Test Bank for Financial Accounting IFRS E
n n n n n n
dition 2nd Edition by Weygandt Kimmel a
n n n n n n
nd Kieso
n
CHAPTER 1 ACCOUNTIN
n n
G IN ACTION
n n
CHAPTERnLEARNINGnOBJECTIVES
1. Explainnwhatnaccountingnis.nAccountingnisnanninformationnsystemnthatnidentifies,nrecords,nandnc
ommunicatesntheneconomicneventsnofnannorganizationntoninterestednusers.
2. Identifynthenusersnandnusesnofnaccounting.nThenmajornusersnandnusesnofnaccountingnarenasnfollo
ws:n(a)nManagementnusesnaccountingninformationntonplan,norganize,nandnrunnthenbusiness.
(b)nInvestorsn(owners)ndecidenwhetherntonbuy,nhold,nornsellntheirnfinancialninterestsnonnthenbasisno
fnaccountingndata.n(c)nCreditorsn(suppliersnandnbankers)nevaluatenthenrisksnofngrantingncreditnornle
ndingnmoneynonnthenbasisnofnaccountingninformation.nOtherngroupsnthatnusenaccountingninformat
ionnarentaxingnauthorities,nregulatorynagencies,ncustomers,nlabornunions,nandneconomicnplanners.
3. Understandnwhynethicsnisnanfundamentalnbusinessnconcept.nEthicsnarenthenstandardsnofnconductn
bynwhichnactionsnarenjudgednasnrightnornwrong.nEffectivenfinancialnreportingndependsnonnsoundnet
hicalnbehavior.
4. Explainnaccountingnstandardsnandnthenmeasurementnprinciples.nAccountingnisnbasednonnstand
ards,nsuchnasnInternationalnFinancialnReportingnStandardsn(IFRS).nIFRSngenerallynusesnonenofntwo
nmeasurementnprinciples,nthenhistoricalncostnprinciplenornthenfairnvaluenprinciple.nSelectionnofnwhic
hnprinciplentonfollowngenerallynrelatesntontrade-
offsnbetweennrelevancenandnfaithfulnrepresentation.
5. Explainnthenmonetarynunitnassumptionnandntheneconomicnentitynassumption.nThenmonetarynun
itnassumptionnrequiresnthatncompaniesnincludeninnthenaccountingnrecordsnonlyntransactionndatantha
tncannbenexpressedninntermsnofnmoney.nTheneconomicnentitynassumptionnrequiresnthatnthenactivitie
snofneachneconomicnentitynbenkeptnseparatenfromnthenactivitiesnofnitsnownersnandnotherneconomicne
ntities.
6. Statenthenaccountingnequation,nandndefinenitsncomponents.nThenbasicnaccountingnequationnis:n
Assetsn=nLiabilitiesn+nEquity
,1n-n2 TestnBanknfornFinancialnAccounting:nIFRSnEdition,n2e
Assetsnarenresourcesnanbusinessnowns.nLiabilitiesnarencreditors'nclaimsnonntotalnassets.nEquitynisntheno
wnershipnclaimnonntotalnassets.
Thenexpandednaccountingnequationnis:nAsset
sn=nLiabilitiesn+nSharenCapital—Ordinary
+nRevenuesn–nExpensesn–nDividends
Sharencapital—
ordinarynisnaffectednwhennthencompanynissuesnnewnordinarynsharesninnexchangenforncash.nRe
venuesnarenincreasesninnassetsnresultingnfromnincomenearningnactivities.nExpensesnarenthencos
tsnofnassetsnconsumednornservicesnusedninnthenprocessnofnearningnrevenue.nDividendsnarenpay
mentsnthencompanynmakesntonitsnshareholders.
7. Analyzentheneffectsnofnbusinessntransactionsnonnthenaccountingnequation.nEachnbusinessntransa
ctionnmustnhavenandualneffectnonnthenaccountingnequation.nFornexample,nifnannindividualnassetninc
reases,ntherenmustnbenancorrespondingn(1)ndecreaseninnanothernasset,norn(2)nincreaseninnanspecificnli
ability,norn(3)nincreaseninnequity.
8. Understandnthenfournfinancialnstatementsnandnhowntheynarenprepared.nAnnincomenstatementnp
resentsnthenrevenuesnandnexpenses,nandnresultingnnetnincomenornloss,nfornanspecificnperiodnofntime
.nAnretainednearningsnstatementnsummarizesnthenchangesninnretainednearningsnfornanspecificnperio
dnofntime.nAnstatementnofnfinancialnpositionnreportsnthenassets,nliabilities,nandnequitynatnanspecificn
date.nAnstatementnofncashnflowsnsummarizesninformationnaboutnthencashninflowsn(receipts)nandno
utflowsn(payments)nfornanspecificnperiodnofntime.
a
9.nExplainnthencareernopportunitiesninnaccounting.nAccountingnoffersnmanyndifferentnjobsninnfiel
dsnsuchnasnpublicnandnprivatenaccounting,ngovernment,nandnforensicnaccounting.nAccountingnis
nanpopularnmajornbecausentherenarenmanyndifferentntypesnofnjobs,nwithnunlimitednpotentialnfornca
reernadvancement.
TRUE-FALSEnSTATEMENTS
1. Ownersnofnbusinessnfirmsnarenthenonlynpeoplenwhonneednaccountingninformation.
Ans:nF LO1 BT:nK Difficulty:nEasy
TOT:n.5nmin.n AACSB:nReflectivenThinkingn AICPAnBB:nCriticalnThinkingn AICPAn FN
:nReporting
2. Transactionsn thatn cann ben measuredn inn dollarsn andn centsn aren recordedn inn then financialn inf
ormationnsystem.
Ans:nTn LO1n BT:nKn Difficulty:nEasyn TOT:n.5nminn AACSB:nReflectivenThinkingn AICPAn BB:nC
riticalnThinkingn AICPAn FN:nReporting
FornInstructornUsenOnly
, AccountingninnAction 1n-n3
3. Then hiringn ofn an newn companyn presidentn isn ann economicn eventn recordedn byn then financialni
nformationnsystem.
Ans:nFn LO1n BT:nCn Difficulty:nEasyn TOT:n.5nminn AACSB:nReflectivenThinkingn AICPAn BB:nC
riticalnThinkingn AICPAn FN:nReporting
4. Managementnofnanbusinessnenterprisenisnthenmajornexternalnusernofninformation.
Ans:nF LO2 BT:nK Difficulty:nEasy TOT:n.5nminn AACSB:nReflectivenThinking
AICPAnBB:nCriticalnThinkingn AICPAn FN:nReporting
5. Accountingncommunicatesnfinancialninformationnaboutnanbusinessnenterprisentonbothninternaln
andnexternalnusers.
Ans:nT LO2 BT:nK Difficulty:nEasy
TOT:n.5nmin.n AACSB:nReflectivenThinkingn AICPAnBB:nCriticalnThinkingn AICPAn FN
:nReporting
6. Accountingninformationnisnusednonlynbynexternalnusersnwithnanfinancialninterestninnanbusinessne
nterprise.
Ans:nFn LO2n BT:nCn Difficulty:nEasyn TOT:n.5nmin.n AACSB:nReflectivenThinkingn AICPAn BB:nC
riticalnThinkingn AICPAn FN:nReporting
7. Financialn statementsn aren then majorn meansn ofn communicatingn accountingn informationn toni
nterestednparties.
Ans:nTn LO2n BT:nKn Difficulty:nEasyn TOT:n.5nmin.nAACSB:nReflectivenThinkingn AICPAn BB:nC
riticalnThinkingn AICPAn FN:nReporting
8. Bookkeepingn andn accountingn aren onen andn then samen becausen then bookkeepingn functionnin
cludesnthenaccountingnprocess.
Ans:nF LO2 BT:nC Difficulty:nEasy TOT:n.5nmin. AACSB:nReflectivenThinking
AICPAnBB:nCriticalnThinkingn AICPAn FN:nReporting
9. ThenoriginsnofnaccountingnarenattributedntonLucanPacioli,nanfamousnmathematician.
Ans:nT LO2 BT:nK Difficulty:nEasy
TOT:n.5nmin.n AACSB:nReflectivenThinkingn AICPAnBB:nCriticalnThinkingn AICPAn FN
:nReporting
, FornInstructornUsenOnly
n n n n n n
dition 2nd Edition by Weygandt Kimmel a
n n n n n n
nd Kieso
n
CHAPTER 1 ACCOUNTIN
n n
G IN ACTION
n n
CHAPTERnLEARNINGnOBJECTIVES
1. Explainnwhatnaccountingnis.nAccountingnisnanninformationnsystemnthatnidentifies,nrecords,nandnc
ommunicatesntheneconomicneventsnofnannorganizationntoninterestednusers.
2. Identifynthenusersnandnusesnofnaccounting.nThenmajornusersnandnusesnofnaccountingnarenasnfollo
ws:n(a)nManagementnusesnaccountingninformationntonplan,norganize,nandnrunnthenbusiness.
(b)nInvestorsn(owners)ndecidenwhetherntonbuy,nhold,nornsellntheirnfinancialninterestsnonnthenbasisno
fnaccountingndata.n(c)nCreditorsn(suppliersnandnbankers)nevaluatenthenrisksnofngrantingncreditnornle
ndingnmoneynonnthenbasisnofnaccountingninformation.nOtherngroupsnthatnusenaccountingninformat
ionnarentaxingnauthorities,nregulatorynagencies,ncustomers,nlabornunions,nandneconomicnplanners.
3. Understandnwhynethicsnisnanfundamentalnbusinessnconcept.nEthicsnarenthenstandardsnofnconductn
bynwhichnactionsnarenjudgednasnrightnornwrong.nEffectivenfinancialnreportingndependsnonnsoundnet
hicalnbehavior.
4. Explainnaccountingnstandardsnandnthenmeasurementnprinciples.nAccountingnisnbasednonnstand
ards,nsuchnasnInternationalnFinancialnReportingnStandardsn(IFRS).nIFRSngenerallynusesnonenofntwo
nmeasurementnprinciples,nthenhistoricalncostnprinciplenornthenfairnvaluenprinciple.nSelectionnofnwhic
hnprinciplentonfollowngenerallynrelatesntontrade-
offsnbetweennrelevancenandnfaithfulnrepresentation.
5. Explainnthenmonetarynunitnassumptionnandntheneconomicnentitynassumption.nThenmonetarynun
itnassumptionnrequiresnthatncompaniesnincludeninnthenaccountingnrecordsnonlyntransactionndatantha
tncannbenexpressedninntermsnofnmoney.nTheneconomicnentitynassumptionnrequiresnthatnthenactivitie
snofneachneconomicnentitynbenkeptnseparatenfromnthenactivitiesnofnitsnownersnandnotherneconomicne
ntities.
6. Statenthenaccountingnequation,nandndefinenitsncomponents.nThenbasicnaccountingnequationnis:n
Assetsn=nLiabilitiesn+nEquity
,1n-n2 TestnBanknfornFinancialnAccounting:nIFRSnEdition,n2e
Assetsnarenresourcesnanbusinessnowns.nLiabilitiesnarencreditors'nclaimsnonntotalnassets.nEquitynisntheno
wnershipnclaimnonntotalnassets.
Thenexpandednaccountingnequationnis:nAsset
sn=nLiabilitiesn+nSharenCapital—Ordinary
+nRevenuesn–nExpensesn–nDividends
Sharencapital—
ordinarynisnaffectednwhennthencompanynissuesnnewnordinarynsharesninnexchangenforncash.nRe
venuesnarenincreasesninnassetsnresultingnfromnincomenearningnactivities.nExpensesnarenthencos
tsnofnassetsnconsumednornservicesnusedninnthenprocessnofnearningnrevenue.nDividendsnarenpay
mentsnthencompanynmakesntonitsnshareholders.
7. Analyzentheneffectsnofnbusinessntransactionsnonnthenaccountingnequation.nEachnbusinessntransa
ctionnmustnhavenandualneffectnonnthenaccountingnequation.nFornexample,nifnannindividualnassetninc
reases,ntherenmustnbenancorrespondingn(1)ndecreaseninnanothernasset,norn(2)nincreaseninnanspecificnli
ability,norn(3)nincreaseninnequity.
8. Understandnthenfournfinancialnstatementsnandnhowntheynarenprepared.nAnnincomenstatementnp
resentsnthenrevenuesnandnexpenses,nandnresultingnnetnincomenornloss,nfornanspecificnperiodnofntime
.nAnretainednearningsnstatementnsummarizesnthenchangesninnretainednearningsnfornanspecificnperio
dnofntime.nAnstatementnofnfinancialnpositionnreportsnthenassets,nliabilities,nandnequitynatnanspecificn
date.nAnstatementnofncashnflowsnsummarizesninformationnaboutnthencashninflowsn(receipts)nandno
utflowsn(payments)nfornanspecificnperiodnofntime.
a
9.nExplainnthencareernopportunitiesninnaccounting.nAccountingnoffersnmanyndifferentnjobsninnfiel
dsnsuchnasnpublicnandnprivatenaccounting,ngovernment,nandnforensicnaccounting.nAccountingnis
nanpopularnmajornbecausentherenarenmanyndifferentntypesnofnjobs,nwithnunlimitednpotentialnfornca
reernadvancement.
TRUE-FALSEnSTATEMENTS
1. Ownersnofnbusinessnfirmsnarenthenonlynpeoplenwhonneednaccountingninformation.
Ans:nF LO1 BT:nK Difficulty:nEasy
TOT:n.5nmin.n AACSB:nReflectivenThinkingn AICPAnBB:nCriticalnThinkingn AICPAn FN
:nReporting
2. Transactionsn thatn cann ben measuredn inn dollarsn andn centsn aren recordedn inn then financialn inf
ormationnsystem.
Ans:nTn LO1n BT:nKn Difficulty:nEasyn TOT:n.5nminn AACSB:nReflectivenThinkingn AICPAn BB:nC
riticalnThinkingn AICPAn FN:nReporting
FornInstructornUsenOnly
, AccountingninnAction 1n-n3
3. Then hiringn ofn an newn companyn presidentn isn ann economicn eventn recordedn byn then financialni
nformationnsystem.
Ans:nFn LO1n BT:nCn Difficulty:nEasyn TOT:n.5nminn AACSB:nReflectivenThinkingn AICPAn BB:nC
riticalnThinkingn AICPAn FN:nReporting
4. Managementnofnanbusinessnenterprisenisnthenmajornexternalnusernofninformation.
Ans:nF LO2 BT:nK Difficulty:nEasy TOT:n.5nminn AACSB:nReflectivenThinking
AICPAnBB:nCriticalnThinkingn AICPAn FN:nReporting
5. Accountingncommunicatesnfinancialninformationnaboutnanbusinessnenterprisentonbothninternaln
andnexternalnusers.
Ans:nT LO2 BT:nK Difficulty:nEasy
TOT:n.5nmin.n AACSB:nReflectivenThinkingn AICPAnBB:nCriticalnThinkingn AICPAn FN
:nReporting
6. Accountingninformationnisnusednonlynbynexternalnusersnwithnanfinancialninterestninnanbusinessne
nterprise.
Ans:nFn LO2n BT:nCn Difficulty:nEasyn TOT:n.5nmin.n AACSB:nReflectivenThinkingn AICPAn BB:nC
riticalnThinkingn AICPAn FN:nReporting
7. Financialn statementsn aren then majorn meansn ofn communicatingn accountingn informationn toni
nterestednparties.
Ans:nTn LO2n BT:nKn Difficulty:nEasyn TOT:n.5nmin.nAACSB:nReflectivenThinkingn AICPAn BB:nC
riticalnThinkingn AICPAn FN:nReporting
8. Bookkeepingn andn accountingn aren onen andn then samen becausen then bookkeepingn functionnin
cludesnthenaccountingnprocess.
Ans:nF LO2 BT:nC Difficulty:nEasy TOT:n.5nmin. AACSB:nReflectivenThinking
AICPAnBB:nCriticalnThinkingn AICPAn FN:nReporting
9. ThenoriginsnofnaccountingnarenattributedntonLucanPacioli,nanfamousnmathematician.
Ans:nT LO2 BT:nK Difficulty:nEasy
TOT:n.5nmin.n AACSB:nReflectivenThinkingn AICPAnBB:nCriticalnThinkingn AICPAn FN
:nReporting
, FornInstructornUsenOnly
