153 Test Bank for Accounting Principles 6th Canadian Edition

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(1)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) 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

(3) 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

(4) 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

(5) 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

(6) 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 “rules-based” 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

(7) 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

(8) 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.

(9) 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.

(10) 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.

(11) 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

(12) 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.

(13) 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.

(14) 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

(15) 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.

(16) 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.

(17) 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.

(18) Which of the following transactions would NOT affect Cash? 1. a. payment to a supplier on account 2. b. purchase of supplies on account 3. c. payment of salaries for the week 4. d. prepaying an insurance premium Two or more items could be affected by a transaction. Which of the following statements is INCORRECT? 1. a. An increase in an asset may result in a decrease in another asset. 2. b. An increase in an asset may result in a decrease in an asset and increase in a liability. 3. c. An increase in a liability may result in a decrease in an asset. 4. d. An increase in a liability may result in a decrease in owner’s equity. Owner's equity, in a proprietorship, is decreased by 1. a. assets. 2. b. revenues. 3. c. expenses. 4. d. liabilities. Which of the following would NOT affect owner’s equity? 1. a. a cash receipt from a customer in payment of account 2. b. payment of an expense 3. c. services provided for cash 4. d. withdrawal of funds for personal use The primary purpose of the Cash Flow Statement is to report 1. a. a company's investing transactions. 2. b. a company's financing transactions. 3. c. information about cash inflows and cash outflows of a company. 4. d. the net increase or decrease in cash. The Income Statement is sometimes referred to as 1. a. a Statement of Earnings.

(19) 2. b. the Statement of Financial Position. 3. c. the Cash Flow Statement. 4. d. the Statement of Owner's Equity. Jackson's Small Engine Repair Shop, a proprietorship, started the year with total assets of $60,000 and total liabilities of $40,000. During the year, the business recorded $100,000 in repair revenues, $55,000 in expenses, and Mike Jackson, the owner, withdrew $10,000. Jackson's Capital balance changed by what amount from the beginning of the year to the end of the year? 1. a. $10,000. 2. b. $45,000. 3. c. $20,000. 4. d. $35,000. If supplies that have been purchased are used in the course of business, then 1. a. a liability will increase. 2. b. an asset will increase. 3. c. owner's equity will decrease. 4. d. owner's equity will increase. Expenses do not have to be paid in cash at the time they are incurred. When payment is made on the later date, the liability accounts payable account will decrease and the asset 1. a. cash will increase. 2. b. cash will decrease. 3. c. will not be affected. 4. d. accounts receivable will increase. Which of the following groups uses accounting information primarily to ensure the entity is operating within prescribed rules? 1. a) creditors 2. b) Regulatory agencies 3. c) Labour unions 4. d) Management

(20) Profit results when 1. a. Assets > Liabilities. 2. b. Revenues = Expenses. 3. c. Revenues > Expenses. 4. d. Revenues < Expenses. Which of the following is an example of an economic event that should be recorded as an accounting transaction? 1. a. the purchase of supplies 2. b. the signing of a contract to build a new corporate headquarters 3. c. the appointment of a new Chief Executive Officer 4. d. the launch of a new marketing strategy The heading of a balance sheet must identify the 1. a. company, statement and time period. 2. b. statement and date. 3. c. company, statement and date. 4. d. company and date. Jackson's Small Engine Repair Shop, a proprietorship, started the year with total assets of $60,000 and total liabilities of $40,000. During the year, the business recorded $100,000 in repair revenues, $55,000 in expenses, and Mike Jackson, the owner, withdrew $10,000. Jackson's Capital balance at the end of the year was 1. a. $55,000. 2. b. $35,000. 3. c. $65,000. 4. d. $45,000. If an owner makes a withdrawal of cash from a proprietorship, then 1. a. there has been a violation of accounting principles. 2. b. assets will decrease and owner's equity will increase. 3. c. assets will decrease and owner's equity will decrease. 4. d. assets will decrease and liabilities will increase.

(21) Owner's equity, in a proprietorship, at the end of the period is equal to 1. a. owner's capital at the beginning of the period plus profit minus liabilities. 2. b. owner's capital at the beginning of the period plus profit minus drawings. 3. c. profit. 4. d. assets plus liabilities. External users of accounting information include all of the following except: 1. a) tax authorities. 2. b) creditors. 3. c) the chief financial officer. 4. d) regulatory authorities. Jackson's Small Engine Repair Shop, a proprietorship, started the year with total assets of $60,000 and total liabilities of $40,000. During the year, the business recorded $100,000 in repair revenues, $55,000 in expenses, and Mike Jackson, the owner, withdrew $10,000. The profit reported by Jackson's Small Engine Repair Shop for the year was 1. a. $35,000. 2. b. $45,000. 3. c. $20,000. 4. d. $90,000. Ingrid Ltd and Bulgar Equipment rentals company sign a contract to rent equipment in the next two years. What is the impact on the accounting equation? 1. a. Assets increase and liabilities increase. 2. b. Assets decrease and liabilities decrease. 3. c. No impact on the accounting equation. 4. d. Owner’s equity increases and assets decrease. If the owner's equity account increases from the beginning of the year to the end of the year, the best explanation for this change is 1. a. profit is less than owner drawings. 2. b. a loss is less than owner drawings. 3. c. additional owner investments are less than a loss. 4. d. profit is greater than owner drawings.

(22) Which of the following accounts would NOT be found on the Balance Sheet? 1. a. Cash 2. b. Drawings 3. c. Equipment 4. d. Accounts Payable. Revenues, in a proprietorship, are 1. a. the cost of assets consumed during the period. 2. b. the gross increases in owner's equity resulting from business activities. 3. c. the cost of services used during the period. 4. d. actual or expected cash outflows. The income statement is always prepared first in order to determine 1. a. the total assets to be reported on the balance sheet. 2. b. the cash outflow of the company. 3. c. the profit or loss used in the statement of changes in owner’s equity. 4. d. the amount of investments or withdrawals used in the statement of changes in owner’s equity. Shareholders' equity, in a corporation, at the end of the period is equal to 1. a. shareholders' equity at the beginning of the period plus profit minus liabilities. 2. b. share capital plus retained earnings. 3. c. share capital plus dividends. 4. d. share capital plus this year's profit. A basic assumption of accounting assumes that the dollar is 1. a. unrelated to business transactions. 2. b. a poor measure of economic activities. 3. c. the common unit of measure for all business transactions. 4. d. useless in measuring an economic event.

(23) If a company reported a loss in the first month of operations, the loss would reduce owner’s capital and would be 1. a. added in the same section as owner’s investments. 2. b. deducted in the same section as owner’s investments. 3. c. deducted in the same section as owner’s drawings. 4. d. added in the same section as owner’s drawings. If services are provided for credit, in a proprietorship, then 1. a. assets will decrease. 2. b. liabilities will increase. 3. c. owner's equity will increase. 4. d. liabilities will decrease. An investment by a company’s owner increases a company’s cash and 1. a. reduces its liabilities. 2. b. reduces a company’s total assets. 3. c. increases owner’s equity. 4. d. increases the company’s net earnings in the year in which the investment is made. Collection of a $600 Accounts Receivable 1. a. increases an asset $600; decreases an asset $600. 2. b. increases an asset $600; decreases a liability $600. 3. c. decreases a liability $600; increases owner's equity $600. 4. d. decreases an asset $600; decreases a liability $600. Partners' equity, in a partnership, is decreased by 1. a. payment of dividends. 2. b. drawings. 3. c. owner's investments. 4. d. revenues. Recognition in the accounting terminology means 1. a. recognizing the difference between assets and liabilities.

(24) 2. b. recognizing the difference between income and expenses. 3. c. recognizing that initially transactions are recorded at fair value. 4. d. the process of recording a transaction in the accounting records. 104 Free Test Bank for Accounting Principles 6th Canadian Edition by Weygandt Multiple Choice Questions - Page 3 A business organized with two or more owners and unlimited liability is a: 1. a) proprietorship. 2. b) partnership. 3. c) corporation. 4. d) all of the above can be organized as a separate legal entity. The accounting equation can be stated as: 1. a) Assets = Liabilities + Owner’s Equity 2. b) Owner’s Equity = Assets – Liabilities 3. c) Liabilities = Assets – Owner’s Equity 4. d) all of the above. Which accounting assumption assumes that a company will continued in operation long enough to carry out its existing objectives and commitments? 1. a) Going concern assumption 2. b) Monetary unit assumption 3. c) Economic entity concept 4. d) Historical cost principle If company purchases a building for $270,000. The company pays $70,000 cash and the remainder on credit. The impact on the accounting equation will be: 1. a) Total assets will increase by $270,000. 2. b) Total assets will increase by $200,000. 3. c) Total assets will decrease by $70,000 4. d) Total liabilities will decrease by $70,000.

(25) If total liabilities decrease by $14,000 during a period of time and owner’s equity increased by $6,000 during the same period, then total assets will change as follows during that same period: 1. a) $20,000 increase 2. b) $20,000 decrease. 3. c) $8,000 increase. 4. d) $8,000 decrease The balance sheet 1. a) reports the assets, liabilities, and owner’s equity at a specific date. 2. b) summarizes the changes in owner’s equity for a specific period of time. 3. c) reports the changes in assets, liabilities and owner’s equity at a specific date. 4. d) summarizes the revenues and expenses for a specific period of time. A company has liabilities of $300,000. The balance in the owner’s capital account is $100,000; in drawings $50,000; revenues $400,000; and expenses $370,000. What are the company’s total assets? 1. a) $350,000 2. b) $400,000 3. c) $380,000 4. d) $330,000 Private companies must use: 1. a) International Financial Reporting Standards only. 2. b) Accounting Standards for Private Enterprises. 3. c) both methods, choosing principles from either method based on their needs. 4. d) one method and report the method used on their financial statements. The obligations of an organization as a result of past events are called: 1. a) revenues. 2. b) assets. 3. c) liabilities. 4. d) owner’s equity.

(26) The statement of owner’s equity is dependent on the results of: 1. a) the income statement. 2. b) the balance sheet. 3. c) the income statement and balance sheet. 4. d) the cash flow statement. The proprietorship form of business organization 1. a) must have at least two owners in most provinces. 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 main objective of financial reporting is: 1. a) to provide useful information to investors and creditors to make decisions about a business 2. b) to provide useful information for generating revenue for external users. 3. c) to provide useful information to management can ensure the continued success of the company. 4. d) to provide useful information that is useful for internal users. An investment of cash by the owner increases: 1. a) revenues. 2. b) liabilities. 3. c) expenses. 4. d) assets. Generally accepted accounting principles: 1. a) never change so as to ensure consistency for external decision making. 2. b) change over time so as to ensure useful information is provided to investors and creditors. 3. c) are changed by the AcSB without input from the organizations and individuals affected. 4. d) have not changed in over 20 years and are unlikely to change in the near future.

(27) The balance sheet and the statement of owner’s equity are related because 1. a) the ending amount on the balance sheet is reported on the statement of owner’s equity. 2. b) the ending amount on the statement of owner’s equity is reported on the balance sheet. 3. c) the ending amount on each statement is reported on the cash flow statement. 4. d) the ending amount on each statement is reported on the income statement. Essential parts of the financial statements include: 1. a) the explanatory notes. 2. b) supporting schedules. 3. c) the company’s mission and goals. 4. d) both the explanatory notes and supporting schedules. A company signs a contract to rent company cars. The accounting equation will change as follows: 1. a) both the left and the right side will change. 2. b) both the left and the right side will remain the same. 3. c) only the left side will change. 4. d) only the right side will change. The primary purpose of a cash flow statement is to report: 1. a) the financing activities of a company over a specific period of time. 2. b) the operating activates of a company over a specific period of time. 3. c) the cash inflows and cash outflows by a company over a specific period of time. 4. d) the net change in cash over a specific period of time. Combining the economic record keeping of three separate businesses would violate the: 1. a) cost principle. 2. b) economic entity concept. 3. c) monetary unit assumption. 4. d) going concern assumption.

(28) The statement that is always completed first is: 1. a) the income statement. 2. b) the balance sheet. 3. c) the statement of owner’s equity. 4. d) the cash flow statement. A company purchases supplies on credit. The accounting equation will change as follows: 1. a) both the left and the right side will change. 2. b) both the left and the right side will remain the same. 3. c) only the left side will change. 4. d) only the right side will change. Generally accepted accounting principles include 1. a) specific rules, and procedures. 2. b) broad principles and practices. 3. c) standards for reporting economic events. 4. d) all of these. Expenses results when: 1. a) a business consumes goods and services for its business activities.. 2. b) an owner withdraws cash for personal use. 3. c) cash exceeds liabilities . 4. d) assets exceed liabilities.

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