2nd Cdn Ed | Ch1 Test Bank – Business, Accounting, and You

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Financial Accounting, 2nd Cdn. Ed. (Waybright)

Chapter 1 Business, Accounting, and You

1.1 Describe the major types of business organizations

1) Many law and accounting firms are set up as partnerships.

Diff: 1

LO: 1-1 Describe the major types of business organizations

Skill: Concept

Blooms: Comprehension

2) Sears is an example of a sole proprietor.

Diff: 1

LO: 1-1 Describe the major types of business organizations

Skill: Recall

Blooms: Knowledge

3) Walmart is an example of a corporate merchandising business.

Diff: 1

LO: 1-1 Describe the major types of business organizations

Skill: Concept

Blooms: Comprehension

4) Which of the following types of organization would probably sell goods?

A) Merchandising operation

B) Service operation

C) Not-for-profit operation

D) Manufacturing operation

E) Business operation

Diff: 1

LO: 1-1 Describe the major types of business organizations

Skill: Recall

Blooms: Knowledge

5) Which of the following do NOT pay taxes through their individual owners?

A) Single ownership

B) Sole proprietorship

C) Partnership

D) Corporation

E) Private ownership

Diff: 1

LO: 1-1 Describe the major types of business organizations

Skill: Recall

Blooms: Knowledge

6) By definition, which type of organization has shareholders?

A) Partnerships

B) Sole proprietorships

C) Corporations

D) Limited liability companies

E) Private enterprise

Diff: 1

LO: 1-1 Describe the major types of business organizations

Skill: Recall

Blooms: Knowledge

7) Which of the following types of organizations would produce goods?

A) Merchandising operation

B) Service operation

C) Not-for-profit operation

D) Manufacturing operation

E) Government operation

Diff: 1

LO: 1-1 Describe the major types of business organizations

Skill: Recall

Blooms: Knowledge

8) Target would primarily be considered a:

A) manufacturing business.

B) merchandising business.

C) service business.

D) not-for-profit business.

E) private enterprise.

Diff: 1

LO: 1-1 Describe the major types of business organizations

Skill: Recall

Blooms: Knowledge

9) Which type of company is best described as a separate legal entity?

A) Limited liability company

B) Proprietorship

C) Corporation

D) Partnership

E) Not-for-profit

Diff: 1

LO: 1-1 Describe the major types of business organizations

Skill: Recall

Blooms: Knowledge

10) Given the information below, place an (SP) if the statement describes a sole proprietorship, a (P) if the statement describes a partnership, and a (C) if the statement describes a corporation.

A. C

B. P

C. P

D. SP

E. SP

Diff: 1

LO: 1-1 Describe the major types of business organizations

Skill: Recall

Blooms: Knowledge

11) Which type of business organization is owned by its shareholders?

A) Corporation

B) Partnership

C) Limited liability company

D) Sole proprietorship

E) Not-for-profit company

Diff: 1

LO: 1-1 Describe the major types of business organizations

Skill: Recall

Blooms: Knowledge

12) What is the most difficult type of business to form?

Diff: 2

LO: 1-1 Describe the major types of business organizations

Skill: Recall

Blooms: Knowledge

13) Common examples of business organizations include sole proprietorship, partnership, and corporation.

Instructions: For each business listed below, indicate the type of business organization.

Diff: 2

LO: 1-1 Describe the major types of business organizations

Skill: Concept

Blooms: Comprehension

14) A partnership should have at least one general partner and may have one or more limited partners.

Diff: 1

LO: 1-1 Describe the major types of business organizations

Skill: Recall

Blooms: Knowledge

15) A limited partner has the right to manage and has limited liability.

Diff: 1

LO: 1-1 Describe the major types of business organizations

Skill: Recall

Blooms: Knowledge

16) A general partner does not have the right to manage and has unlimited liability.

Diff: 1

LO: 1-1 Describe the major types of business organizations

Skill: Recall

Blooms: Knowledge

17) Gus Davidson has a small business in the packet delivery industry. Gus owns a truck that he uses for personal purposes and business purposes. He charges all the costs associated with the truck to the business. Which GAAP principle is being violated? Why?

Diff: 1

LO: 1-1 Describe the major types of business organizations

Skill: Application

Blooms: Knowledge

1.2 Identify the needs of the different users of accounting information

1) Banks are considered internal users of financial statements.

Diff: 1

LO: 1-2 Identify the needs of the different users of accounting information

Skill: Recall

Blooms: Knowledge

2) Investors are considered external users of financial statements.

Diff: 1

LO: 1-2 Identify the needs of the different users of accounting information

Skill: Recall

Blooms: Knowledge

3) Shareholders are considered internal users of financial statements.

Diff: 1

LO: 1-2 Identify the needs of the different users of accounting information

Skill: Recall

Blooms: Knowledge

4) Managers are considered internal users of financial statements.

Diff: 1

LO: 1-2 Identify the needs of the different users of accounting information

Skill: Recall

Blooms: Knowledge

5) Which branch of accounting provides accounting information for internal users to help make business decisions?

A) Managerial accounting

B) Financial accounting

C) IFRS

D) ASPE

E) Taxation

Diff: 1

LO: 1-2 Identify the needs of the different users of accounting information

Skill: Recall

Blooms: Knowledge

6) Which one of these users is not considered an external user?

A) Board of directors

B) Banks

C) Investors

D) Shareholders

E) All of above are external users

Diff: 1

LO: 1-2 Identify the needs of the different users of accounting information

Skill: Recall

Blooms: Knowledge

7) Which one of these users is not considered an internal user?

A) Shareholders

B) Employees

C) Managers

D) Board of Directors

E) All of above are internal users

Diff: 1

LO: 1-2 Identify the needs of the different users of accounting information

Skill: Recall

Blooms: Knowledge

8) This branch of accounting focuses on serving the needs of external users who need to make sound economic decisions.

A) Managerial accounting

B) Financial accounting

C) IFRS

D) ASPE

E) Taxation

Diff: 1

LO: 1-2 Identify the needs of the different users of accounting information

Skill: Recall

Blooms: Knowledge

9) Who are the internal users of financial statements? What are their specific needs with respect to financial information?

Diff: 1

LO: 1-2 Identify the needs of the different users of accounting information

Skill: Application

Blooms: Knowledge

10) Who are the external users of financial statements? What are their specific needs with respect to financial information?

Diff: 1

LO: 1-2 Identify the needs of the different users of accounting information

Skill: Application

Blooms: Knowledge

1.3 Identify career opportunities in accounting and related fields

1) By taking accounting classes, the student is learning the "language of business."

Diff: 1

LO: 1-3 Identify career opportunities in accounting and related fields

Skill: Recall

Blooms: Knowledge

2) To manage a business effectively, an owner or manager would benefit greatly from having some knowledge of accounting.

Diff: 1

LO: 1-3 Identify career opportunities in accounting and related fields

Skill: Recall

Blooms: Knowledge

3) Which of the following is NOT a reason to study accounting?

A) A student will become aware of ethics in business.

B) A student will learn the language of business.

C) A student will improve his or her math skills.

D) A student will learn to analyze financial information.

E) A student will prepare financial statements that are in accordance with GAAP.

Diff: 1

LO: 1-3 Identify career opportunities in accounting and related fields

Skill: Recall

Blooms: Knowledge

4) The CMA, CGA, and CA accounting bodies are looking to merge into one accounting body called CPA Canada.

Diff: 1

LO: 1-3 Identify career opportunities in accounting and related fields

Skill: Recall

Blooms: Knowledge

5) In the accounting profession there are several areas of expertise. Name the four main areas of expertise.

Managerial accounting

Taxation

Banking and financial services

Diff: 2

LO: 1-3 Identify career opportunities in accounting and related fields

Skill: Concept

Blooms: Comprehension

6) The accounting profession has several related fields. Identify and discuss the responsibilities of each field.

Managerial accounting: This area includes cost accounting, budgeting, planning, control, and performance evaluation. Management accounting focuses on making business decisions primarily for internal use.

Taxation: This area includes tax planning, preparation, and investigation. Taxation serves both individuals and companies.

Banking and financial services: This area includes financial analysis, planning, investments, risk analysis, and credit management. This branch serves both individuals and companies. This field mainly focuses on investment and credit.

Diff: 2

LO: 1-3 Identify career opportunities in accounting and related fields

Skill: Concept

Blooms: Comprehension

1.4 Explain the key accounting principles and the conceptual framework

1) Accounting is important because the process "keeps score" of the financial aspects of a business.

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Recall

Blooms: Knowledge

2) The definition of the economic entity concept includes the requirement that personal assets must be combined with business assets.

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Recall

Blooms: Knowledge

3) Financial statements are historical reports of what has taken place financially in a business.

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Recall

Blooms: Knowledge

4) International Financial Reporting Standards (IFRS) are used in every country in the world.

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Recall

Blooms: Knowledge

5) Financial statements can help the managers of a business make decisions regarding the business.

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Recall

Blooms: Knowledge

6) Market value and historical cost (value) are the same concept.

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Recall

Blooms: Knowledge

7) Accountants need to exercise professional judgment.

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Recall

Blooms: Knowledge

8) The main role of accounting is to compile reports to determine the profit made by a company over a period of time.

Diff: 2

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Recall

Blooms: Knowledge

9) The goal of IFRS is to create a global set of accounting standards.

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Recall

Blooms: Knowledge

10) IFRS and ASPE are interchangeable.

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Recall

Blooms: Knowledge

11) To ensure that the guidelines for right behaviour are followed, a corporation should follow:

A) ethical principles.

B) accounting law.

C) the corporate culture.

D) the leaders in their category of business.

E) the Enron rules.

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Concept

Blooms: Comprehension

12) Accounting principles include:

A) historical cost/fair value, revenue and expense recognition, and going concern.

B) historical cost/fair value, revenue and expense recognition, and time period assumption.

C) historical cost/fair value, revenue and expense recognition, and full disclosure.

D) historical cost/fair value, economic entity, and full disclosure.

E) historical cost/fair value, economic entity, and revenue and expense recognition.

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Recall

Blooms: Knowledge

13) The main goal of understanding the process of accounting is to help ensure that the business is:

A) profitable.

B) ethical.

C) competitive.

D) admired by the customer.

E) environmentally friendly.

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Recall

Blooms: Knowledge

14) A Canadian publicly traded enterprise uses which reporting standard?

A) Accounting Standards for Private Enterprises

B) International Financial Reporting Standards

C) Accounting Standards for Not-for-Profit Organizations

D) Accounting Standards for Pension Plans

E) Accounting Standards for Canadian Accounting

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Concept

Blooms: Comprehension

15) Accounting standards for private enterprises (ASPE) continues to use:

A) present value.

B) current cost.

C) realizable value.

D) historical cost approach.

E) net present value.

Diff: 2

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Concept

Blooms: Comprehension

16) Mathew owns an art supplies store. In the initial accounting records, he included his personal computer and all of his personal art supplies. What principle of accounting is Mathew violating?

A) Going concern

B) Cost

C) Reliability

D) Economic entity

E) Materiality

Diff: 2

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Application

Blooms: Application

17) During the life of a business entity, financial statements are prepared at specific points in time. This is according to what assumption?

Diff: 2

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Recall

Blooms: Knowledge

18) Marcus is negotiating with friends who may buy some camping equipment in the near future. He records this information as possible sales. What principle is Marcus violating?

Diff: 2

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Application

Blooms: Knowledge

19) What is the purpose of financial accounting information?

Diff: 2

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Concept

Blooms: Comprehension

20) When a person combines personal and business accounts, what concept or principle of accounting is being violated?

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Concept

Blooms: Comprehension

21) Which accounting concept or principle states that information should be free of biases and neutral?

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Concept

Blooms: Comprehension

22) International Financial Reporting Standards (IFRS) became effective in Canada on what date?

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Recall

Blooms: Knowledge

23) Accountants are required to use ________ judgment in many situations.

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Recall

Blooms: Knowledge

24) Identify and explain the four underlying assumptions of the conceptual framework.

It is assumed that the purchasing power of the dollar is stable. This means that dollars of different time periods are considered to have the same value.

Economic entity assumption

This assumption implies that the affairs of the organization are economically separate from the owners.

Going-concern principle

Financial statements are prepared based on the assumption that the business entity is a going concern and will continue in operation for the foreseeable future.

Time period assumption

To be able to assess a business's performance in a timely manner, it is assumed that the operation of a business is divided into a series of time periods.

Diff: 1

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Concept

Blooms: Comprehension

25) Under IFRS, financial statements are prepared on a modified cost basis with an emphasis on fair value, which is more useful and relevant for users' decision-making purposes. Businesses may choose one of four recording methods that best reflects their economic activities and reality.

List the four approaches.

Diff: 2

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Concept

Blooms: Comprehension

26) The conceptual framework includes two constraints. Identify the constraints.

Materiality

Diff: 2

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Recall

Blooms: Knowledge

27) The conceptual framework includes two constraints. Identify and explain the two constraints.

Materiality: Information is considered material if excluding it would influence the judgment of the financial statement user.

Diff: 3

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Concept

Blooms: Comprehension

28) Identify the accounting assumption that has been violated for each of the following situations.

a. Jeremy is preparing the financial statements for the High Tech Cleaning Company for 2013. The owners have decided to retire and close the business in early 2014. The financial statements have been prepared using historical costs.

b. Mikhail has a small tattoo business. All his cash receipts are deposited into his personal bank account. He pays his bills from either his business bank account or his personal, depending on which bank account has more money.

c. Fred's Forestry business sells fir trees in both Canada and the United States. Depending on the transaction, Fred records some transactions as Canadian and others as U.S. His financial statements have a mixture of Canadian and U.S. dollars.

a. Going concern

b. Economic entity

c. Monetary unit

Diff: 3

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Concept

Blooms: Comprehension

29) Toys Plus prepares interim financial statements for investors quarterly. At the end of the fourth quarter of 2014, a hurricane destroyed the entire inventory in the warehouse. Toys Plus uses a periodic inventory system and is unable to do a physical inventory count. The controller decides to delay the release of the interim financial statements for 3 months to ensure a proper value is assigned to cost of goods sold.

a) Which underlying assumption is most affected by the controller's decision?

b) Which qualitative characteristics are being traded off in this scenario? Explain your answer.

a) The time period principle is affected because the financial statements are not being prepared in a timely manner.

b) Relevance is being traded off for reliability. In order to ensure that the cost of goods sold amount is free from error and bias, the statements will not be released in a timely manner.

Diff: 3

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Concept

Blooms: Comprehension

30) In order to calculate depreciation expense for the year, a residual value and estimated useful life has to be estimated.

a) Which qualitative characteristics are being traded off in this scenario? Explain your answer.

b) Which accounting principle does this practice of estimating depreciation support?

a) Reliability is traded off for relevance. If estimations are involved then there is a threat to reliability. However, this estimate is required because investors need depreciation numbers in order to make informed decisions.

b) Revenue and expense recognition is the principle that allows for estimating depreciation expense. This is because depreciation expense has to be matched with the revenue it helped generate.

Diff: 3

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Concept

Blooms: Comprehension

1.5 Analyze transactions using the basic accounting equation

1) The fundamental accounting equation is Assets plus Liabilities equals Shareholders' Equity.

Diff: 1

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Recall

Blooms: Knowledge

2) Liabilities are those obligations that are owed to third parties.

Diff: 1

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Recall

Blooms: Knowledge

3) A transaction is a business event that does NOT have an impact on the finances of a company.

Diff: 1

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Recall

Blooms: Knowledge

4) Shareholders' equity includes Retained earnings and Share capital.

Diff: 1

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Recall

Blooms: Knowledge

5) Which of the following is considered an asset?

A) Accounts payable

B) Sales

C) Accounts receivable

D) Common shares

E) Notes payable

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Recall

Blooms: Knowledge

6) Revenues, expenses, and dividends are all a part of the calculation of:

A) assets.

B) retained earnings.

C) liabilities.

D) common shares.

E) cash.

Diff: 1

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Recall

Blooms: Knowledge

7) Which of the following is a FALSE statement?

A) Revenues provide inward flows of assets.

B) Revenue is categorized as an asset.

C) Revenue is categorized as part of retained earnings.

D) Revenues are generated from the sale of goods and services.

E) Revenue is an increase in retained earnings.

Diff: 1

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Concept

Blooms: Comprehension

8) Which of the following is a written promise to pay?

A) Accounts receivable

B) Accounts payable

C) Notes payable

D) Dividends payable

E) Notes receivable

Diff: 1

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Recall

Blooms: Knowledge

9) Liabilities represent:

A) items owned by the company.

B) future economic benefits of the company.

C) earnings kept in the business.

D) monies owed to third parties.

E) monies owed to shareholders.

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Recall

Blooms: Knowledge

10) Revenues would have which of the following effects on the accounting equation?

A) Decrease shareholders' equity

B) Increase common shares

C) Increase liabilities

D) Increase shareholders' equity

E) Decrease assets

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Concept

Blooms: Comprehension

11) Cash and accounts receivable are both a part of:

A) assets.

B) retained earnings.

C) liabilities.

D) common shares.

E) preferred shares.

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Recall

Blooms: Knowledge

12) Brandon borrowed money for his business from a local bank. What accounts will be affected?

A) Cash and accounts payable

B) Cash and notes payable

C) Accounts payable and revenue

D) Accounts receivable and revenue

E) Cash and accounts receivable

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Concept

Blooms: Comprehension

13) If total assets remain the same and total shareholders' equity increases, liabilities will:

A) increase by the same amount.

B) decrease by the same amount.

C) remain the same.

D) increase by a different amount.

E) decrease by a different amount.

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Concept

Blooms: Comprehension

14) Which of the following is a true statement?

A) Purchasing office equipment for cash is a shift of assets.

B) Buying something on account decreases total liabilities.

C) Retained earnings do not include payments of dividends.

D) Paying off an account increases the total of assets.

E) Selling something on account increases total liabilities.

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Concept

Blooms: Comprehension

15) Jenny opens her business by investing $12,000. How does this affect the accounting equation?

A) Increase in assets; increase in shareholders' equity.

B) Increase in liabilities; increase in shareholders' equity.

C) Decrease in assets; increase in shareholders' equity.

D) Increase in assets; decrease in shareholders' equity.

E) The accounting equation does not change.

Diff: 3

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Application

Blooms: Application

16) A company purchases merchandise (inventory) for cash. What is the net result on the accounting equation?

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Concept

Blooms: Comprehension

17) Monies the company will pay at a later date are classified as ________.

Diff: 1

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Recall

Blooms: Knowledge

18) Cash, supplies, and equipment are all part of ________.

Diff: 1

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Recall

Blooms: Knowledge

19) Monies owed to a company by customers are classified as ________.

Diff: 1

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Recall

Blooms: Knowledge

20) Items such as revenue, expenses, and dividends are classified in the accounting equation as ________.

Diff: 1

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Recall

Blooms: Knowledge

21) ABC Company sold $34,000 worth of merchandise for cash. Explain the effect on the expanded accounting equation.

A) Total assets and total liabilities will increase.

B) Total assets and total revenue will increase.

C) Total liabilities will increase and total revenue will decrease.

D) Total assets will decrease and total liabilities will increase.

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Concept

Blooms: Comprehension

22) The accounting equation is Assets = ________ + ________

Diff: 1

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Recall

Blooms: Knowledge

23) A business purchases a computer for cash. What effect does this have on the accounting equation?

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Concept

Blooms: Comprehension

24) A company has $123,000 in assets and $65,000 in liabilities. Determine the amount of shareholders' equity.

Calculation: $123,000 - $65,000 = $58,000

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Application

Blooms: Application

25) A business pays off a note payable. What effect does this have on the accounting equation?

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Concept

Blooms: Comprehension

26) Casey invested $5,000 into his business. How will this impact the accounting equation?

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Concept

Blooms: Comprehension

27) Celia buys a new machine for her shop on credit. What effect does this have on the accounting equation?

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Concept

Blooms: Comprehension

28) How would the payment of cash dividends affect the accounting equation?

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Concept

Blooms: Comprehension

29) How would the payment of expenses affect the accounting equation?

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Concept

Blooms: Comprehension

30) Lauren purchased a computer on account for her business. How will this transaction affect the accounting equation?

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Application

Blooms: Application

31) Subway is famous for their sandwiches. At the end of 2013, Subway's total assets were $345,000, and total liabilities were $129,500. Calculate Subway's shareholders' equity.

Calculation: $345,000 - $129,500 = $215,500

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Application

Blooms: Application

32) The income statement will impact the retained earning section of the statement of financial position.

a) Will a net loss increase or decrease retained earnings?

b) Will a net profit increase or decrease retained earnings?

b) Net profit will increase retained earnings.

Diff: 3

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Application

Blooms: Application

33) ABC purchased office supplies on account for $50,000. How would this transaction affect ABC's accounting equation?

Diff: 3

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Application

Blooms: Application

34) Part 1.

A business sells $1,000 of product on account. Identify the effect on the accounting equation.

Part 2

A business buys $1,000 of product on account. Identify the effect on the accounting equation.

Increase assets (accounts receivable) and increase shareholders' equity (revenue)

Part 2

Increase liabilities (accounts payable) and decrease shareholders' equity (expenses)

Diff: 3

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Application

Blooms: Application

35) Given the following items, classify them as part of:

a. Assets

b. Liabilities

c. Shareholders' equity

1. Salaries payable

2. Revenues

3. Accounts receivable

4. Common shares

5. Notes payable

6. Cash

7. Equipment

8. Merchandise

1-b

2-c

3-a

4-c

5-b

6-a

7-a

8-a

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Application

Blooms: Application

36) Given the following accounts, calculate the income or loss for ABC Company.

Calculation: Revenue $29,500 - Expenses $33,000 = Loss of $3,500

Diff: 3

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Application

Blooms: Application

37) Ling Li Jewellery has the following accounts. Identify the accounts found within the income statement.

Common Shares

Jewellery Supplies

Cash

Revenue

Salaries Expense

Accounts Payable

Marketing Expense

Accounts Receivable

Supplies Expense

Salaries Expense

Marketing Expense

Supplies Expense

Diff: 3

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Recall

Blooms: Knowledge

38) Ling Li Jewellery business has the following accounts. Identify the assets.

Common Shares

Jewellery Supplies

Cash

Revenue

Salaries Expense

Accounts Payable

Marketing Expense

Accounts Receivable

Supplies Expense

Cash

Accounts Receivable

Diff: 3

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Recall

Blooms: Knowledge

39) XYZ Company has liabilities of $23,500 and shareholders' equity of $56,500. Determine the XYZ Company's assets.

Calculation:

Assets = Liabilities + Equity

= $23,500 + $56,500

= $80,000

Diff: 3

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Application

Blooms: Application

40) Record the following transactions in the accounting equation.

A. Amanda invests $17,000 cash into her merchandising business.

B. She buys $6,500 of office equipment and $3,000 of office supplies from Office Depot and pays cash for the transaction.

C. Additional purchases were supplies for $35,000 on account from various suppliers.

Diff: 3

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Application

Blooms: Analysis

41) Listed below are the transactions for Clowns and Magic Company Limited. For each transaction, determine the amount and the effect on the accounting equation.

1. Purchased a special magic machine for $2,000, making a 20% down payment in cash, the remainder is on account.

2. Purchased $350 in magic supplies for cash.

3. Billed customers $1,500 for magic shows.

4. Purchased portable magic machine for children's event for $500, fully financed by a bank loan.

5. Collected $800 from customers for services previously billed.

6. Paid balance owing on special magic machine.

7. Incurred travel expenses of $85 on account.

8. Completed party services for customers who pay $440 cash.

9. Paid $1,250 in wages to employees.

1. Increases assets and liabilities by $1,600 each.

2. No effect — increase and decrease in assets offset.

3. Assets and equity are each increased by $1,500.

4. Assets and liabilities each increase by $500.

5. No effect — increase and decrease in assets offset.

6. Assets and liabilities are each decreased by $1,600.

7. Liabilities are increased by $85 and shareholders' equity decreased by the same amount. Equity reflects expenses.

8. Assets and equity are each increased by $440.

9. Assets and equity are each decreased by $1,250.

Diff: 3

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Application

Blooms: Application

42) Calculate the missing amount in each category of the accounting equation.

a. Assets (280,000) - Shareholders' Equity (98,000) = 182,000 for Liabilities (280,000 = 182,000 + 98,000)

b. 250,000 = 150,000 + 100,000

c. 200,000 = 100,000 + 100,000

d. Assets (700,000) - Liabilities (600,000) = Shareholders' Equity (100,000); (700,000 = 600,000 + 100,000)

Diff: 3

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Application

Blooms: Application

43) The following amounts are the ending balances from Lavender Water Distillery accounting records for December 31, 2014.

a) For the items listed above, fill in the appropriate classification to indicate whether the item is an asset, liability, or shareholders' equity item.

b) Calculate the total assets, total liabilities, and total shareholders' equity.

Part a

Part b

Diff: 3

LO: 1-4 Explain the key accounting principles and the conceptual framework

Skill: Application

Blooms: Application

44) Simon's Graphic Design Company had the following transactions in the month of April. After analyzing, state the impact on cash.

Example: April 5 Completed services for customers who paid cash.

April 8 Completed services for a major customer and invoiced the customer $1,000.

April 20 Received a bill from the utilities company for April utilities for $70.

The amount is due next month.

April 31 Received $600 cash from the customer billed on April 8.

April 8 No impact on cash. Increase in assets via account receivable.

April 20 No impact on cash. Increase in liabilities via account payable.

April 31 Increase in cash. No impact on assets. Already increased on April 8th with accounts receivable.

Diff: 3

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Application

Blooms: Analysis

45) For each of the following items, indicate in the column whether the item is an asset (A), liability (L), or Shareholders' Equity (SE).

Diff: 3

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Concept

Blooms: Comprehension

46) Label each of the following items with its location in the accounting equation.

Asset

Liability

Shareholders' Equity

Revenue

Expenses

Diff: 2

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Concept

Blooms: Comprehension

47) Given the following information, show the change in the accounting equation.

A. Deanne invests $45,000 and $10,000 of office equipment into the business.

B. Furniture is purchased for $8,000 cash.

C. Supplies are purchased on credit for $2,300.

D. The month's electric bill $775 was paid.

E. The month's cash sales were $5,000.

*Assets remain the same as $8,000 in cash is given for $8,000 in furniture.

Diff: 3

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Application

Blooms: Analysis

48) The following amounts are the ending balances for Graphic Design Corporation.

Calculate total assets, total liabilities, and total shareholders' equity.

Cash + Accounts Receivable + Equipment + Land and Building = Assets

3,000 + 2,300 + 6,000 + 100,000 =111,300

Total Liabilities

Accounts Payable + Loan Payable = Liabilities

2,100 + 60,000 = 62,100

Total Shareholders' Equity

Common Shares + Revenue - Expenses + Beginning Retained Earnings = Shareholders' Equity

12,000 + 60,000 - 23,800 + 1,000 = 49,200

Diff: 3

LO: 1-5 Analyze transactions using the basic accounting equation

Skill: Concept

Blooms: Analysis

1.6 Understand and be able to prepare basic financial statements.

1) The statement of retained earnings is prepared to determine the final amount of retained earnings to show on the statement of financial position.

Diff: 1

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Recall

Blooms: Knowledge

2) The income statement details how cash changed over an accounting period or cycle.

Diff: 1

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Concept

Blooms: Comprehension

3) The statement of financial position is reported as of a specific date.

Diff: 1

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Concept

Blooms: Comprehension

4) Financial statements are prepared primarily for internal company use.

Diff: 1

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Recall

Blooms: Knowledge

5) A statement of cash flows is usually prepared last.

Diff: 1

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Recall

Blooms: Knowledge

6) ASPE focuses only on net income in the income statement.

Diff: 1

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Recall

Blooms: Knowledge

7) Which of the following financial statements illustrates the accounting equation?

A) Statement of retained earnings

B) Income statement

C) Balance sheet

D) Statement of cash flows

Diff: 2

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Concept

Blooms: Comprehension

8) What is the income statement used to report?

Diff: 1

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Recall

Blooms: Knowledge

9) The net income figure is needed to prepare a financial statement. Name the financial statement.

Diff: 1

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Recall

Blooms: Knowledge

10) Name the first financial statement prepared.

Diff: 1

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Recall

Blooms: Knowledge

11) Name the last financial statement prepared.

Diff: 1

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Recall

Blooms: Knowledge

12) A net income or loss is shown on the ________ and the ________.

Diff: 1

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Recall

Blooms: Knowledge

13) Of the financial statements, which is dated as of a specific date?

Diff: 1

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Recall

Blooms: Knowledge

14) Which of the financial statements includes a listing of assets owned by the company?

Diff: 1

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Recall

Blooms: Knowledge

15) In preparing financial statements, the order of preparation is important to ensure accuracy and reduce duplicate work. Put the financial statements below in the order you would prepare them.

Statement of cash flow

Statement of comprehensive income

Statement of financial position

Statement of retained earnings

Diff: 2

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Concept

Blooms: Comprehension

16) On which financial statements are dividends shown?

Diff: 1

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Recall

Blooms: Knowledge

17) Payables are included in which financial statement?

Diff: 2

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Concept

Blooms: Comprehension

18) Under IFRS, what are the four basic financial statements?

Diff: 2

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Recall

Blooms: Knowledge

19) Mandy's Web Design Company has the following account balances on December 31, 2015.

Prepare the Income Statement for Mandy's Web Design Company for the month of December.

Income Statement

Month Ended December 31, 2015

Diff: 3

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Application

Blooms: Application

20) Barry's Bird House Supplies has the following Balance Sheet items:

Wood Supplies

Accounts Payable

Accounts Receivable

Woodwork Equipment

Common Shares

Cash

Identify the classification of each item.

Diff: 2

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Recall

Blooms: Knowledge

21) The Flower Company's beginning retained earnings are $31,000; sales are $46,800; expenses are $43,500; and dividends paid are $2,800. Calculate the ending retained earnings.

Diff: 3

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Application

Blooms: Application

22) Given the following information, prepare the statement of financial position for Meranda's Accounting Service for December 31, 2015.

Statement of Financial Position

As of December 31, 2015

Diff: 3

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Application

Blooms: Application

23) Based on the information provided, prepare the statement of retained earnings.

1. On June 1 2013, Accounting Consulting incorporated.

2. Accounting Consulting issued 500 shares at $20 per share.

3. In their first month, they earned $10,000 in revenue.

4. In their first month, they incurred $6,000 in expenses.

Statement of Retained Earnings

Month Ended June 31, 2013

Share dollars = 500 shares × $20 = $10,000

Net Income = $10,000 - $6,000 = $4,000

Diff: 3

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Application

Blooms: Application

24) The following amounts are the ending balances from Lavender Water Distillery accounting records for December 31, 2014.

Prepare a Statement of Financial Position for Natural Spring Water Distillery for December 31, 2014.

Natural Spring Water Distillery

Statement of Financial Position

As of December 31, 2014

Diff: 3

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Application

Blooms: Application

25) Prepare an income statement, a statement of retained earnings, and a statement of financial position for Web Application Services Company from the items listed below for the month of December 2013.

Retained Earnings, Beginning (December 1) $35,200

Accounts Payable 7,000

Equipment 30,000

Service Revenue 25,000

Supplies Expense 3,500

Cash 8,000

Utilities Expense 700

Supplies 2,800

Salaries Expense 7,000

Accounts Receivable 14,000

Common Shares 1,000

Dividends Issued 200

Rent Expense 2,000

Income Statement

Month Ended December 31, 2013

Web Application Services Company

Statement of Financial Position

As of December 31, 2013

Web Application Services Company

Statement of Retained Earnings

Month Ended December 31, 2013

_________________________________________________________

Balance, beginning December 1, 2013 $35,200

Common Shares 1,000

Net Income 11,800

Dividends 200

Balance, ending December 31, 2013 $48,200

Diff: 3

LO: 1-6 Understand and be able to prepare basic financial statements

Skill: Application

Blooms: Analysis

1.7 Cumulative Questions

1) Phillip recently started a business. Phillip's Photography will provide photography for weddings and special events. Listed below are the second month's transactions.

March 1 Purchases computer supplies for $400 cash.

March 7 Pays $550 for wages to the photography assistant.

March 14 Completes special events photography for a client, who pays $700 for the service.

March 16 Advertisements for Phillip's Photography in the local newspaper at a cost of $600 on account.

March 18 Provides services totalling $1,200 for several clients—one client whose bill is $200 pays cash, the remainder are on account.

March 20 Pays the amount owing to the newspaper for the advertisements on March 16th .

March 24 Half the amount receivable from customers is collected.

March 30 Purchases additional photography equipment for $450, cash.

Required

(a) Set up the table to reflect the accounts and set up the headings in the order of the accounting equation.

(b) Record each transaction on the table.

(c) What are the total assets for March 2013?

(d) What are the total liabilities for March 2013?

(e) What is the net profit or net loss for March 2013?

(f) Prepare the income statement for Phillip's Photography.

(g) Demonstrate that the accounting equation is in balance.

(c) Total assets = 500 + 500 + 400 + 450 = $1,850

(d) Total liabilities = 0

(e) Profit = 1,900 - 1,150 = $750

(f)

Phillips Photography

Income Statement

Month Ended March 31, 2015

(g) Shareholders Equity = Common Shares+ Retained Earnings + Profit

Assets - Liabilities = Shareholders Equity

Shareholders Equity = Common Share + Beginning Retained Earnings + Income - Loss

$1,850 - 0 - 750 = $1,100

The accounting equation =

$1,850 = 0 + 1,850

Asset = Liabilities + Shareholders Equity

$1,850 + 0 = $1,850 (750 + 1100)

Diff: 3

LO: 1-4, 1-5

Skill: Application

Blooms: Analysis

2) The following are the assets, liability, and equity of Anil's Animation.

Cash

Retained Earnings

Accounts Payable

Accounts Receivable

Office Equipment

Common Shares

Notes Payable

Art Supplies

a) What type of business organization is Anil's Animation?

b) Identify the accounts according to the accounting equation.

b)

Diff: 3

LO: 1-1, 1-4

Skill: Concept

Blooms: Analysis

3) The following amounts are the ending balances for Graphic Design Corporation.

a) For each account and amount indicate whether it is an Asset (A), Liability (L),

or Shareholders Equity (SE).

b) Prepare the Statement of Financial Position for the year ended January 31, 2013.

b)

Graphic Design Corporation

Statement of Financial Position

As of January 31,2013

*Retained Earnings = Beginning $1,000+ Revenue $60,000 - Expenses $23,800 = $37,200

Diff: 3

LO: 1-4, 1-5

Skill: Application

Blooms: Analysis