Test Bank for FinancialAccounting IFRSE
t t t t t t
dition 2nd Edition by Weygandt Kimmel a
t t t t t t
nd Kieso
t
CHAPTER 1 ACCOUNTING
t t
IN ACTION
t t
CHAPTERtLEARNINGtOBJECTIVES
1. Explaintwhattaccountingtis.tAccountingtistantinformationtsystemtthattidentifies,trecords,tandtcom
municatesttheteconomicteventstoftantorganizationttotinterestedtusers.
2. Identifytthetuserstandtusestoftaccounting.tThetmajortuserstandtusestoftaccountingtaretastfollows:t (
a)t Managementt usest accountingt informationt tot plan,t organize,t andt runt thet business.
(b)tInvestorst(owners)tdecidetwhetherttotbuy,thold,tortsellttheirtfinancialtintereststontthetbasistoftac
countingtdata.t(c)tCreditorst(supplierstandtbankers)tevaluatetthetriskstoftgrantingtcredittortlendingt
moneytontthetbasistoftaccountingtinformation.tOthertgroupstthattusetaccountingtinformationtaretta
xingtauthorities,tregulatorytagencies,tcustomers,tlabortunions,tandteconomictplanners.
3. Understandtwhytethicstistatfundamentaltbusinesstconcept.tEthicstaretthetstandardstoftconducttbytw
hichtactionstaretjudgedtastrighttortwrong.tEffectivetfinancialtreportingtdependstontsoundtethicaltbe
havior.
4. Explaintaccountingtstandardstandtthetmeasurementtprinciples.tAccountingtistbasedtontstandard
s,tsuchtastInternationaltFinancialtReportingtStandardst(IFRS).tIFRStgenerallytusestonetofttwotmeas
urementtprinciples,tthethistoricaltcosttprincipletortthetfairtvaluetprinciple.tSelectiontoftwhichtprincip
lettotfollowtgenerallytrelatesttottrade-offstbetweentrelevancetandtfaithfultrepresentation.
5. Explaintthetmonetarytunittassumptiontandttheteconomictentitytassumption.tThetmonetarytunitta
ssumptiontrequirestthattcompaniestincludetintthetaccountingtrecordstonlyttransactiontdatatthattcantb
etexpressedtinttermstoftmoney.tTheteconomictentitytassumptiontrequirestthattthetactivitiestofteacht
economictentitytbetkepttseparatetfromtthetactivitiestoftitstownerstandtotherteconomictentities.
6. Statetthetaccountingtequation,tandtdefinetitstcomponents.tThetbasictaccountingtequationtis:tAsse
tst=tLiabilitiest+tEquity
,1t-t2 TesttBanktfortFinancialtAccounting:tIFRStEdition,t2e
Assetstaretresourcestatbusinesstowns.tLiabilitiestaretcreditors'tclaimst onttotaltassets.t Equitytistthetowner
shiptclaimtonttotaltassets.
Thetexpandedtaccountingtequationtis:tAsse
tst=tLiabilitiest+tSharetCapital—Ordinary
+tRevenuest–tExpensest–tDividends
Sharetcapital—
ordinarytistaffectedtwhentthetcompanytissuestnewtordinarytsharestintexchangetfortcash.tReven
uestaretincreasestintassetstresultingtfromtincometearningtactivities.tExpensestaretthetcoststoftas
setstconsumedtortservicestusedtintthetprocesstoftearningtrevenue.tDividendstaretpaymentstthetc
ompanytmakesttotitstshareholders.
7. Analyzettheteffectstoftbusinessttransactionstontthetaccountingtequation.tEachtbusinessttransacti
ontmustthavetatdualteffecttontthetaccountingtequation.tFortexample,tiftantindividualtassettincreases,
ttheretmusttbetatcorrespondingt(1)tdecreasetintanothertasset,tort(2)tincreasetintatspecifictliability,tort(
3)tincreasetintequity.
8. Understandtthetfourtfinancialtstatementstandthowttheytaretprepared.tAntincometstatementtprese
ntstthetrevenuestandtexpenses,tandtresultingtnettincometortloss,tfortatspecifictperiodtofttime.tAtretai
nedtearningststatementtsummarizestthetchangestintretainedtearningstfortatspecifictperiodtofttime.tAt
statementtoftfinancialtpositiontreportstthetassets,tliabilities,tandtequitytattatspecifictdate.tAtstateme
nttoftcashtflowstsummarizestinformationtabouttthetcashtinflowst(receipts)tandtoutflowst(payments
)tfortatspecifictperiodtofttime.
a
9.tExplaintthetcareertopportunitiestintaccounting.tAccountingtofferstmanytdifferenttjobstintfieldst
suchtastpublictandtprivatetaccounting,tgovernment,tandtforensictaccounting.tAccountingtistatpo
pulartmajortbecausettheretaretmanytdifferentttypestoftjobs,twithtunlimitedtpotentialtfortcareertadv
ancement.
TRUE-FALSEtSTATEMENTS
1. Ownerstoftbusinesstfirmstaretthetonlytpeopletwhotneedtaccountingtinformation.
Ans:t F LO1 BT:t K Difficulty:t Easy
TOT:t .5t min.t AACSB:t ReflectivetThinkingt AICPAtBB:tCriticaltThinkingt AICPAt FN:tRe
porting
2. Transactionstthattcantbetmeasuredtintdollarstandtcentstaretrecordedtintthetfinancialtinformationt
system.
Ans:tTt LO1t BT:tKt Difficulty:tEasyt TOT:t.5tmint AACSB:tReflectivetThinkingt AICPAt BB:tCriticalt
Thinkingt AICPAt FN:tReporting
FortInstructortUsetOnly
, AccountingtintAction 1t-t3
3. Thet hiringt oft at newt companyt presidentt ist ant economict eventt recordedt byt thet financialtinfor
mationtsystem.
Ans:tFtLO1tBT:tCtDifficulty:tEasytTOT:t.5tmintAACSB:tReflectivetThinkingtAICPAtBB:tCriticalt
Thinkingt AICPAt FN:tReporting
4. Managementtoftatbusinesstenterprisetistthetmajortexternaltusertoftinformation.
Ans:t F LO2 BT:tK Difficulty:tEasy TOT:t .5t minttt AACSB:tReflectivetThinking
AICPAtBB:tCriticaltThinkingt AICPAt FN:tReporting
5. Accountingtcommunicatestfinancialtinformationtabouttatbusinesstenterprisettotbothtinternaltan
dtexternaltusers.
Ans:t T LO2 BT:t K Difficulty:t Easy
TOT:t .5tmin.tAACSB:tReflectivetThinkingtAICPAtBB:tCriticaltThinkingt AICPAt FN:tR
eporting
6. Accountingtinformationtistusedtonlytbytexternaltuserstwithtatfinancialtinteresttintatbusinesstente
rprise.
Ans:tFtLO2tBT:tCtDifficulty:tEasytTOT:t.5tmin.tAACSB:tReflectivetThinkingtAICPAtBB:tCriticalt
Thinkingt AICPAt FN:tReporting
7. Financialt statementst aret thet majort meanst oft communicatingt accountingt informationt totint
erestedtparties.
Ans:tTt LO2t BT:tKt Difficulty:tEasyt TOT:t.5tmin.tAACSB:tReflectivetThinkingt AICPAt BB:tCritic
altThinkingt AICPAt FN:tReporting
8. Bookkeepingt andt accountingt aret onet andt thet samet becauset thet bookkeepingt functiontincl
udestthetaccountingtprocess.
Ans:t F LO2 BT:t C Difficulty:t Easy TOT:t .5t min. AACSB:t ReflectivetThinking
AICPAtBB:tCriticaltThinkingt AICPAt FN:tReporting
9. ThetoriginstoftaccountingtaretattributedttotLucatPacioli,tatfamoustmathematician.
Ans:t T LO2 BT:t K Difficulty:t Easy
TOT:t .5tmin.tAACSB:tReflectivetThinkingtAICPAtBB:tCriticaltThinkingt AICPAt FN:tR
eporting
, FortInstructortUsetOnly
t t t t t t
dition 2nd Edition by Weygandt Kimmel a
t t t t t t
nd Kieso
t
CHAPTER 1 ACCOUNTING
t t
IN ACTION
t t
CHAPTERtLEARNINGtOBJECTIVES
1. Explaintwhattaccountingtis.tAccountingtistantinformationtsystemtthattidentifies,trecords,tandtcom
municatesttheteconomicteventstoftantorganizationttotinterestedtusers.
2. Identifytthetuserstandtusestoftaccounting.tThetmajortuserstandtusestoftaccountingtaretastfollows:t (
a)t Managementt usest accountingt informationt tot plan,t organize,t andt runt thet business.
(b)tInvestorst(owners)tdecidetwhetherttotbuy,thold,tortsellttheirtfinancialtintereststontthetbasistoftac
countingtdata.t(c)tCreditorst(supplierstandtbankers)tevaluatetthetriskstoftgrantingtcredittortlendingt
moneytontthetbasistoftaccountingtinformation.tOthertgroupstthattusetaccountingtinformationtaretta
xingtauthorities,tregulatorytagencies,tcustomers,tlabortunions,tandteconomictplanners.
3. Understandtwhytethicstistatfundamentaltbusinesstconcept.tEthicstaretthetstandardstoftconducttbytw
hichtactionstaretjudgedtastrighttortwrong.tEffectivetfinancialtreportingtdependstontsoundtethicaltbe
havior.
4. Explaintaccountingtstandardstandtthetmeasurementtprinciples.tAccountingtistbasedtontstandard
s,tsuchtastInternationaltFinancialtReportingtStandardst(IFRS).tIFRStgenerallytusestonetofttwotmeas
urementtprinciples,tthethistoricaltcosttprincipletortthetfairtvaluetprinciple.tSelectiontoftwhichtprincip
lettotfollowtgenerallytrelatesttottrade-offstbetweentrelevancetandtfaithfultrepresentation.
5. Explaintthetmonetarytunittassumptiontandttheteconomictentitytassumption.tThetmonetarytunitta
ssumptiontrequirestthattcompaniestincludetintthetaccountingtrecordstonlyttransactiontdatatthattcantb
etexpressedtinttermstoftmoney.tTheteconomictentitytassumptiontrequirestthattthetactivitiestofteacht
economictentitytbetkepttseparatetfromtthetactivitiestoftitstownerstandtotherteconomictentities.
6. Statetthetaccountingtequation,tandtdefinetitstcomponents.tThetbasictaccountingtequationtis:tAsse
tst=tLiabilitiest+tEquity
,1t-t2 TesttBanktfortFinancialtAccounting:tIFRStEdition,t2e
Assetstaretresourcestatbusinesstowns.tLiabilitiestaretcreditors'tclaimst onttotaltassets.t Equitytistthetowner
shiptclaimtonttotaltassets.
Thetexpandedtaccountingtequationtis:tAsse
tst=tLiabilitiest+tSharetCapital—Ordinary
+tRevenuest–tExpensest–tDividends
Sharetcapital—
ordinarytistaffectedtwhentthetcompanytissuestnewtordinarytsharestintexchangetfortcash.tReven
uestaretincreasestintassetstresultingtfromtincometearningtactivities.tExpensestaretthetcoststoftas
setstconsumedtortservicestusedtintthetprocesstoftearningtrevenue.tDividendstaretpaymentstthetc
ompanytmakesttotitstshareholders.
7. Analyzettheteffectstoftbusinessttransactionstontthetaccountingtequation.tEachtbusinessttransacti
ontmustthavetatdualteffecttontthetaccountingtequation.tFortexample,tiftantindividualtassettincreases,
ttheretmusttbetatcorrespondingt(1)tdecreasetintanothertasset,tort(2)tincreasetintatspecifictliability,tort(
3)tincreasetintequity.
8. Understandtthetfourtfinancialtstatementstandthowttheytaretprepared.tAntincometstatementtprese
ntstthetrevenuestandtexpenses,tandtresultingtnettincometortloss,tfortatspecifictperiodtofttime.tAtretai
nedtearningststatementtsummarizestthetchangestintretainedtearningstfortatspecifictperiodtofttime.tAt
statementtoftfinancialtpositiontreportstthetassets,tliabilities,tandtequitytattatspecifictdate.tAtstateme
nttoftcashtflowstsummarizestinformationtabouttthetcashtinflowst(receipts)tandtoutflowst(payments
)tfortatspecifictperiodtofttime.
a
9.tExplaintthetcareertopportunitiestintaccounting.tAccountingtofferstmanytdifferenttjobstintfieldst
suchtastpublictandtprivatetaccounting,tgovernment,tandtforensictaccounting.tAccountingtistatpo
pulartmajortbecausettheretaretmanytdifferentttypestoftjobs,twithtunlimitedtpotentialtfortcareertadv
ancement.
TRUE-FALSEtSTATEMENTS
1. Ownerstoftbusinesstfirmstaretthetonlytpeopletwhotneedtaccountingtinformation.
Ans:t F LO1 BT:t K Difficulty:t Easy
TOT:t .5t min.t AACSB:t ReflectivetThinkingt AICPAtBB:tCriticaltThinkingt AICPAt FN:tRe
porting
2. Transactionstthattcantbetmeasuredtintdollarstandtcentstaretrecordedtintthetfinancialtinformationt
system.
Ans:tTt LO1t BT:tKt Difficulty:tEasyt TOT:t.5tmint AACSB:tReflectivetThinkingt AICPAt BB:tCriticalt
Thinkingt AICPAt FN:tReporting
FortInstructortUsetOnly
, AccountingtintAction 1t-t3
3. Thet hiringt oft at newt companyt presidentt ist ant economict eventt recordedt byt thet financialtinfor
mationtsystem.
Ans:tFtLO1tBT:tCtDifficulty:tEasytTOT:t.5tmintAACSB:tReflectivetThinkingtAICPAtBB:tCriticalt
Thinkingt AICPAt FN:tReporting
4. Managementtoftatbusinesstenterprisetistthetmajortexternaltusertoftinformation.
Ans:t F LO2 BT:tK Difficulty:tEasy TOT:t .5t minttt AACSB:tReflectivetThinking
AICPAtBB:tCriticaltThinkingt AICPAt FN:tReporting
5. Accountingtcommunicatestfinancialtinformationtabouttatbusinesstenterprisettotbothtinternaltan
dtexternaltusers.
Ans:t T LO2 BT:t K Difficulty:t Easy
TOT:t .5tmin.tAACSB:tReflectivetThinkingtAICPAtBB:tCriticaltThinkingt AICPAt FN:tR
eporting
6. Accountingtinformationtistusedtonlytbytexternaltuserstwithtatfinancialtinteresttintatbusinesstente
rprise.
Ans:tFtLO2tBT:tCtDifficulty:tEasytTOT:t.5tmin.tAACSB:tReflectivetThinkingtAICPAtBB:tCriticalt
Thinkingt AICPAt FN:tReporting
7. Financialt statementst aret thet majort meanst oft communicatingt accountingt informationt totint
erestedtparties.
Ans:tTt LO2t BT:tKt Difficulty:tEasyt TOT:t.5tmin.tAACSB:tReflectivetThinkingt AICPAt BB:tCritic
altThinkingt AICPAt FN:tReporting
8. Bookkeepingt andt accountingt aret onet andt thet samet becauset thet bookkeepingt functiontincl
udestthetaccountingtprocess.
Ans:t F LO2 BT:t C Difficulty:t Easy TOT:t .5t min. AACSB:t ReflectivetThinking
AICPAtBB:tCriticaltThinkingt AICPAt FN:tReporting
9. ThetoriginstoftaccountingtaretattributedttotLucatPacioli,tatfamoustmathematician.
Ans:t T LO2 BT:t K Difficulty:t Easy
TOT:t .5tmin.tAACSB:tReflectivetThinkingtAICPAtBB:tCriticaltThinkingt AICPAt FN:tR
eporting
, FortInstructortUsetOnly
