Accounting, Vol. 1, Cdn. 10e (Horngren)
Chapter 1 Accounting and the Business Environment
Objective 1-1
1) Financial statements provide information about business activities to decision makers.
Answer: TRUE
Diff: 1 Type: TF
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
2) Investors provide money to a business to begin operations.
Answer: TRUE
Diff: 2 Type: TF
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
3) Not-for-profit organizations need accounting information, as do profit-oriented organizations.
Answer: TRUE
Diff: 1 Type: TF
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
4) The designation CPA stands for Certified Public Accountant.
Answer: FALSE
Diff: 1 Type: TF
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
5) Rules of professional conduct for accountants apply to accountants working in public practice but not
for accountants employed by companies.
Answer: FALSE
Diff: 2 Type: TF
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
1
Copyright © 2017 Pearson Canada Inc.
,6) Some rules of conduct apply to accountants in public practice and not to those employed in industry.
Answer: TRUE
Diff: 2 Type: TF
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
7) Audits are conducted by accountants internal to the organization so that the users of the financial
information can have confidence in the accuracy of the financial reporting.
Answer: FALSE
Diff: 2 Type: TF
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
8) Which of the following users of accounting information seek to assess the organization's ability to
make scheduled payments?
A) creditors
B) taxing authorities
C) government regulatory agencies
D) employees
Answer: A
Diff: 2 Type: MC
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
9) The primary objective of financial reporting is to provide information:
A) to the federal government.
B) about the profitability of the business.
C) regarding the cash flows of the business.
D) useful for making investment decisions and for assessing management's stewardship.
Answer: D
Diff: 3 Type: MC
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
2
Copyright © 2017 Pearson Canada Inc.
,10) Which of the following statements best describes managerial accounting?
A) Managerial accounting focuses on information for internal decision making.
B) Managerial accounting focuses on outside investors and lenders.
C) Managerial accounting provides information for the public.
D) Managerial accounting provides information for taxing authorities.
Answer: A
Diff: 1 Type: MC
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
11) Which of the following is not addressed by rules of professional conduct?
A) competence
B) confidentiality
C) number of clients
D) compliance with professional standards
Answer: C
Diff: 2 Type: MC
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
12) The provincial securities commissions oversee operations of:
A) all publicly accountable enterprises.
B) banks and other federally constituted financial institutions.
C) large investors from foreign counties.
D) companies with publicly traded stock.
Answer: D
Diff: 3 Type: MC
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
13) Audits conducted by external accountants express an opinion:
A) that evaluates the effectiveness of management.
B) that taxing authorities use to ensure that the correct of amount of tax owing has been calculated.
C) that gives investors confidence their investment is not at risk.
D) on whether or not the financial statements fairly reflect the economic events that occurred during the
accounting period.
Answer: D
Diff: 1 Type: MC
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
3
Copyright © 2017 Pearson Canada Inc.
, 14) Rules of professional conduct for accountants should:
A) be considered a minimum standard of performance.
B) not be seen as strict when the client requests certain requirements.
C) be the same as those for lawyers or engineers.
D) clearly spell out right from wrong in every situation.
Answer: A
Diff: 1 Type: MC
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
15) Describe the three forms of organizations and how they differ.
Answer: A proprietorship has a single owner whereas a partnership has two or more individuals
together as co-owners. In both of these forms of organization, the owners are individually liable for the
debts of the business. A corporation is a business owned by shareholders, who may or may not have a
part in the day-to-day operations of the business. The shareholders of a corporation are not legally liable
for the debts of the business, and it is easier to transfer the ownership of a corporation than a
proprietorship or partnership.
Diff: 2 Type: ES
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Understand
16) Why is it in the interest of a corporation for management to behave ethically?
Answer: Since the financial health of a company is important to many different groups of users, these
users must be confident that they can rely on the financial information they are given when they are
making decisions. If the various stakeholders lose confidence then they will end their relationship with
the company: shareholders may sell their investments or vote to replace the Board; lenders may stop
lending or raise interest rates charged; regulators may impose fines or delist the company's stock from the
exchange; employees may leave their positions.
Diff: 3 Type: ES
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Understand
4
Copyright © 2017 Pearson Canada Inc.
Chapter 1 Accounting and the Business Environment
Objective 1-1
1) Financial statements provide information about business activities to decision makers.
Answer: TRUE
Diff: 1 Type: TF
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
2) Investors provide money to a business to begin operations.
Answer: TRUE
Diff: 2 Type: TF
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
3) Not-for-profit organizations need accounting information, as do profit-oriented organizations.
Answer: TRUE
Diff: 1 Type: TF
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
4) The designation CPA stands for Certified Public Accountant.
Answer: FALSE
Diff: 1 Type: TF
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
5) Rules of professional conduct for accountants apply to accountants working in public practice but not
for accountants employed by companies.
Answer: FALSE
Diff: 2 Type: TF
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
1
Copyright © 2017 Pearson Canada Inc.
,6) Some rules of conduct apply to accountants in public practice and not to those employed in industry.
Answer: TRUE
Diff: 2 Type: TF
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
7) Audits are conducted by accountants internal to the organization so that the users of the financial
information can have confidence in the accuracy of the financial reporting.
Answer: FALSE
Diff: 2 Type: TF
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
8) Which of the following users of accounting information seek to assess the organization's ability to
make scheduled payments?
A) creditors
B) taxing authorities
C) government regulatory agencies
D) employees
Answer: A
Diff: 2 Type: MC
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
9) The primary objective of financial reporting is to provide information:
A) to the federal government.
B) about the profitability of the business.
C) regarding the cash flows of the business.
D) useful for making investment decisions and for assessing management's stewardship.
Answer: D
Diff: 3 Type: MC
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
2
Copyright © 2017 Pearson Canada Inc.
,10) Which of the following statements best describes managerial accounting?
A) Managerial accounting focuses on information for internal decision making.
B) Managerial accounting focuses on outside investors and lenders.
C) Managerial accounting provides information for the public.
D) Managerial accounting provides information for taxing authorities.
Answer: A
Diff: 1 Type: MC
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
11) Which of the following is not addressed by rules of professional conduct?
A) competence
B) confidentiality
C) number of clients
D) compliance with professional standards
Answer: C
Diff: 2 Type: MC
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
12) The provincial securities commissions oversee operations of:
A) all publicly accountable enterprises.
B) banks and other federally constituted financial institutions.
C) large investors from foreign counties.
D) companies with publicly traded stock.
Answer: D
Diff: 3 Type: MC
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
13) Audits conducted by external accountants express an opinion:
A) that evaluates the effectiveness of management.
B) that taxing authorities use to ensure that the correct of amount of tax owing has been calculated.
C) that gives investors confidence their investment is not at risk.
D) on whether or not the financial statements fairly reflect the economic events that occurred during the
accounting period.
Answer: D
Diff: 1 Type: MC
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
3
Copyright © 2017 Pearson Canada Inc.
, 14) Rules of professional conduct for accountants should:
A) be considered a minimum standard of performance.
B) not be seen as strict when the client requests certain requirements.
C) be the same as those for lawyers or engineers.
D) clearly spell out right from wrong in every situation.
Answer: A
Diff: 1 Type: MC
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Remember
15) Describe the three forms of organizations and how they differ.
Answer: A proprietorship has a single owner whereas a partnership has two or more individuals
together as co-owners. In both of these forms of organization, the owners are individually liable for the
debts of the business. A corporation is a business owned by shareholders, who may or may not have a
part in the day-to-day operations of the business. The shareholders of a corporation are not legally liable
for the debts of the business, and it is easier to transfer the ownership of a corporation than a
proprietorship or partnership.
Diff: 2 Type: ES
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Understand
16) Why is it in the interest of a corporation for management to behave ethically?
Answer: Since the financial health of a company is important to many different groups of users, these
users must be confident that they can rely on the financial information they are given when they are
making decisions. If the various stakeholders lose confidence then they will end their relationship with
the company: shareholders may sell their investments or vote to replace the Board; lenders may stop
lending or raise interest rates charged; regulators may impose fines or delist the company's stock from the
exchange; employees may leave their positions.
Diff: 3 Type: ES
CPA Competency: 1.2.2 Evaluates treatment for routine transactions
Objective: 1-1 Define accounting, and describe the users of accounting information
Knowledge Taxon.: Factual
Cognitive Taxon.: Understand
4
Copyright © 2017 Pearson Canada Inc.
