153 test bank for accounting principles 6th canadian edition

153 Test Bank for Accounting Principles 6th Canadian
Edition

True - False Questions
Accounting is the information system that identifies, records, and
communicates the economic events of an organization to a wide variety of
interested users.
1.

True

2.

False

Recognition is the process of recording a transaction in the accounting
records.
1.

True

2.

False

The economic entity concept requires that an entity’s business activities be
combined with the activities of its owner for financial reporting purposes.
1.

True

2.

False

Accounting information is used only by external users with a direct financial
interest in a company.
1.

True

2.

False


Publicly Traded Corporations can choose to report under either ASPE or
IFRS.
1.

True

2.

False

The owner’s claim on the assets of the company is known as owner’s equity.
1.

True

2.

False

In Canada, the main standard setting board is the Accounting Standards
Board.
1.

True

2.

False

A working knowledge of accounting can be useful to doctors or lawyers.
1.

True

2.

False

The going concern assumption is the assumption that a company will
continue to operate in the foreseeable future.
1.

True

2.

False


An obligation to pay cash to a supplier in the future is called accounts
payable.
1.

True

2.

False

One of the main advantages of a corporation is the limit of liability for the
shareholders of the company.
1.

True

2.

False

Accounts payable is the asset created when a company sells services or
products to customers who promise to pay cash in the future.
1.

True

2.

False

An advantage of the corporation is that the shares of the corporation are
easily transferable.
1.

True

2.

False

The monetary unit assumption assumes that all transactions will take place in
Canadian dollars.
1.

True

2.

False


In a proprietorship, there may be 2 or more owners.
1.

True

2.

False

Creditors are an example of an internal user of accounting information.
1.

True

2.

False

A Balance Sheet can also be called a Statement of Financial Position.
1.

True

2.

False

In a situation with an ethical consideration, there is only one ethical course of
action which can be followed.
1.

True

2.

False

The main objective of financial statements is to provide useful information to
management.
1.

True

2.

False

Companies incorporated under provincial legislation report under ASPE and
companies incorporated under federal legislation report under IFRS.
1.

True


2.

False

Profit results when a company’s expenses are higher than its revenues.
1.

True

2.

False

A corporation is only subject to the federal laws of corporations.
1.

True

2.

False

Sometimes Canadian companies will report their results in U.S. dollars.
1.

True

2.

False

One of the disadvantages of a proprietorship is that there is unlimited liability
for the owner.
1.

True

2.

False

Cost value is the amount of the consideration that would be agreed upon in an
arm’s-length transaction between knowledgeable, willing parties who are
under no compulsion to act.
1.

True

2.

False


A balance sheet presents the revenues and expenses, and the resulting profit
or loss for a specific period of time.
1.

True

2.

False

In a partnership, all of the partners will generally have unlimited liability for
the debts of the partnerships.
1.

True

2.

False

Revenues decrease owner’s equity and expenses increase owner’s equity.
1.

True

2.

False

GAAP stands for Generally Accepted Accounting Principles.
1.

True

2.

False

Under the proprietorship form of business organization, no distinction is
made between the business as an economic unit and its owner.
1.

True

2.

False

A balance sheet reports the assets, liabilities, and owner’s equity at a specific
date.
1.

True

2.

False

Liabilities are the resources owned by a business that are expected to provide
future services or benefits.
1.

True

2.

False

A private company is one that issues shares to the public.
1.

True

2.

False

An accounting transaction occurs when assets, liabilities, or owner’s equity
items change as the result of some economic event.
1.

True

2.

False

A partnership must have at least 2 people in the partnership.
1.

True

2.

False


Assets are current obligations, arising from past events, to make a future
payment or to provide services.
1.

True

2.

False

Expenses are the costs of assets that are consumed or services used in the
ordinary business activities.
1.

True

2.

False

Owner’s claims to total business assets take precedence over the claims of
creditors because owners invest assets in the business and are liable for
losses.
1.

True

2.

False

Both IFRS and ASPE are considered “principles-based” as opposed to “rulesbased” standards.
1.

True

2.

False

A corporation may only be formed under the federal legislation.
1.

True

2.

False


Only the accountants should be concerned with ethics when the financial
statements are being prepared.
1.

True

2.

False

A corporation may be formed under either the provincial legislation or the
federal legislation.
1.

True

2.

False

Measurement is the process of determining the amount that should be
recognized.
1.

True

2.

False

A cash flow statement is organized into three categories, operating, financing
and investing activities of the company.
1.

True

2.

False

Employees are an example of an external user.
1.

True

2.

False

Ethics are critical in the preparation of accounting information.
1.

True

2.

False

A corporation’s ownership is divided into transferable shares.
1.

True

2.

False

The cost and fair value of an asset are the same at the time of acquisition and
in all subsequent periods.
1.

True

2.

False

An income statement will give the answer to the question – “where did all the
cash get used during this month?”

1.

True

2.

False


Multiple Choice Questions - Page 1
Generally accepted accounting principles are
1.

a. income tax regulations.

2.

b. standards that indicate how to report economic events.

3.

c. theories that are based on physical laws of the universe.

4.

d. principles that have been proven correct by academic researchers.

The main objective of the financial statements is
1.

a. to show the profit of a company.

2.

b. to allow customers to determine whether a company will honour its product
warranties.

3.

c. to provide useful information to investors and creditors to make decisions about a
business.

4.

d. to determine how many employees the company can afford to hire each year.

The going concern assumption
1.

a. states that a company will not operate long enough to utilize assets and fulfill
obligations.

2.

b. assumes the company will continue to operate in the foreseeable future.

3.

c. is inconsistent with the cost principle.

4.

d. states that net worth is the most appropriate value at which to record assets.


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.

When an owner, in a proprietorship or partnership, withdraws cash or other
assets from a business for personal use, these withdrawals are termed
1.

a. expenses.

2.

b. salary.

3.

c. drawings.

4.

d. a credit line.

The International Accounting Standards Board
1.

a. works to reduce differences in accounting practices across countries.

2.

b. promotes unique accounting applications.

3.

c. works to increase differences in accounting practices across countries.

4.

d. only operates in countries which speak English.

Evan Guanzon owns and operates Guanzon’s Pizza Express. Evan should
record the cost of wages paid to store employees as a (an)
1.

a. revenue.

2.

b. expense.


3.

c. liability.

4.

d. asset.

An external user would NOT include
1.

a. A creditor of the company.

2.

b. Canada Revenue Agency.

3.

c. An employee.

4.

d. The company’s bank.

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.

Which of the following is true when considering the accounting equation?
1.

a. An increase in an asset must always equal a decrease in a liability.

2.

b. For every transaction an asset and a liability must be affected.

3.

c. An increase in a liability must equal a decrease in owner’s equity.

4.

d. An increase in an asset may result in a decrease in another asset.


Mel Green is the proprietor (owner) of Green's, a retailer of athletic apparel.
When recording the financial transactions of Green's, Mel does not record an
entry for a car he purchased for personal use. Mel took out a personal loan to
pay for the car. What accounting assumption guides Mel's behaviour in this
situation?
1.

a. going concern assumption

2.

b. economic entity concept

3.

c. time period assumption

4.

d. monetary unit assumption

Which of the following is NOT an advantage of the corporate form of business

organization?
1.

a. limited liability of shareholders

2.

b. transferability of ownership

3.

c. unlimited personal liability for shareholders

4.

d. unlimited life

Withdrawal of cash from a business by the owner for personal reasons will
NOT affect which financial statement?
1.

a. Balance Sheet

2.

b. Income Statement

3.

c. Statement of Owner’s Equity

4.

d. Cash Flow Statement


An external user could be
1.

a. employees.

2.

b. management.

3.

c. Canada Revenue Agency.

4.

d. the human resource director.

Judy and Marilyn met at law school and decide to start a small law practice
after graduation. They agree to split revenues and expenses evenly. The most
common form of business organization for a business such as this would be
a(n)
1.

a. non profit organization.

2.

b. partnership.

3.

c. corporation.

4.

d. proprietorship.

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. terminates when one of its original shareholders dies.

The basic accounting equation, in a proprietorship, CANNOT be restated as
1.

a. Assets – Liabilities = Owner's Equity.


2.

b. Assets – Owner's Equity = Liabilities.

3.

c. Owner's Equity + Liabilities = Assets.

4.

d. Assets + Liabilities = Owner's Equity.

All of the following are steps used to analyze ethical dilemmas EXCEPT
1.

a. using the organization’s code of ethics to identify ethical situations.

2.

b. using personal ethics to identify ethical situations.

3.

c. identifying potential stakeholders.

4.

d. discussing the ethical dilemma with co-workers.

Revenues would NOT result from
1.

a. sale of merchandise.

2.

b. initial investment of cash by owner.

3.

c. performance of services.

4.

d. rental of property to a tenant.

Emily Hogan recently opened a new business. The business has been very
successful and as a reward for all her hard work Emily spent a day at the local
spa. Emily paid for the spa using a company credit card and charged the
amount to the expense account called Repairs and Maintenance expense.
Emily’s actions violated which of the following?
1.

a. The going concern assumption

2.

b. The monetary unit assumption

3.

c. The cost principle


4.

d. The economic entity concept

Owner's equity is often referred to as
1.

a. residual equity.

2.

b. leftovers.

3.

c. spoils.

4.

d. a second equity.

The accounting equation, for a proprietorship, may be expressed as
1.

a. Assets = Liabilities + Shareholders' Equity.

2.

b. Assets – Liabilities = Partners' Equity.

3.

c. Assets = Liabilities + Owner's Equity.

4.

d. all of these.

An account receivable is recorded in the accounting records as a(n)
1.

a. liability.

2.

b. expense.

3.

c. asset.

4.

d. revenue.

The accounting equation, for a corporation, is best expressed as
1.

a. Assets = Liabilities + Shareholders' Equity.

2.

b. Assets – Liabilities = Partner’s Equity.


3.

c. Assets = Liabilities + Owner's Equity.

4.

d. all of these.

Which of the following would violate the economic entity concept?
1.

a. reporting amounts owed to the company’s suppliers as a liability on the balance
sheet.

2.

b. reporting equipment owned and used in the business as an asset in the balance
sheet.

3.

c. reporting withdrawals by the owner as a drawing in the statement of owner’s equity.

4.

d. reporting the owner’s personal sailboat as an asset on the balance sheet.

Which of the following principles or assumptions requires that the activities of
a business be kept distinct from those of its owner(s)?
1.

a. economic entity concept

2.

b. going concern assumption

3.

c. monetary unit assumption

4.

d. cost principle

Bing Company has total liabilities of $10,000 and total assets of $15,000.
Based on this information, Bing Company’s owner’s equity must be
1.

a. $10,000.

2.

b. $ 0.

3.

c. $5,000.

4.

d. $15,000.


In a proprietorship, owner’s equity is affected by all of the following EXCEPT
1.

a. the investment of cash by the owners.

2.

b. the purchase of a personal automobile by the owner using personal funds.

3.

c. the purchase of a computer for the owner’s son using cash generated by the
business.

4.

d. the sale of goods by the business.

ASPE requires less information on the financial statements of private
companies than IFRS requires because
1.

a. private companies are smaller than public companies.

2.

b. users of private company financial statements have the ability to obtain additional
information from the company if required.

3.

c. public companies have their information available on the internet.

4.

d. public companies may report in different foreign currencies.

Sources of increases to owner's equity, in a proprietorship, are
1.

a. additional investments by owners.

2.

b. purchases of merchandise.

3.

c. withdrawals by the owner.

4.

d. sale of share capital.

Owner's equity, in a proprietorship, is increased by
1.

a. drawings.


2.

b. revenues.

3.

c. expenses.

4.

d. liabilities.

Which of the following forms of business organizations typically have their
shares listed on the Toronto Stock Exchange?
1.

a. Proprietorships

2.

b. Private companies

3.

c. Public companies

4.

d. Partnerships

Which of the following would best be described as an ownership claim on a
company’s assets?
1.

a. expenses

2.

b. account receivable from the owner

3.

c. owner’s equity

4.

d. liabilities

Which of the following is true regarding the corporate form of business
organization?
1.

a. Corporations are the most prevalent form of business organization.

2.

b. Corporate businesses are generally smaller in size than partnerships and proprietorships.


3.

c. The revenues of corporations are greater than the combined revenues of
partnerships and proprietorships.

4.

d. Corporations are separate legal entities organized exclusively under federal law.

Canadian Accounting Standards allow a choice of whether or not to use
International Financial Reporting Standards for which type of company?
1.

a. Public companies

2.

b. Only small private companies

3.

c. Banks

4.

d. All private companies in Canada

The proprietorship form of business organization
1.

a. must have at least three owners in most provinces.

2.

b. represents the largest number of businesses in Canada.

3.

c. combines the records of the business with the personal records of the owner.

4.

d. is characterized by a legal distinction between the business as an economic unit and
the owner.

GAAP stands for
1.

a. Generally Accepted Auditing Procedures.

2.

b. Generally Accepted Accounting Principles.

3.

c. Generally Accepted Auditing Principles.

4.

d. Generally Accepted Accounting Procedures.


Liabilities
1.

a. are future economic benefits.

2.

b. are current or long term obligations arising from past events.

3.

c. possess service potential.

4.

d. are things of value used by the business in its operation.

Which of the following would NOT be considered an internal user of
accounting data for the ABC Company?
1.

a. President of the company

2.

b. Production manager

3.

c. Merchandise inventory clerk

4.

d. President of the employees' labour union

104 Free Test Bank for Accounting Principles 6th
Canadian Edition by Weygandt Multiple Choice
Questions - Page 2
Shareholders' equity, in a corporation, is increased by

1.

a. an expense.

2.

b. shareholder purchase of common shares.

3.

c. payment of dividends.

4.

d. liabilities.


The income statement is prepared from the data in the
1.

a. assets column.

2.

b. liabilities column.

3.

c. owner’s equity column.

4.

d. liabilities and owner’s equity column.

If expenses, in a proprietorship, are paid in cash, then
1.

a. assets will increase.

2.

b. liabilities will decrease.

3.

c. owner's equity will increase.

4.

d. assets will decrease.

A balance sheet, in a proprietorship, shows
1.

a. revenues, liabilities, and owner's equity.

2.

b. expenses, drawings, and owner's equity.

3.

c. revenues, expenses, and drawings.

4.

d. assets, liabilities, and owner's equity.

An Income Statement
1.

a. summarizes the changes in owner's equity for a specific period of time.

2.

b. reports the changes in assets, liabilities, and owner's equity over a period of time.

3.

c. reports the assets, liabilities, and owner's equity at a specific date.


4.

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

Payment of a liability for an expense that has been previously recorded
1.

a. does not affect the owner’s equity account.

2.

b. only affects the liability accounts.

3.

c. does not affect the asset accounts.

4.

d. only affects the asset accounts.

If an individual asset, in a proprietorship, is increased, then
1.

a. there may be an equal decrease in a specific liability.

2.

b. there may be an equal decrease in owner's equity.

3.

c. there may be an equal decrease in another asset.

4.

d. none of these is possible.

The cost principle requires that when assets are acquired, they be recorded at
1.

a. appraisal value.

2.

b. the amount paid.

3.

c. the amount the asset could be sold for.

4.

d. list price.

Which of the following statements is correct in regards to the order of
preparing financial statements?
1.

a. Income statement, Balance sheet, Statement of changes in owner’s equity, Cash
flow statement


2.

b. Balance sheet, Income statement, Cash flow statement, Statement of changes in
owner’s equity

3.

c. Income statement, Statement of changes in owner’s equity, Balance sheet, Cash
flow statement

4.

d. Income statement, Statement of changes in owner’s equity, Cash flow statement,
Balance sheet

If total liabilities increased by $5,000, then
1.

a. assets must have decreased by $5,000.

2.

b. owner's equity must have increased by $5,000.

3.

c. assets must have increased by $5,000, or owner's equity must have decreased by
$5,000.

4.

d. assets and owner's equity each increased by $2,500.

The cost of advertising purchased for the month is considered an expense,
not an asset because

1.

a. the expense will generate future benefits.

2.

b. the advertising will generate future cash inflows.

3.

c. the benefits of the expense have already been used.

4.

d. the expense has not yet been used.

Which of the following transactions would NOT affect Cash?
1.

a. payment to a supplier on account

2.

b. purchase of supplies on account