, TESTBANK for Financial Accounting with
International Financial Reporting Standards,
4th Edition by Jerry J. Weygandt
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Our email :
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, CHAPTER 1
ACCOUNTING IN ACTION
CHAPTER LEARNING OBJECTIVES
1. Identify the activities and users associated with accounting. Accounting is an information
system that identifies, records, and communicates the economic events of an organization to
interested users. The major users and uses of accounting are as follows: (a) Management
uses accounting information to plan, organize, and run the business. (b) Investors (owners)
decide whether to buy, hold, or sell their financial interests on the basis of accounting data. (c)
Creditors (suppliers and bankers) evaluate the risks of granting credit or lending money on
the basis of accounting information. Other groups that use accounting information are taxing
authorities, regulatory agencies, customers, and labor unions.
2. Explain the building blocks of accounting: ethics, principles, and assumptions. Ethics
are the standards of conduct by which actions are judged as right or wrong. Effective financial
reporting depends on sound ethical behavior.
Accounting is based on standards, such as International Financial Reporting Standards
(IFRS). IFRS generally uses one of two measurement principles, historical cost or fair value
principle. Two main assumptions are the monetary unit assumption and the economic entity
assumption. The monetary unit assumption requires that companies include in the accounting
records only transaction data that can be expressed in terms of money. The economic entity
assumption requires that the activities of each economic entity be kept separate from the
activities of its owner(s) and other economic entities.
3. State the accounting equation, and define its components. The basic accounting
equation is:
Assets = Liabilities + Equity
Assets are resources a business owns. Liabilities are creditors' claims on total assets. Equity
is the ownership claim on total assets.
The expanded accounting equation is:
Assets = Liabilities + Share Capital—Ordinary
+ Revenues – Expenses – Dividends
Share capital—ordinary is affected when the company issues new ordinary shares in
exchange for cash. Revenues are the gross increase in equity resulting from business
activities for the purpose of earning income. Expenses are the costs of assets consumed
or services used in the process of earning revenue. Dividends are payments the company
makes to its shareholders.
,1-2 Test Bank for Financial Accounting: IFRS Edition, 4e
4. Analyze the effects of business transactions on the accounting equation. Each business
transaction must have a dual effect on the accounting equation. For example, if an individual
asset increases, there must be a corresponding (1) decrease in another asset, or (2) increase
in a specific liability, or (3) increase in equity.
5. Describe the five financial statements and how they are prepared. An income statement
presents the revenues and expenses, and resulting net income or loss, for a specific period of
time. A retained earnings statement summarizes the changes in retained earnings for a
specific period of time. A statement of financial position reports the assets, liabilities, and
equity at a specific date. A statement of cash flows summarizes information about the cash
inflows (receipts) and outflows (payments) for a specific period of time. A comprehensive
income statement adds or subtracts any other comprehensive income to net income to arrive
at comprehensive Income.
a
6. Explain the career opportunities in accounting. Accounting offers many different jobs in
fields such as public and private accounting, government, and forensic accounting.
Accounting is a popular major because there are many different types of jobs, with unlimited
potential for career advancement.
TRUE-FALSE STATEMENTS
1. Owners of business firms are the only people who need accounting information.
Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
2. Transactions that can be measured in dollars and cents are recorded in the financial
information system.
Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
3. The hiring of a new company president is an economic event recorded by the financial
information system.
Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
4. Management of a business enterprise is the major external user of information.
Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
5. Accounting communicates financial information about a business enterprise to both
internal and external users.
Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
6. Accounting information is used only by external users with a financial interest in a
business enterprise.
Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
7. Financial statements are the major means of communicating accounting information to
interested parties.
Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
8. Bookkeeping and accounting are one and the same because the bookkeeping function
includes the accounting process.
Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
9. The origins of accounting are attributed to Luca Pacioli, a famous mathematician.
For Instructor Use Only
, Accounting in Action 1-3
Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
10. The State Administration of Taxation in the People's Republic of China is an example of
an internal user of accounting information.
Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
11. The German Confederation of Trade Unions is an example of an external user of
accounting information.
Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
12. Accountants rely on a fundamental business concept—ethical behavior—in reporting
financial information.
Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
13. The primary accounting standard-setting body in the United States is the International
Accounting Standards Board.
Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
14. The Financial Accounting Standards Board is a part of the International Accounting
Standards Board.
Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
15. The two primary accounting standard-setting bodies are the International Accounting
Standards Board and the Financial Accounting Standards Board.
Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
16. Most companies in the United States follow standards issued by the IASB.
Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
17. International Financial Reporting Standards are determined by the IASB.
Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
18. The process of reducing the differences between Generally Accepted Accounting
Principles and International Financial Reporting Standards is known as convergence.
Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
19. IFRS follows one measurement principle known as the historical cost principle.
Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
20. Even though a partnership is not a separate legal entity, for accounting purposes the
partnership affairs should be kept separate from the personal activities of the owners.
Ans: T LO2 BT: C Difficulty; Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
21. The economic entity assumption requires that the activities of an entity be kept separate
and distinct from the activities of its owner and all other economic entities.
Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
22. The monetary unit assumption states that transactions that can be measured in terms of
money should be recorded in the accounting records.
Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
23. In order to possess future service potential, an asset must have physical substance.
Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
,1-4 Test Bank for Financial Accounting: IFRS Edition, 4e
24. Owners' claims to total business assets take precedence over the claims of creditors
because owners invest assets in the business and are liable for losses.
Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
25. The basic accounting equation states that Assets = Liabilities.
Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
26. Share capital is the total amount paid in by shareholders for shares purchased.
Ans: T LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
27. The principal source of equity is amounts paid in by shareholders.
Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
28. Expenses are increases in equity that result from operating the business.
Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
29. The two components of equity are retained earnings and share capital.
Ans: T LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
30. The purchase of an asset on account increases assets and decreases equity.
Ans: F LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
31. Providing services for cash increases assets and equity.
Ans: T LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
32. Accountants record both internal and external transactions.
Ans: T LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
33. Internal transactions do not affect the basic accounting equation because they are
economic events that occur entirely within one company.
Ans: F LO4 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
34. The purchase of store equipment for cash reduces the equity by an equal amount.
Ans: F LO4 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
35. The purchase of office equipment on credit increases total assets and total liabilities.
Ans: T LO4 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
36. The primary purpose of the statement of cash flows is to provide information about the
cash receipts and cash payments of a company during a period.
Ans: T LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
37. Net income for the period is determined by subtracting total expenses and dividends from
total revenues.
Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
38. The ending retained earnings balance is reported on the statement of financial position.
Ans: T LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
39. The statement of financial position is also known as the balance sheet.
Ans: T LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
40 Compared to IFRS, GAAP tend to be simpler and less detailed.
Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
, Accounting in Action 1-5
41. Foreign companies whose shares are traded on U.S. stock markets must use GAAP.
Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
a
42. The study of accounting is not useful for a business career unless your career objective is
to become an accountant.
Ans: F LO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
a
43. Expressing an opinion as to the fairness of the information presented in financial
statements is a service performed by CAs and CPAs.
Ans: T LO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
Additional True-False Questions
44. Identifying is the process of keeping a chronological diary of events measured in dollars
and cents.
Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
45. Management consulting includes examining the financial statements of companies and
expressing an opinion as to the fairness of their presentation.
Ans: F LO1 BT: K Difficulty; Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
46. Accountants do not have to worry about issues of ethics.
Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Ethics AICPA BB: Critical Thinking AICPA FN: Reporting
47. The monetary unit assumption requires that all dollar amounts be rounded to the nearest
dollar.
Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
48. The basic accounting equation is in balance when the creditor and ownership claims
against the business equal the assets.
Ans: T LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
49. External transactions involve economic events between the company and some other
enterprise or party.
Ans: T LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
50. In the retained earnings statement, revenues are listed first, followed by expenses, and
net income (or net loss).
Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
,1-6 Test Bank for Financial Accounting: IFRS Edition, 4e
MULTIPLE CHOICE QUESTIONS
51. Accountants refer to an economic event as a
a. purchase.
b. sale.
c. transaction.
d. change in ownership.
Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
52. The accounting process includes each of the following except
a. communication.
b. convergence.
c. identification.
d. recording.
Ans: b LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
53. Communication of economic events is the part of the accounting process that involves
a. identifying economic events.
b. quantifying transactions into dollars and cents.
c. preparing accounting reports.
d. recording and classifying information.
Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
54. Which of the following events cannot be quantified into dollars and cents and recorded as
an accounting transaction?
a. The appointment of a new accounting firm to perform an audit.
b. The purchase of a new computer.
c. The sale of store equipment.
d. Payment of income taxes.
Ans: a LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
55. Recording of economic events involves
a. keeping a systematic, chronological diary of events.
b. analyzing reported information.
c. explaining the meaning of reported data.
d. preparing accounting reports.
Ans: a LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
56. The accounting process involves all of the following except
a. identifying economic events that are relevant to the business.
b. communicating financial information to users by preparing financial reports.
c. recording non−quantifiable economic events.
d. analyzing and interpreting financial reports.
Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
, Accounting in Action 1-7
57. The accounting process is correctly sequenced as
a. identification, communication, recording.
b. recording, communication, identification.
c. identification, recording, communication.
d. communication, recording, identification.
Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
58. Which of the following techniques is not used by accountants to interpret and report
financial information?
a. Graphs.
b. Special memos for each class of external users.
c. Charts.
d. Ratios.
Ans: b LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
59. Bookkeeping primarily involves which of the following parts of the accounting process?
a. Identification.
b. Communication.
c. Recording.
d. Analysis.
Ans: c LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
60. Which of the following would not be considered an external user of accounting data for
the GHI Company?
a. Taxing authority representative.
b. Management.
c. Creditors.
d. Customers.
Ans: b LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
61. Which of the following would not be considered internal users of accounting data for a
company?
a. The president of a company.
b. The controller of a company.
c. Creditors of a company.
d. Salesmen of a company.
Ans: c LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
62. Which of the following is an external user of accounting information?
a. Labor unions.
b. Finance directors.
c. Company officers.
d. Managers.
Ans: a LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
, 1-8 Test Bank for Financial Accounting: IFRS Edition, 4e
63. Which one of the following is not an external user of accounting information?
a. Regulatory agencies.
b. Customers.
c. Investors.
d. All of these answer choices are correct.
Ans: d LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
64. Which of the following would not be considered an internal user of accounting data for
GHI Company?
a. President of the company.
b. Production manager.
c. Merchandise inventory clerk.
d. President of the employees' labor union.
Ans: d LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
65. Internal users of accounting information include all of following except the
a. CEO of Sony.
b. Human resources department at Hyundai.
c. Marketing department at Braun.
d. shareholders of Airbus.
Ans: d LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
66. Internal users of accounting information include
a. the shareholders of Royal Dutch Shell.
b. the State Administration of Taxation of China.
c. the Chief Financial officer of Credit Suisse.
d. the International Accounting Standards Board.
Ans: c LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
67. External users of accounting information include all of following except
a. the shareholders of Air Italy.
b. the management of Pirelli.
c. a potential customers of Olivetti.
d. All of these answer choices are correct.
Ans: b LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
68. External users of accounting information include the
a. lnternational Accounting Standards Board.
b. shareholders of Ferragamo.
c. Marketing department at Olivetti.
d. CEO of Air Italy.
Ans: b LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
69. The origins of accounting are generally attributed to the work of
a. Christopher Columbus.
b. Abner Doubleday.
c. Luca Pacioli.
d. Leonardo da Vinci.
Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
International Financial Reporting Standards,
4th Edition by Jerry J. Weygandt
Hello all ,
We have all what you need with best price
Our email :
Our website :
testbanks-store.com
, CHAPTER 1
ACCOUNTING IN ACTION
CHAPTER LEARNING OBJECTIVES
1. Identify the activities and users associated with accounting. Accounting is an information
system that identifies, records, and communicates the economic events of an organization to
interested users. The major users and uses of accounting are as follows: (a) Management
uses accounting information to plan, organize, and run the business. (b) Investors (owners)
decide whether to buy, hold, or sell their financial interests on the basis of accounting data. (c)
Creditors (suppliers and bankers) evaluate the risks of granting credit or lending money on
the basis of accounting information. Other groups that use accounting information are taxing
authorities, regulatory agencies, customers, and labor unions.
2. Explain the building blocks of accounting: ethics, principles, and assumptions. Ethics
are the standards of conduct by which actions are judged as right or wrong. Effective financial
reporting depends on sound ethical behavior.
Accounting is based on standards, such as International Financial Reporting Standards
(IFRS). IFRS generally uses one of two measurement principles, historical cost or fair value
principle. Two main assumptions are the monetary unit assumption and the economic entity
assumption. The monetary unit assumption requires that companies include in the accounting
records only transaction data that can be expressed in terms of money. The economic entity
assumption requires that the activities of each economic entity be kept separate from the
activities of its owner(s) and other economic entities.
3. State the accounting equation, and define its components. The basic accounting
equation is:
Assets = Liabilities + Equity
Assets are resources a business owns. Liabilities are creditors' claims on total assets. Equity
is the ownership claim on total assets.
The expanded accounting equation is:
Assets = Liabilities + Share Capital—Ordinary
+ Revenues – Expenses – Dividends
Share capital—ordinary is affected when the company issues new ordinary shares in
exchange for cash. Revenues are the gross increase in equity resulting from business
activities for the purpose of earning income. Expenses are the costs of assets consumed
or services used in the process of earning revenue. Dividends are payments the company
makes to its shareholders.
,1-2 Test Bank for Financial Accounting: IFRS Edition, 4e
4. Analyze the effects of business transactions on the accounting equation. Each business
transaction must have a dual effect on the accounting equation. For example, if an individual
asset increases, there must be a corresponding (1) decrease in another asset, or (2) increase
in a specific liability, or (3) increase in equity.
5. Describe the five financial statements and how they are prepared. An income statement
presents the revenues and expenses, and resulting net income or loss, for a specific period of
time. A retained earnings statement summarizes the changes in retained earnings for a
specific period of time. A statement of financial position reports the assets, liabilities, and
equity at a specific date. A statement of cash flows summarizes information about the cash
inflows (receipts) and outflows (payments) for a specific period of time. A comprehensive
income statement adds or subtracts any other comprehensive income to net income to arrive
at comprehensive Income.
a
6. Explain the career opportunities in accounting. Accounting offers many different jobs in
fields such as public and private accounting, government, and forensic accounting.
Accounting is a popular major because there are many different types of jobs, with unlimited
potential for career advancement.
TRUE-FALSE STATEMENTS
1. Owners of business firms are the only people who need accounting information.
Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
2. Transactions that can be measured in dollars and cents are recorded in the financial
information system.
Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
3. The hiring of a new company president is an economic event recorded by the financial
information system.
Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
4. Management of a business enterprise is the major external user of information.
Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
5. Accounting communicates financial information about a business enterprise to both
internal and external users.
Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
6. Accounting information is used only by external users with a financial interest in a
business enterprise.
Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
7. Financial statements are the major means of communicating accounting information to
interested parties.
Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
8. Bookkeeping and accounting are one and the same because the bookkeeping function
includes the accounting process.
Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
9. The origins of accounting are attributed to Luca Pacioli, a famous mathematician.
For Instructor Use Only
, Accounting in Action 1-3
Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
10. The State Administration of Taxation in the People's Republic of China is an example of
an internal user of accounting information.
Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
11. The German Confederation of Trade Unions is an example of an external user of
accounting information.
Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
12. Accountants rely on a fundamental business concept—ethical behavior—in reporting
financial information.
Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
13. The primary accounting standard-setting body in the United States is the International
Accounting Standards Board.
Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
14. The Financial Accounting Standards Board is a part of the International Accounting
Standards Board.
Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
15. The two primary accounting standard-setting bodies are the International Accounting
Standards Board and the Financial Accounting Standards Board.
Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
16. Most companies in the United States follow standards issued by the IASB.
Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
17. International Financial Reporting Standards are determined by the IASB.
Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
18. The process of reducing the differences between Generally Accepted Accounting
Principles and International Financial Reporting Standards is known as convergence.
Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
19. IFRS follows one measurement principle known as the historical cost principle.
Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
20. Even though a partnership is not a separate legal entity, for accounting purposes the
partnership affairs should be kept separate from the personal activities of the owners.
Ans: T LO2 BT: C Difficulty; Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
21. The economic entity assumption requires that the activities of an entity be kept separate
and distinct from the activities of its owner and all other economic entities.
Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
22. The monetary unit assumption states that transactions that can be measured in terms of
money should be recorded in the accounting records.
Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
23. In order to possess future service potential, an asset must have physical substance.
Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
,1-4 Test Bank for Financial Accounting: IFRS Edition, 4e
24. Owners' claims to total business assets take precedence over the claims of creditors
because owners invest assets in the business and are liable for losses.
Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
25. The basic accounting equation states that Assets = Liabilities.
Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
26. Share capital is the total amount paid in by shareholders for shares purchased.
Ans: T LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
27. The principal source of equity is amounts paid in by shareholders.
Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
28. Expenses are increases in equity that result from operating the business.
Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
29. The two components of equity are retained earnings and share capital.
Ans: T LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
30. The purchase of an asset on account increases assets and decreases equity.
Ans: F LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
31. Providing services for cash increases assets and equity.
Ans: T LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
32. Accountants record both internal and external transactions.
Ans: T LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
33. Internal transactions do not affect the basic accounting equation because they are
economic events that occur entirely within one company.
Ans: F LO4 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
34. The purchase of store equipment for cash reduces the equity by an equal amount.
Ans: F LO4 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
35. The purchase of office equipment on credit increases total assets and total liabilities.
Ans: T LO4 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
36. The primary purpose of the statement of cash flows is to provide information about the
cash receipts and cash payments of a company during a period.
Ans: T LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
37. Net income for the period is determined by subtracting total expenses and dividends from
total revenues.
Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
38. The ending retained earnings balance is reported on the statement of financial position.
Ans: T LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
39. The statement of financial position is also known as the balance sheet.
Ans: T LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
40 Compared to IFRS, GAAP tend to be simpler and less detailed.
Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
, Accounting in Action 1-5
41. Foreign companies whose shares are traded on U.S. stock markets must use GAAP.
Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
a
42. The study of accounting is not useful for a business career unless your career objective is
to become an accountant.
Ans: F LO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
a
43. Expressing an opinion as to the fairness of the information presented in financial
statements is a service performed by CAs and CPAs.
Ans: T LO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
Additional True-False Questions
44. Identifying is the process of keeping a chronological diary of events measured in dollars
and cents.
Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
45. Management consulting includes examining the financial statements of companies and
expressing an opinion as to the fairness of their presentation.
Ans: F LO1 BT: K Difficulty; Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
46. Accountants do not have to worry about issues of ethics.
Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Ethics AICPA BB: Critical Thinking AICPA FN: Reporting
47. The monetary unit assumption requires that all dollar amounts be rounded to the nearest
dollar.
Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
48. The basic accounting equation is in balance when the creditor and ownership claims
against the business equal the assets.
Ans: T LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
49. External transactions involve economic events between the company and some other
enterprise or party.
Ans: T LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
50. In the retained earnings statement, revenues are listed first, followed by expenses, and
net income (or net loss).
Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
,1-6 Test Bank for Financial Accounting: IFRS Edition, 4e
MULTIPLE CHOICE QUESTIONS
51. Accountants refer to an economic event as a
a. purchase.
b. sale.
c. transaction.
d. change in ownership.
Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
52. The accounting process includes each of the following except
a. communication.
b. convergence.
c. identification.
d. recording.
Ans: b LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
53. Communication of economic events is the part of the accounting process that involves
a. identifying economic events.
b. quantifying transactions into dollars and cents.
c. preparing accounting reports.
d. recording and classifying information.
Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
54. Which of the following events cannot be quantified into dollars and cents and recorded as
an accounting transaction?
a. The appointment of a new accounting firm to perform an audit.
b. The purchase of a new computer.
c. The sale of store equipment.
d. Payment of income taxes.
Ans: a LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
55. Recording of economic events involves
a. keeping a systematic, chronological diary of events.
b. analyzing reported information.
c. explaining the meaning of reported data.
d. preparing accounting reports.
Ans: a LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
56. The accounting process involves all of the following except
a. identifying economic events that are relevant to the business.
b. communicating financial information to users by preparing financial reports.
c. recording non−quantifiable economic events.
d. analyzing and interpreting financial reports.
Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
, Accounting in Action 1-7
57. The accounting process is correctly sequenced as
a. identification, communication, recording.
b. recording, communication, identification.
c. identification, recording, communication.
d. communication, recording, identification.
Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
58. Which of the following techniques is not used by accountants to interpret and report
financial information?
a. Graphs.
b. Special memos for each class of external users.
c. Charts.
d. Ratios.
Ans: b LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
59. Bookkeeping primarily involves which of the following parts of the accounting process?
a. Identification.
b. Communication.
c. Recording.
d. Analysis.
Ans: c LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
60. Which of the following would not be considered an external user of accounting data for
the GHI Company?
a. Taxing authority representative.
b. Management.
c. Creditors.
d. Customers.
Ans: b LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
61. Which of the following would not be considered internal users of accounting data for a
company?
a. The president of a company.
b. The controller of a company.
c. Creditors of a company.
d. Salesmen of a company.
Ans: c LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
62. Which of the following is an external user of accounting information?
a. Labor unions.
b. Finance directors.
c. Company officers.
d. Managers.
Ans: a LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
, 1-8 Test Bank for Financial Accounting: IFRS Edition, 4e
63. Which one of the following is not an external user of accounting information?
a. Regulatory agencies.
b. Customers.
c. Investors.
d. All of these answer choices are correct.
Ans: d LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
64. Which of the following would not be considered an internal user of accounting data for
GHI Company?
a. President of the company.
b. Production manager.
c. Merchandise inventory clerk.
d. President of the employees' labor union.
Ans: d LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
65. Internal users of accounting information include all of following except the
a. CEO of Sony.
b. Human resources department at Hyundai.
c. Marketing department at Braun.
d. shareholders of Airbus.
Ans: d LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
66. Internal users of accounting information include
a. the shareholders of Royal Dutch Shell.
b. the State Administration of Taxation of China.
c. the Chief Financial officer of Credit Suisse.
d. the International Accounting Standards Board.
Ans: c LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
67. External users of accounting information include all of following except
a. the shareholders of Air Italy.
b. the management of Pirelli.
c. a potential customers of Olivetti.
d. All of these answer choices are correct.
Ans: b LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
68. External users of accounting information include the
a. lnternational Accounting Standards Board.
b. shareholders of Ferragamo.
c. Marketing department at Olivetti.
d. CEO of Air Italy.
Ans: b LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
69. The origins of accounting are generally attributed to the work of
a. Christopher Columbus.
b. Abner Doubleday.
c. Luca Pacioli.
d. Leonardo da Vinci.
Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting
For Instructor Use Only
