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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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    Exam Name___________________________________ 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 and communicates relevant information that faithfully represents an organization's economic activities. 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 from shareholders. 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 the decision - making needs of internal users. 16) ______ 17) Internal operating functions include research and development, distribution, and human resources. 17) ______ 18) Internal controls include procedures to protect assets and prevent fraud. 18) ______ 19) Career opportunities in accounting include auditing, forensic accounting, and tax planning. 19) ______ 20) Budgeting is the process of developing formal plans for an organization's future activities. 20) ______ 21) At the request of the Board of Directors, internal auditors perform the audit function to pro tect

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    sharehol der interests . 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 Chartered Professional Accountant (CPA) designation. 24) ______ 25) To perform public accounting tasks, accountant must be licenced by their professional bodies 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's decisions. 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 with customers. 29) ______ 30) Social responsibility is concern for the impact of our actions on society as a whole. 30) ______ 31) The underlying c oncepts that make up acceptable accounting practices are referred to as generally 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 International Financial Reporting Standards. 33) ______ 34) The Accounting Standards Board (AcSB), is the body that developed accounting standards for private enterprises (ASPE). 34) ______ 35) International Accounting Standards have been created to improve comparability of accounting information across countries. 35) ______ 36) Private enterprises are all required to report using International Financial Reporting Standards (IFRS). 36) ______ 37) The primary purpose of Generally Accepted Accounting Principles is to ensure the usefulness of financial information. 37) ______ 38) The cost principle states that if no cash is involved in a transaction the cash - equivalent value must be used. 38) ______ 39) The monetary unit principle means that transactions are expressed using units of money as 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 pay its creditors underlies the going concern principle. 40) ______ 41) According to the cost principle, it is acceptable for managers to use their own estimate of an asset's value when recording the purchase. 41) ______ 42) The business entity principle requires that an owner keep accounting records separate from 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 in cash. 43) ______ 44) The primary qualitative characteristics of financial information are relevance and faithful representation. 44) ______ 45) A company that is currently in the process of liquidating is considered to be a going concern. 45) ______ 46) The conceptual framework summarizes the qualitative characteristics and supportive building blocks that are required to prepare financial information. 46) ______ 47) Financial statements are an organization's primary means of financial communication and are the end result of a process, or a cycle, which begins with a business transaction like 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 the business owner or owners. 49) ______ 50) The income statement is a financial statement that shows revenues earned and expenses incurred 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 of revenues 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 of earning 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 after deducting 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 a specified period. 57) ______

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    58) A liability expressed by a written promise to make a future payment is usually called an account payable. 58) ______ 59) The balance sheet is also called the statement of financial position because it shows the financial position of the business on a particular date. 59) ______ 60) Revenues are the value of assets exchanged for products or services provided to customers as part of the major operations of the business. 60) ______ 61) The balance sheet can be used in order to assess the creditworthiness of potential customers. 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, any withdrawals are recorded as expenses. 65) ______ 66) An owner's cash investment in a business creates an asset (cash), a liability (note payable), 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 are called 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 of time. 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 in the statement of cash flows under financing. 73) ______ 74) Chuck Taylor withdrew $6,000 in cash for his personal use from his business. This amount 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 previously recorded accounts receivable. 75) ______ 76) Transactions that impact only assets do not require the accounting equation to stay in balance. 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 the accounting equation. 83) ______ 84) Items such as sales slips, invoices, cheques, purchase orders, and employee earnings records 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 missing information. Date Cash A/R Inventory A/P Notes Pay Equity Sep 2 4,000 2,100 1,000 ? 500 4,000 Sep 6 - 1,000 - 0 - 4,000 ? - 0 - - 0 - Sep 10 500 300 - 300 - 0 - - 0 - ? 86) ______ A) Sept 2 Sept 6 Sept 10 300 2,000 600 B) Sept 2 Sept 6 Sept 10 2,600 3,000 500 C) Sept 2 Sept 6 Sept 10 1,000 4,000 200 D) Sept 2 Sept 6 Sept 10 2,600 3,000 2,000 E) Sept 2 Sept 6 Sept 10 1,500 1,000 400 87) 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 and total liabilitie s of $1,200,0 00. The owner originall y invested $200,00 0 in the business , but has not made any further investm ents or taken any withdra wals. What is the first year's net income for Lockerb ie and Role Compan y? 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 owners are: 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 of equity? 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 the net income for the month? Employee salaries $15,000 Interest paid on bank loan 2,500 Rent paid to landlord 12,500 Service Revenue 50,000 92) ______ A) $35,000. B) $10,000. C) $20,000. D) $0 E) $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 $73,000 Expenses 59,000 Liabilities 11,000 What 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, the land 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 December 31 of this year, calculate equity. Liabilities $1,000 Cash 3,000 Accounts Receivable 2,000 Buildings Equity 96)

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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 $40,000 Cash, Sept 30 60,000 Accounts receivable, Sept 1 10,000 Accounts receivable, Sept 30 14,000 Capital, Sept 1 ? Capital, Sept 30 ? Supplies, Sept 1 30,000 Supplies, Sept 30 24,000 Accounts payable, Sept 1 6,000 Accounts payable, Sept 30 ? Net income for September 20,000 What 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 under Generally 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, and reporting the financial affairs and activities of a business are: 100) _____ A) Intended to make information in financial statements relevant and faithfully represented. 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 ABC Limited? 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 affected by 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 faithfully represented. 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 the effect 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 it went 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 equity that 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 and reports 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 consideration between 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 issue shares 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 following except: 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 to the 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 business as 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 services purchased 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 or owners 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 in the 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) Complete B) Free from Error. C) Neutral D) 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 of money 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 earned regardless 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 that the business will continue operating instead of being closed or sold, unless evidence shows 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 on costs incurred in business transactions, and requires assets and services to be recorded initially 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 the business 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 liabilities increased $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 common set 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 independent review 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 is performed 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 is intended 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. It buys supplies for cash $5,000. What effect would this transaction have on the accounting equation? 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 future econ omic

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