Test Bank for Financial Accounting IFRS E
p p p p p p
dition 2nd Edition by Weygandt Kimmel a
p p p p p p
nd Kieso
p
CHAPTER 1 ACCOUNTIN
p p
G IN ACTION
p p
CHAPTERpLEARNINGpOBJECTIVES
1. Explainpwhatpaccountingpis.pAccountingpispanpinformationpsystempthatpidentifies,precords,pandpc
ommunicatespthepeconomicpeventspofpanporganizationptopinterestedpusers.
2. Identifypthepuserspandpusespofpaccounting.pThepmajorpuserspandpusespofpaccountingparepaspfollo
ws:p(a)pManagementpusespaccountingpinformationptopplan,porganize,pandprunpthepbusiness.
(b)pInvestorsp(owners)pdecidepwhetherptopbuy,phold,porpsellptheirpfinancialpinterestsponpthepbasispo
fpaccountingpdata.p(c)pCreditorsp(supplierspandpbankers)pevaluatepthepriskspofpgrantingpcreditporple
ndingpmoneyponpthepbasispofpaccountingpinformation.pOtherpgroupspthatpusepaccountingpinformat
ionpareptaxingpauthorities,pregulatorypagencies,pcustomers,plaborpunions,pandpeconomicpplanners.
3. Understandpwhypethicspispapfundamentalpbusinesspconcept.pEthicsparepthepstandardspofpconductpb
ypwhichpactionsparepjudgedpasprightporpwrong.pEffectivepfinancialpreportingpdependsponpsoundpeth
icalpbehavior.
4. Explainpaccountingpstandardspandpthepmeasurementpprinciples.pAccountingpispbasedponpstand
ards,psuchpaspInternationalpFinancialpReportingpStandardsp(IFRS).pIFRSpgenerallypusesponepofptwo
pmeasurementpprinciples,pthephistoricalpcostpprincipleporpthepfairpvaluepprinciple.pSelectionpofpwhic
hpprincipleptopfollowpgenerallyprelatesptoptrade-
offspbetweenprelevancepandpfaithfulprepresentation.
5. Explainpthepmonetarypunitpassumptionpandpthepeconomicpentitypassumption.pThepmonetarypuni
tpassumptionprequirespthatpcompaniespincludepinpthepaccountingprecordsponlyptransactionpdatapthatp
canpbepexpressedpinptermspofpmoney.pThepeconomicpentitypassumptionprequirespthatpthepactivities
pofpeachpeconomicpentitypbepkeptpseparatepfrompthepactivitiespofpitspownerspandpotherpeconomicpe
ntities.
6. Statepthepaccountingpequation,pandpdefinepitspcomponents.pThepbasicpaccountingpequationpis:pA
ssetsp=pLiabilitiesp+pEquity
,1p-p2 TestpBankpforpFinancialpAccounting:pIFRSpEdition,p2e
Assetsparepresourcespapbusinesspowns.pLiabilitiesparepcreditors'pclaimsponptotalpassets.pEquitypispthepo
wnershippclaimponptotalpassets.
Thepexpandedpaccountingpequationpis:pAsset
sp=pLiabilitiesp+pSharepCapital—Ordinary
+pRevenuesp–pExpensesp–pDividends
Sharepcapital—
ordinarypispaffectedpwhenpthepcompanypissuespnewpordinarypsharespinpexchangepforpcash.pRe
venuesparepincreasespinpassetspresultingpfrompincomepearningpactivities.pExpensesparepthepcos
tspofpassetspconsumedporpservicespusedpinpthepprocesspofpearningprevenue.pDividendspareppay
mentspthepcompanypmakesptopitspshareholders.
7. Analyzepthepeffectspofpbusinessptransactionsponpthepaccountingpequation.pEachpbusinessptransa
ctionpmustphavepapdualpeffectponpthepaccountingpequation.pForpexample,pifpanpindividualpassetpinc
reases,ptherepmustpbepapcorrespondingp(1)pdecreasepinpanotherpasset,porp(2)pincreasepinpapspecificpli
ability,porp(3)pincreasepinpequity.
8. Understandpthepfourpfinancialpstatementspandphowptheyparepprepared.pAnpincomepstatementppr
esentsptheprevenuespandpexpenses,pandpresultingpnetpincomeporploss,pforpapspecificpperiodpofptime.p
Apretainedpearningspstatementpsummarizespthepchangespinpretainedpearningspforpapspecificpperiodp
ofptime.pApstatementpofpfinancialppositionpreportspthepassets,pliabilities,pandpequitypatpapspecificpd
ate.pApstatementpofpcashpflowspsummarizespinformationpaboutpthepcashpinflowsp(receipts)pandpout
flowsp(payments)pforpapspecificpperiodpofptime.
a
9.pExplainpthepcareerpopportunitiespinpaccounting.pAccountingpofferspmanypdifferentpjobspinpfiel
dspsuchpasppublicpandpprivatepaccounting,pgovernment,pandpforensicpaccounting.pAccountingpis
pappopularpmajorpbecausepthereparepmanypdifferentptypespofpjobs,pwithpunlimitedppotentialpforpca
reerpadvancement.
TRUE-FALSEpSTATEMENTS
1. Ownerspofpbusinesspfirmspareptheponlyppeoplepwhopneedpaccountingpinformation.
Ans:pF LO1 BT:pK Difficulty:pEasy
TOT:p.5pmin.p AACSB:pReflectivepThinkingp AICPApBB:pCriticalpThinkingp AICPAp FN
:pReporting
2. Transactionsp thatp canp bep measuredp inp dollarsp andp centsp arep recordedp inp thep financialp inf
ormationpsystem.
Ans:pTp LO1p BT:pKp Difficulty:pEasyp TOT:p.5pminp AACSB:pReflectivepThinkingp AICPAp BB:pC
riticalpThinkingp AICPAp FN:pReporting
ForpInstructorpUsepOnly
, AccountingpinpAction 1p-p3
3. Thep hiringp ofp ap newp companyp presidentp isp anp economicp eventp recordedp byp thep financialpi
nformationpsystem.
Ans:pFp LO1p BT:pCp Difficulty:pEasyp TOT:p.5pminp AACSB:pReflectivepThinkingp AICPAp BB:pC
riticalpThinkingp AICPAp FN:pReporting
4. Managementpofpapbusinesspenterprisepispthepmajorpexternalpuserpofpinformation.
Ans:pF LO2 BT:pK Difficulty:pEasy TOT:p.5pminp AACSB:pReflectivepThinking
AICPApBB:pCriticalpThinkingp AICPAp FN:pReporting
5. Accountingpcommunicatespfinancialpinformationpaboutpapbusinesspenterpriseptopbothpinternalp
andpexternalpusers.
Ans:pT LO2 BT:pK Difficulty:pEasy
TOT:p.5pmin.p AACSB:pReflectivepThinkingp AICPApBB:pCriticalpThinkingp AICPAp FN
:pReporting
6. Accountingpinformationpispusedponlypbypexternalpuserspwithpapfinancialpinterestpinpapbusinesspe
nterprise.
Ans:pFp LO2p BT:pCp Difficulty:pEasyp TOT:p.5pmin.p AACSB:pReflectivepThinkingp AICPAp BB:pC
riticalpThinkingp AICPAp FN:pReporting
7. Financialp statementsp arep thep majorp meansp ofp communicatingp accountingp informationp topi
nterestedpparties.
Ans:pTp LO2p BT:pKp Difficulty:pEasyp TOT:p.5pmin.pAACSB:pReflectivepThinkingp AICPAp BB:pC
riticalpThinkingp AICPAp FN:pReporting
8. Bookkeepingp andp accountingp arep onep andp thep samep becausep thep bookkeepingp functionpin
cludespthepaccountingpprocess.
Ans:pF LO2 BT:pC Difficulty:pEasy TOT:p.5pmin. AACSB:pReflectivepThinking
AICPApBB:pCriticalpThinkingp AICPAp FN:pReporting
9. TheporiginspofpaccountingparepattributedptopLucapPacioli,papfamouspmathematician.
Ans:pT LO2 BT:pK Difficulty:pEasy
TOT:p.5pmin.p AACSB:pReflectivepThinkingp AICPApBB:pCriticalpThinkingp AICPAp FN
:pReporting
, ForpInstructorpUsepOnly
p p p p p p
dition 2nd Edition by Weygandt Kimmel a
p p p p p p
nd Kieso
p
CHAPTER 1 ACCOUNTIN
p p
G IN ACTION
p p
CHAPTERpLEARNINGpOBJECTIVES
1. Explainpwhatpaccountingpis.pAccountingpispanpinformationpsystempthatpidentifies,precords,pandpc
ommunicatespthepeconomicpeventspofpanporganizationptopinterestedpusers.
2. Identifypthepuserspandpusespofpaccounting.pThepmajorpuserspandpusespofpaccountingparepaspfollo
ws:p(a)pManagementpusespaccountingpinformationptopplan,porganize,pandprunpthepbusiness.
(b)pInvestorsp(owners)pdecidepwhetherptopbuy,phold,porpsellptheirpfinancialpinterestsponpthepbasispo
fpaccountingpdata.p(c)pCreditorsp(supplierspandpbankers)pevaluatepthepriskspofpgrantingpcreditporple
ndingpmoneyponpthepbasispofpaccountingpinformation.pOtherpgroupspthatpusepaccountingpinformat
ionpareptaxingpauthorities,pregulatorypagencies,pcustomers,plaborpunions,pandpeconomicpplanners.
3. Understandpwhypethicspispapfundamentalpbusinesspconcept.pEthicsparepthepstandardspofpconductpb
ypwhichpactionsparepjudgedpasprightporpwrong.pEffectivepfinancialpreportingpdependsponpsoundpeth
icalpbehavior.
4. Explainpaccountingpstandardspandpthepmeasurementpprinciples.pAccountingpispbasedponpstand
ards,psuchpaspInternationalpFinancialpReportingpStandardsp(IFRS).pIFRSpgenerallypusesponepofptwo
pmeasurementpprinciples,pthephistoricalpcostpprincipleporpthepfairpvaluepprinciple.pSelectionpofpwhic
hpprincipleptopfollowpgenerallyprelatesptoptrade-
offspbetweenprelevancepandpfaithfulprepresentation.
5. Explainpthepmonetarypunitpassumptionpandpthepeconomicpentitypassumption.pThepmonetarypuni
tpassumptionprequirespthatpcompaniespincludepinpthepaccountingprecordsponlyptransactionpdatapthatp
canpbepexpressedpinptermspofpmoney.pThepeconomicpentitypassumptionprequirespthatpthepactivities
pofpeachpeconomicpentitypbepkeptpseparatepfrompthepactivitiespofpitspownerspandpotherpeconomicpe
ntities.
6. Statepthepaccountingpequation,pandpdefinepitspcomponents.pThepbasicpaccountingpequationpis:pA
ssetsp=pLiabilitiesp+pEquity
,1p-p2 TestpBankpforpFinancialpAccounting:pIFRSpEdition,p2e
Assetsparepresourcespapbusinesspowns.pLiabilitiesparepcreditors'pclaimsponptotalpassets.pEquitypispthepo
wnershippclaimponptotalpassets.
Thepexpandedpaccountingpequationpis:pAsset
sp=pLiabilitiesp+pSharepCapital—Ordinary
+pRevenuesp–pExpensesp–pDividends
Sharepcapital—
ordinarypispaffectedpwhenpthepcompanypissuespnewpordinarypsharespinpexchangepforpcash.pRe
venuesparepincreasespinpassetspresultingpfrompincomepearningpactivities.pExpensesparepthepcos
tspofpassetspconsumedporpservicespusedpinpthepprocesspofpearningprevenue.pDividendspareppay
mentspthepcompanypmakesptopitspshareholders.
7. Analyzepthepeffectspofpbusinessptransactionsponpthepaccountingpequation.pEachpbusinessptransa
ctionpmustphavepapdualpeffectponpthepaccountingpequation.pForpexample,pifpanpindividualpassetpinc
reases,ptherepmustpbepapcorrespondingp(1)pdecreasepinpanotherpasset,porp(2)pincreasepinpapspecificpli
ability,porp(3)pincreasepinpequity.
8. Understandpthepfourpfinancialpstatementspandphowptheyparepprepared.pAnpincomepstatementppr
esentsptheprevenuespandpexpenses,pandpresultingpnetpincomeporploss,pforpapspecificpperiodpofptime.p
Apretainedpearningspstatementpsummarizespthepchangespinpretainedpearningspforpapspecificpperiodp
ofptime.pApstatementpofpfinancialppositionpreportspthepassets,pliabilities,pandpequitypatpapspecificpd
ate.pApstatementpofpcashpflowspsummarizespinformationpaboutpthepcashpinflowsp(receipts)pandpout
flowsp(payments)pforpapspecificpperiodpofptime.
a
9.pExplainpthepcareerpopportunitiespinpaccounting.pAccountingpofferspmanypdifferentpjobspinpfiel
dspsuchpasppublicpandpprivatepaccounting,pgovernment,pandpforensicpaccounting.pAccountingpis
pappopularpmajorpbecausepthereparepmanypdifferentptypespofpjobs,pwithpunlimitedppotentialpforpca
reerpadvancement.
TRUE-FALSEpSTATEMENTS
1. Ownerspofpbusinesspfirmspareptheponlyppeoplepwhopneedpaccountingpinformation.
Ans:pF LO1 BT:pK Difficulty:pEasy
TOT:p.5pmin.p AACSB:pReflectivepThinkingp AICPApBB:pCriticalpThinkingp AICPAp FN
:pReporting
2. Transactionsp thatp canp bep measuredp inp dollarsp andp centsp arep recordedp inp thep financialp inf
ormationpsystem.
Ans:pTp LO1p BT:pKp Difficulty:pEasyp TOT:p.5pminp AACSB:pReflectivepThinkingp AICPAp BB:pC
riticalpThinkingp AICPAp FN:pReporting
ForpInstructorpUsepOnly
, AccountingpinpAction 1p-p3
3. Thep hiringp ofp ap newp companyp presidentp isp anp economicp eventp recordedp byp thep financialpi
nformationpsystem.
Ans:pFp LO1p BT:pCp Difficulty:pEasyp TOT:p.5pminp AACSB:pReflectivepThinkingp AICPAp BB:pC
riticalpThinkingp AICPAp FN:pReporting
4. Managementpofpapbusinesspenterprisepispthepmajorpexternalpuserpofpinformation.
Ans:pF LO2 BT:pK Difficulty:pEasy TOT:p.5pminp AACSB:pReflectivepThinking
AICPApBB:pCriticalpThinkingp AICPAp FN:pReporting
5. Accountingpcommunicatespfinancialpinformationpaboutpapbusinesspenterpriseptopbothpinternalp
andpexternalpusers.
Ans:pT LO2 BT:pK Difficulty:pEasy
TOT:p.5pmin.p AACSB:pReflectivepThinkingp AICPApBB:pCriticalpThinkingp AICPAp FN
:pReporting
6. Accountingpinformationpispusedponlypbypexternalpuserspwithpapfinancialpinterestpinpapbusinesspe
nterprise.
Ans:pFp LO2p BT:pCp Difficulty:pEasyp TOT:p.5pmin.p AACSB:pReflectivepThinkingp AICPAp BB:pC
riticalpThinkingp AICPAp FN:pReporting
7. Financialp statementsp arep thep majorp meansp ofp communicatingp accountingp informationp topi
nterestedpparties.
Ans:pTp LO2p BT:pKp Difficulty:pEasyp TOT:p.5pmin.pAACSB:pReflectivepThinkingp AICPAp BB:pC
riticalpThinkingp AICPAp FN:pReporting
8. Bookkeepingp andp accountingp arep onep andp thep samep becausep thep bookkeepingp functionpin
cludespthepaccountingpprocess.
Ans:pF LO2 BT:pC Difficulty:pEasy TOT:p.5pmin. AACSB:pReflectivepThinking
AICPApBB:pCriticalpThinkingp AICPAp FN:pReporting
9. TheporiginspofpaccountingparepattributedptopLucapPacioli,papfamouspmathematician.
Ans:pT LO2 BT:pK Difficulty:pEasy
TOT:p.5pmin.p AACSB:pReflectivepThinkingp AICPApBB:pCriticalpThinkingp AICPAp FN
:pReporting
, ForpInstructorpUsepOnly
