and services to be recordedinitially at the cash or cash-equivalent amount given in exchange, is the:138)_____A)Cost principle.B)Going concern principle.C)Revenue recognition principle.D)Business entity principle.E)Accounting equation.139)A corporation:139)_____A)Is a legal entity separate and distinct from its owners.B)Is not a legal entity.C)Can only have two owners.D)Is regulated by Canada Revenue Agency.E)Has shareholders who have unlimited liability for the acts of the corporation.140)A partnership:140)_____A)Is a non-business organization.B)Has unlimited liability.C)Is a legal organization separate from its owners.D)Is also called a sole proprietorship.E)Has to have a written agreement in order to be legal.141)Ethics:141)_____A)Are very important considerations for accountants.B)Are beliefs that separate right from wrong.C)And law often coincide.D)Help to prevent conflicts of interest.E)All of these answers are correct.

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142)If the liabilities of a business increased $8,000 during a period of time and equity in thebusiness decreased $4,000 during the same period, the assets of the business must have:142)_____A)Increased $12,000.B)Decreased $12,000.C)Increased $6,000.D)Decreased $4,000.E)Increased $4,000.143)If the assets of a business increased $9,000 during a period of time and its liabilitiesincreased $5,000 during the same period, equity in the business must have:143)_____A)Decreased $4,000.B)Increased $14,000.C)Decreased $6,000.D)Decreased $14,000.E)Increased $4,000.144)The organization established to try to achieve global agreement on the use of a commonset of accounting principles is called:144)_____A)Generally accepted accounting principles.B)Abbreviated as IFRS.C)Accounting Standards Board.D)International Accounting Standards Board.E)All of these answers are correct.145)An audit:145)_____A)Is performed to add credibility to the financial statements.B)Is an independentreview of an organization's accounting systems and records.C)Is required for every business.D)Is only performed for companies with computerized accounting systems.E)Is an independent review of an organization's accounting systems and records and isperformed to add credibility to the financial statements.146)Accounting information is considered to be relevant when it:146)_____A)Is capable of making a difference in a decision.B)Is verifiable and neutral.C)Is free from bias.D)Can be depended on to represent the economic conditions and events that it isintended to represent.E)Is understandable by reasonably informed users of accounting information.147)Celery Company has assets of $150,000, liabilities of $90,000, and equity of $60,000. Itbuys supplies for cash $5,000. What effect would this transaction have on the accountingequation?147)_____A)Assets, $5,000 increase, equity, $5,000 increase.B)Assets, $5,000 increase, equity, $5,000 decrease.C)Assets, $5,000 decrease, equity, $5,000 decrease.D)Assets, no effect, liabilities, no effect.E)Liabilities, $5,000 increase, equity, $5,000 decrease.148)Properties or economic resources owned by a business, also described as probable futureeconomic
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