135 test bank for financial accounting tools for business decision making 6th

135 Test Bank for Financial Accounting Tools for
Business Decision Making 6th
Multiple Choice Questions - Page 1
Which of the following would not be considered an internal user
of accounting data for XYZ Inc.?
1.

(a) the company president

2.

(b) production manager

3.

(c) merchandise inventory clerk

4.

(d) receptionist of the employees’ labour union

The partnership form of business organization
1.

(a) is a separate legal entity.

2.

(b) is a common form of organization for service-type businesses.

3.

(c) enjoys an unlimited life.

4.

(d) has limited liability.

Liabilities of a company are owed to
1.

(a) debtors.

2.

(b) owners.

3.

(c) creditors.

4.

(d) shareholders.

The financial statement that summarizes the changes in
common shares and retained earnings for a specific
period of time is the
1.

(a) statement of financial position.

2.

(b) income statement.

3.

(c) statement of cash flows.

4.

(d) statement of changes in equity.


Which of the following is not a principal type of business
activity?
1.

(a) operating

2.

(b) investing

3.

(c) financing

4.

(d) marketing

Which form of business would have its shares listed on a stock
exchange?
1.

(a) proprietorship

2.

(b) partnership

3.

(c) private corporation

4.

(d) public corporation

Which of the following would not be considered an internal user
of accounting data?
1.

(a) the president of a company

2.

(b) the controller of a company

3.

(c) a creditor of a company

4.

(d) a salesperson of a company

Profit results when
1.

(a) Assets > Liabilities.

2.

(b) Assets < Liabilities.

3.

(c) Revenues > Expenses.

4.

(d) Revenues < Expenses.

An advantage of the corporate form of business is that
1.

(a) it has limited life.

2.

(b) its shareholders’ personal resources are at stake.

3.

(c) its ownership is easily transferable via the sale of shares.

4.

(d) it is simple to establish.


Which of the following uses accounting information to
determine whether a marketing proposal will be cost
effective?
1.

(a) shareholders

2.

(b) marketing managers

3.

(c) creditors

4.

(d) Human Resource managers

The statement of changes in equity would not show
1.

(a) the beginning retained earnings balance.

2.

(b) revenues and expenses.

3.

(c) dividends.

4.

(d) the ending retained earnings balance.

A company’s policy toward dividends and growth could best be
determined by examining the
1.

(a) statement of financial position.

2.

(b) income statement.

3.

(c) statement of changes in equity.

4.

(d) statement of cash flows.

A small neighbourhood barber shop that is operated by its
owner would likely be organized as a
1.

(a) public corporation.

2.

(b) partnership.

3.

(c) private corporation.

4.

(d) proprietorship.

Which financial statement is prepared first?
1.

(a) Statement of financial position

2.

(b) Income statement

3.

(c) Statement of changes in equity

4.

(d) Statement of cash flows


The right to receive money in the future is called a(n)
1.

(a) account payable.

2.

(b) account receivable.

3.

(c) liability.

4.

(d) revenue.

Debt and obligations of a business are referred to as
1.

(a) assets.

2.

(b) equities.

3.

(c) liabilities.

4.

(d) expenses.

Dividends are reported on
1.

(a) the income statement.

2.

(b) the statement of changes in equity.

3.

(c) the statement of financial position.

4.

(d) both the income statement and statement of financial position.

Which of the following would not be considered an external
user of accounting data?
1.

(a) Canada Revenue Agency

2.

(b) management

3.

(c) creditors

4.

(d) customers

A business organized as a separate legal entity is a
1.

(a) corporation.

2.

(b) proprietorship.

3.

(c) government unit.

4.

(d) partnership.


Which of the following is the most appropriate definition of
accounting?
1.

(a) The information system that identifies, records, and communicates the economic
events of an organization to interested users.

2.

(b) a means of collecting information

3.

(c) The interconnected network of subsystems necessary to operate a business.

4.

(d) electronic collection, organization, and communication of vast amounts of
information

A business organized as a corporation
1.

(a) is not a separate legal entity in most provinces.

2.

(b) requires that shareholders be personally liable for the debts of the business.

3.

(c) is owned by its shareholders.

4.

(d) has income tax disadvantages over a proprietorship or partnership.

Dividends
1.

(a) increase assets.

2.

(b) increase expenses.

3.

(c) decrease revenues.

4.

(d) decrease retained earnings.

The concept that economic activity which can be identified with
a particular company must be kept separate and distinct
from the owner(s) and from all other economic entities is
known as
1.

(a) the separation concept.

2.

(b) the reporting entity concept.

3.

(c) the economic concept.

4.

(d) the business organization concept.

Expenses are incurred
1.

(a) only on rare occasions.

2.

(b) to produce assets.


3.

(c) to produce liabilities.

4.

(d) to generate revenues.

Which of the following statements is not true?
1.

(a) Public corporations must use international financial reporting standards.

2.

(b) Private corporations can choose to use either international financial reporting
standards (IFRS) or accounting standards for private enterprises (ASPE).

3.

(c) Both public and private corporations issue shares.

4.

(d) All private corporations are small.

A statement of financial position shows
1.

(a) revenues, liabilities, and shareholders’ equity.

2.

(b) expenses, dividends, and shareholders’ equity.

3.

(c) revenues, expenses, and dividends.

4.

(d) assets, liabilities, and shareholders’ equity.

An income statement
1.

(a) summarizes the changes in retained earnings for a specific period of time.

2.

(b) reports the changes in assets, liabilities, and shareholders’ equity over a period of
time.

3.

(c) reports the assets, liabilities, and shareholders’ equity at a specific date.

4.

(d) reports the revenues and expenses for a specific period of time.

Retained earnings at the end of the period is equal to
1.

(a) retained earnings at the beginning of the period plus profit minus liabilities.

2.

(b) retained earnings at the beginning of the period plus profit minus dividends.

3.

(c) profit for the period.

4.

(d) assets plus liabilities.

A corporation has which of the following set of characteristics?
1.

(a) shareholder control, income tax disadvantages, increased skills and resources

2.

(b) simple to set up and maintains control with founder

3.

(c) harder to raise funds and gives shareholders control


4.

(d) Easier to transfer ownership and raise funds, no personal liability

The common characteristic possessed by all assets is
1.

(a) long life.

2.

(b) great monetary value.

3.

(c) tangible nature.

4.

(d) future economic benefit.

External users want answers to all of the following questions
except
1.

(a) Is the company earning satisfactory income?

2.

(b) Will the company be able to pay its debts as they come due?

3.

(c) Will the company be able to afford employee pay raises this year?

4.

(d) How does the company compare in profitability with competitors?

Which of the following activities involves raising the necessary
funds to support the business?
1.

(a) operating

2.

(b) investing

3.

(c) financing

4.

(d) marketing

The proprietorship form of business organization
1.

(a) in most provinces, must have at least two owners.

2.

(b) is often chosen for small owner operated businesses.

3.

(c) is difficult to set up.

4.

(d) is classified as a separate legal entity.

The cost of assets consumed or services used is also known as
a(n)
1.

(a) revenue.

2.

(b) expense.

3.

(c) liability.


4.

(d) asset.

Cost of goods sold is a(n)
1.

(a) liability.

2.

(b) financing activity.

3.

(c) asset.

4.

(d) expense.

The liability created by a business when it purchases coffee
beans and coffee cups on credit from suppliers is called
a(n)
1.

(a) account payable.

2.

(b) account receivable.

3.

(c) revenue.

4.

(d) expense.

Which of the following uses accounting information to
determine whether a company can pay its obligations?
1.

(a) shareholders

2.

(b) marketing managers

3.

(c) creditors

4.

(d) Canada Revenue Agency

Kareem’s Rental Ltd. started the year with total assets of
$70,000 and total liabilities of $40,000. During the year, the
business recorded $100,000 in car repair revenues,
$65,000 in expenses, and paid dividends of $5,000.
Shareholders’ equity at the end of the year was
1.

(a) $60,000.

2.

(b) $65,000.

3.

(c) $70,000.

4.

(d) $75,000.


Buying and selling products are examples of
1.

(a) operating activities.

2.

(b) investing activities.

3.

(c) financing activities.

4.

(d) manufacturing activities.

Allocating the cost of using long-term assets over their useful
lives is called
1.

(a) allocation expense.

2.

(b) depreciation expense.

3.

(c) a general expense.

4.

(d) asset use expense.

Resources owned by a corporation are referred to as
1.

(a) shareholders’ equity.

2.

(b) liabilities.

3.

(c) assets.

4.

(d) revenues.

The accounting equation may be expressed as
1.

(a) Assets = Shareholders’ Equity – Liabilities.

2.

(b) Assets = Liabilities + Shareholders’ Equity.

3.

(c) Assets + Liabilities = Shareholders’ Equity.

4.

(d) Assets + Shareholders’ Equity = Liabilities.

Which of the following uses accounting information to
determine whether a company’s profit will result in a
share price increase?
1.

(a) shareholders

2.

(b) marketing managers

3.

(c) creditors

4.

(d) Chief Financial Officer


Buying assets needed to operate a business is an example of
a(n)
1.

(a) purchasing activity.

2.

(b) financing activity.

3.

(c) investing activity.

4.

(d) operating activity.

If the retained earnings account increases from the beginning of
the year to the end of the year, then
1.

(a) profit is greater than dividends.

2.

(b) a loss is less than dividends.

3.

(c) additional investments are less than reported losses.

4.

(d) dividends were received.

Which of the following groups uses accounting information
primarily to ensure the company is operating within
prescribed rules?
1.

(a) taxing authorities

2.

(b) regulatory agencies

3.

(c) labour unions

4.

(d) management

The world’s economic systems depend on financial reporting
that is
1.

(a) highly transparent.

2.

(b) accurate.

3.

(c) reliable.

4.

(d) all of the above.

Liabilities:
1.

(a) are future economic benefits.

2.

(b) are debts and obligations.

3.

(c) possess service potential.


4.

(d) are things of value owned by a business.

84 Free Test Bank for Financial Accounting Tools for
Business Decision Making 6th Canadian Edition by
Kimmel Multiple Choice Questions - Page 2
Which of the following financial statements would you use to
determine a company’s source(s) of financing?

1.

a) statement of financial position

2.

b) income statement

3.

c) statement of changes in equity

4.

d) bank statement

Kareem’s Rental Ltd. started the year with total assets of
$70,000 and total liabilities of $40,000. During the year, the
business recorded $100,000 in car repair revenues,
$65,000 in expenses, and paid dividends of $5,000.The
profit reported for the year was
1.

(a) $30,000.

2.

(b) $35,000.

3.

(c) $20,000.

4.

(d) $100,000.

To determine how much of a company’s cumulative profits has
been distributed to its shareholders, one would refer to
the
1.

a) statement of financial position.

2.

b) notes to the financial statements.

3.

c) statement of cash flows.

4.

d) statement of changes in equity.

The primary purpose of the statement of cash flows is to report
1.

(a) a company's investing transactions.

2.

(b) a company's financing transactions.


3.

(c) information about cash receipts and cash payments of a company.

4.

(d) the net increase or decrease in cash.

Which of the following would appear on the statement of
financial position?
1.

a) service revenue

2.

b) interest expense

3.

c) profit

4.

d) accounts receivable

The financial statements are usually prepared in which of the
following sequence?
1.

a) Income statement, Statement of financial position, Statement of changes in equity,
Statement of cash flows

2.

b) Statement of financial position, Statement of changes in equity, Statement of cash
flows, Income statement

3.

c) Statement of financial position, Statement of cash flows, Income statement,
Statement of changes in equity

4.

d) Income statement, Statement of changes in equity, Statement of financial position,
Statement of cash flows

Retained earnings are
1.

(a) the shareholders’ claim on total assets.

2.

(b) equal to cash.

3.

(c) equal to revenues.

4.

(d) the amount of profit kept in the corporation for future use.

The statement of financial position
1.

(a) summarizes the changes in shareholders’ equity for a specific period of time.

2.

(b) reports the changes in assets, liabilities, and shareholders’ equity over a period of
time.

3.

(c) reports the assets, liabilities, and shareholders’ equity at a specific date.

4.

(d) presents the revenues and expenses for a specific period of time.

Shareholders’ equity can be described as claims of
1.

(a) creditors on total assets.

2.

(b) owners on total assets.

3.

(c) customers on total assets.

4.

(d) debtors on total assets.

The statement of financial position reports
1.

a) assets owned by the business.

2.

b) claims to assets by creditors.

3.

c) claims to assets by shareholders.

4.

d) all of the above.

Payments to shareholders are called
1.

(a) expenses.

2.

(b) liabilities.

3.

(c) dividends.

4.

(d) shares.

Cost of goods sold is classified as a(n)
1.

a) asset.

2.

b) expense.

3.

c) liability.

4.

d) revenue.

If total liabilities decreased by $45,000 during a period of time
and shareholders’ equity increased by $27,000 during the
same period, then the amount and direction (increase or
decrease) of the period’s change in total assets is a(n)
1.

(a) $45,000 increase.

2.

(b) $27,000 increase.

3.

(c) $18,000 decrease.

4.

(d) $18,000 increase.


Which of the following type of companies must adopt

International Financial Reporting Standards?
1.

a) proprietorship

2.

b) publicly-traded corporations

3.

c) partnerships

4.

d) private corporations

Common shares represent
1.

(a) the creditors’ claims on the company.

2.

(b) the total profit of the company to date.

3.

(c) the amount paid by investors for ownership in the company.

4.

(d) the owners’ claims on the company.

Purchasing a new building is an example of a(n)
1.

a) operating activity.

2.

b) financing activity.

3.

c) investing activity.

4.

d) delivery activity.

Which of the following would be considered an investing
activity?
1.

a) the recording of depreciation expense

2.

b) the retirement of outstanding debt

3.

c) the purchase of inventory for resale

4.

d) the construction of a new factory

The statement of changes in equity is dependent on the results
from
1.

(a) the statement of cash flows.

2.

(b) the statement of financial position.

3.

(c) the income statement.

4.

(d) a company's share capital.


Saira’s Maid Service Ltd. began the year with total assets of
$120,000 and shareholders’ equity of $40,000. During the

year, the company earned $90,000 in profit and paid
$20,000 in dividends. Total assets at the end of the year
were $215,000. Shareholders’ equity at the end of the year
was
1.

a) $130,000.

2.

b) $110,000.

3.

c) $150,000.

4.

d) $135,000.

If total liabilities increased by $15,000 and shareholders’ equity
increased by $15,000 during a period of time, then total
assets must change by what amount and direction
(increase or decrease) during that same period?
1.

(a) $15,000 decrease

2.

(b) $15,000 increase

3.

(c) $30,000 decrease

4.

(d) $30,000 increase

Which of the following would not appear on the income
statement?
1.

a) service revenue

2.

b) interest expense

3.

c) profit

4.

d) dividends

The statement of cash flows and the statement of financial
position are interrelated because

1.

(a) the ending amount of cash on the statement of cash flows must agree with the
amount on the income statement.

2.

(b) the ending amount of cash on the statement of cash flows must agree with the
amount in the statement of changes in equity.


3.

(c) the ending amount of cash on the statement of cash flows must agree with the
amount in the statement of financial position.

4.

(d) both disclose the corporation's profit.

Which of the following is not an external user of accounting
data?
1.

a) labour unions

2.

b) customers

3.

c) economic planners

4.

d) finance directors

The statement that is dated at a specific point in time is the
1.

a) statement of cash flows.

2.

b) statement of financial position.

3.

c) statement of changes in equity.

4.

d) Both b) and c) are correct.

Financial statements are prepared to provide information to
which users?
1.

a) regulators

2.

b) bond holders

3.

c) investors

4.

d) all of the above

Which financial statement would indicate whether the company
relies more on debt or on shareholders’ equity to finance
its assets?
1.

(a) Statement of cash flows

2.

(b) Statement of changes in equity

3.

(c) Income statement

4.

(d) Statement of financial position

Common shares are reported on
1.

(a) the statement of financial position.


2.

(b) the statement of changes in equity.

3.

(c) both the statement of financial position and the income statement.

4.

(d) both the statement of changes in equity and the statement of financial position.

The statement of financial position and the statement of
changes in equity are interrelated because
1.

a) the beginning amount of retained earnings on the statement of changes in equity is
reported on the statement of financial position.

2.

b) the amount of assets on the statement of financial position is reported on the

statement of changes in equity.

3.

c) the ending amount of each of the components of shareholders’ equity on the
statement of changes in equity is reported on the statement of financial position.

4.

d) the amount of liabilities on the statement of financial position is reported on the
statement of changes in equity.

The statement of financial position and statement of changes in
equity are related because
1.

(a) the total assets on the statement of financial position is reported on the statement of
changes in equity.

2.

(b) the ending amount on the statement of changes in equity is reported on the
statement of financial position.

3.

(c) the ending amount on each statement is transferred to the statement of cash flows.

4.

(d) both contain information for the corporation.

Repayment of non-current notes payable is an example of a
(an)
1.

a) operating activity.

2.

b) financing activity.

3.

c) investing activity.

4.

d) delivery activity.


The statement of changes in equity is dependent on the results
of the
1.

a) income statement.

2.

b) statement of financial position.

3.

c) statement of cash flow.

4.

d) statement of assets and liabilities.

Which of the following would not appear directly on the
statement of changes in equity?
1.

a) beginning retained earnings balance

2.

b) dividends

3.

c) service revenue

4.

d) profit

Easy transfer of ownership is a characteristic of which form of
business organization?
1.

a) proprietorship

2.

b) partnership

3.

c) publicly-traded corporation

4.

d) all of the above

Shareholders’ equity is usually comprised of
1.

(a) common shares and dividends.

2.

(b) common shares and retained earnings.

3.

(c) dividends and retained earnings.

4.

(d) profit and retained earnings.

Which of the following financial statements is concerned with
the company at a point in time?
1.

(a) Statement of financial position

2.

(b) Income statement

3.

(c) Statement of changes in equity

4.

(d) Statement of cash flows


Internal users want answers to all of the following questions
except
1.

a) what is the cost of manufacturing each unit of the product?

2.

b) which product line is more profitable?

3.

c) is the company earning enough to give me a return on my investment?

4.

d) is cash sufficient to pay the bills?


True - False Questions
Two internal users of accounting information are investors and
managers.
1.

True

2.

False

The Canada Revenue Agency is the major external user of
information.
1.

True

2.

False

Creditors use the statement of financial position as another
source of information to determine the likelihood they will
be repaid.
1.

True

2.

False

The statement of changes in equity is not dependent on the
results from the income statement.
1.

True

2.

False

A partnership is a business organized as a separate legal entity.
1.

True

2.

False

Financing activities for corporations include borrowing money
and selling shares.
1.

True

2.

False

Claims of creditors and shareholders on the assets of a
business are called liabilities.
1.

True


2.

False

The information needs and questions of external users vary
considerably.
1.

True

2.

False

Shareholders’ equity is always equal to the cash on hand at any
given date.
1.

True

2.

False

The statement of changes in equity covers a different time
period than that covered by the income statement.
1.

True

2.

False

Shareholders and creditors are the only people who need
accounting information.
1.

True

2.

False

The issue of shares and the distribution of dividends do not
affect profit.
1.

True

2.

False

The reasons for a decrease in cash can be determined by
examining the income statement.
1.

True

2.

False

Financial statement users are interested in profit because it may
be a predictor of future profit.
1.

True


2.

False

Accounting information is not important to marketing
managers.
1.

True

2.

False

The purchase of equipment is an example of a financing
activity.
1.

True

2.

False

A proprietor has unlimited liability.
1.

True

2.

False

Authorities, such as the Canada Revenue Agency, want to know
whether a business complies with the tax laws.
1.

True

2.

False

A private corporation is one whose shares are traded on an
organized stock exchange, like the Toronto Stock
Exchange.
1.

True

2.

False

Profit for the period is determined by subtracting total expenses
and dividends from revenues.
1.

True

2.

False

External users of accounting information include the managers
who plan, organize, and run a business.
1.

True


2.

False

Depreciation is the cost of certain long-lived assets allocated to
expense for each period.
1.

True

2.

False

The notes to the financial statements are not required.
1.

True

2.

False

Any deficiency in cash from operating activities must be made
up by issuing shares.
1.

True

2.

False

The issue of shares and distribution of dividends are used in
determining profit.
1.

True

2.

False

Expenses are the cost of assets consumed or services used in
the process of generating revenue.
1.

True

2.

False

Assets are resources owned by a business that provide current
services or benefits to the business.
1.

True

2.

False

The basic accounting equation subdivides liabilities into two
categories: claims of creditors and claims of the Canada
Revenue Agency.
1.

True


2.

False

If the assets owned by a business total $100,000 and liabilities
total $52,000, shareholders’ equity totals $48,000.
1.

True

2.

False

Expenses are identified by the type of liability associated with
them.
1.

True

2.

False

Accounting communicates financial information about a
business to both internal and external users.
1.

True

2.

False

The accounting equation can be expressed as: Assets +
Liabilities = Shareholders’ Equity.
1.

True

2.

False

Interest expense is classified as an operating activity.
1.

True

2.

False

The liability of corporate shareholders is limited to the amount
of their investment.
1.

True

2.

False

Investing activities involve collecting the necessary funds to
operate the business.
1.

True

2.

False


Profit is another term for revenue.
1.

True

2.

False

Shareholder’s equity consists of at least two parts: share
capital and retained earnings.
1.

True

2.

False

High standards of ethics are not required for preparers of
financial information.
1.

True

2.

False

Proprietorships and partnerships are taxable entities.
1.

True

2.

False

Revenues are increases in economic resources that result from
a business’s operating activities.
1.

True

2.

False

The accounting equation can be expressed as: Assets –
Shareholders’ Equity = Liabilities.
1.

True

2.

False

The statement of financial position is always the first statement
prepared and presented.
1.

True

2.

False