Deck 1: Accounting and the Business Environment

Question 1

Rules of professional conduct for accountants apply to accountants working in public practice but not for accountants employed by companies.

Answer 1

False

Question 2

Which of the following users of accounting information seek to assess the organization's ability to make scheduled payments?

A)creditors
B)taxing authorities
C)government regulatory agencies
D)employees

Answer 2

A

Question 3

The provincial securities commissions oversee operations of:

A)all publicly accountable enterprises.
B)banks and other federally constituted financial institutions.
C)large investors from foreign counties.
D)companies with publicly traded stock.

Answer 3

D

Question 4

Why is it in the interest of a corporation for management to behave ethically?

Question 5

Describe the three forms of organizations and how they differ.

Question 6

Investors provide money to a business to assist with operations.

Question 7

The Canadian designation CPA stands for Certified Public Accountant.

Question 8

Not-for-profit organizations need accounting information, as do profit-oriented organizations.

Question 9

Audits conducted by external accountants express an opinion:

A)that evaluates the effectiveness of management.
B)that taxing authorities use to ensure that the correct amount of tax owing has been calculated.
C)that gives investors confidence their investment is not at risk.
D)on whether or not the financial statements fairly reflect the economic events that occurred during the accounting period.

Question 10

Financial statements provide information about business activities to decision makers.

Question 11

Which of the following is not addressed by rules of professional conduct?

A)competence
B)confidentiality
C)number of clients
D)compliance with professional standards

Question 12

In a corporation, the shareholders have liability for the actions of the corporation that extends beyond their investment.

Question 13

Audits are conducted by accountants internal to the organization so that the users of the financial information can have confidence in the accuracy of the financial reporting.

Question 14

A proprietorship can have two owners, so long as they are husband and wife.

Question 15

Which of the following statements best describes managerial accounting?

A)Managerial accounting focuses on information for internal decision making.
B)Managerial accounting focuses on outside investors and lenders.
C)Managerial accounting provides information for the public.
D)Managerial accounting provides information for taxing authorities.

Question 16

The members of the Chartered Professional Accountants in Canada are all governed by rules of professional conduct created by the CPA organization. Describe two of the rules of professional conduct presented in the text book.

Question 17

All of the following are forms of business organizations except:

A)proprietorship.
B)partnership.
C)corporation.
D)governmental unit.

Question 18

Rules of professional conduct for accountants should:

A)be considered a minimum standard of performance.
B)not be seen as strict when the client requests certain requirements.
C)be the same as those for lawyers or engineers.
D)clearly spell out right from wrong in every situation.

Question 19

Some rules of conduct apply to accountants in public practice and not to those employed in industry.

Question 20

The primary objective of financial reporting is to provide information:

A)to the federal government.
B)about the profitability of the business.
C)regarding the cash flows of the business.
D)useful for making investment decisions and for assessing management's stewardship.

Question 21

What is the qualitative characteristic that states that accounting records and statements are based on the most accurate and useful data available?

A)Reliability
B)Relevance
C)Comparability
D)Understandability

Question 22

Which of the following forms of business organizations protect the personal assets of the owners from creditors of the business?

A)proprietorship
B)partnership
C)corporation
D)corporation and partnership

Question 23

Describe the three forms of business ownership and include how the owners' liability is affected by each form.

Question 24

Which of the following statements is true?

A)The value of a dollar changes over time.
B)German accountants record transactions in dollars.
C)The stable-monetary-unit concept requires adjustments to the accounting records for the effects of inflation.
D)High inflation rates indicate a dollar's purchasing power is stable.

Question 25

Which of the following sets of characteristics best describes those of a corporation?

A)limited liability, definite life, shareholders are legally separate
B)limited liability, indefinite life, shareholders are legally separate
C)unlimited liability, definite life, shareholders are not legally separate
D)unlimited liability, indefinite life, shareholders are not legally separate

Question 26

An organization, for accounting purposes, stands apart from other organizations and individuals as a separate accounting entity.

Question 27

The going-concern assumption states an entity will remain in operation for only the next accounting period.

Question 28

Which of the following is a feature of limited-liability partnerships?

A)They are restricted to a limited number of partners who are liable for the business.
B)Liability is limited to 150% of each partners investment in the business.
C)Partner liability is unlimited but the liability of partner families is limited.
D)Each partner is liable for his or her own actions.

Question 29

According to GAAP, to be useful, accounting information must be all of the following except:

A)relevant.
B)comparable.
C)subjective.
D)reliable.

Question 30

Financial statement users having easier access to information is a reason for the development of Accounting Standards for Private Enterprises (ASPE).

Question 31

The principle that states that assets acquired by the business should be recorded at their exchange price is the:

A)subjectivity principle.
B)cost principle of measurement.
C)revenue-recognition principle.
D)matching principle.

Question 32

The relevant measure of value of the assets of a company that is going out of business is:

A)their current market value.
B)their book value.
C)their historical cost.
D)the higher of their historical cost or current market value.

Question 33

Which of the following statements is false?

A)Reliable data are verifiable.
B)Reliable data may be supported by objective evidence.
C)Owner opinions are one source of objective evidence.
D)An independent appraisal is usually considered reliable.

Question 34

The reliability characteristic means that accounting information is free from error and bias, i.e., objective.

Question 35

Which of the following types of organizations have the entity legally separate from its owners?

A)corporation
B)proprietorship
C)partnership
D)sole proprietorship

Question 36

Which of the following statements is correct?

A)Businesses classified as publicly accountable enterprises must use IFRS and other businesses must use ASPE.
B)Businesses classified as publicly accountable enterprises may use IFRS or ASPE depending on their size.
C)Businesses not classified as publicly accountable enterprises may not use IFRS.
D)Businesses classified as publicly accountable enterprises must use IFRS and other businesses may use IFRS or ASPE.

Question 37

The Accounting Standards Board is responsible for authorizing:

A)the Canadian Institute of Chartered Accountants.
B)the IFRS and ASPE accounting standards used in Canada.
C)the code of professional conduct for accountants.
D)the Securities and Exchange Commission.

Question 38

Partnerships and proprietorships:

A)are separate legal entities from their owners, are for small businesses, and for financial reporting purposes do not keep the business affairs separate from those of the owners.
B)are separate legal entities from their owners, are for small to large businesses, and for financial reporting purposes keep the business affairs separate from those of the owners.
C)are not separate legal entities from their owners, are for small to large businesses, and for financial reporting purposes do not keep the business affairs separate from those of the owners.
D)are not separate legal entities from their owners, are for small to large businesses, and for financial reporting purposes keep the business affairs separate from those of the owners.

Question 39

List and define three generally accepted accounting concepts/principles discussed in Chapter 1.

Question 40

GAAP stands for:

A)generally accepted auditing practices.
B)generally accrued auditing procedures.
C)generally accepted accounting principles.
D)generally accrued accounting principles.

Question 41

All of the following are assets except:

A)land.
B)cash.
C)Accounts Receivable.
D)owner withdrawals.

Question 42

The accounting equation can be stated as:

A)Assets = Liabilities - Owner's Equity.
B)Assets - Liabilities = Owner's Equity.
C)Liabilities = Assets + Owner's Equity.
D)Owner's Equity = Assets + Liabilities.

Question 43

Assets are economic resources of a business expected to be of benefit in the future.

Question 44

Liabilities are:

A)insider claims to the business's assets.
B)outsider claims to the business's assets.
C)economic resources of a business.
D)increases in owner's equity earned by delivering goods or services.

Question 45

When a revenue is recorded, the asset account cash is always increased along with owner's equity.

Question 46

A business paid $8,500 to a creditor. The effect of this transaction is to:

A)increase assets and decrease liabilities.
B)increase assets and decrease owner's equity.
C)decrease liabilities and owner's equity.
D)decrease assets and decrease liabilities.

Question 47

Owner's equity is often referred to as net assets and represents the residual amount of business assets that can be claimed by the owner.

Question 48

If owner's equity is $135,000 and total liabilities are $90,000, then total assets would be:

A)$45,000.
B)$225,000.
C)$90,000.
D)$135,000.

Question 49

Owner's equity and total assets were $32,000 and $79,000 respectively at the beginning of the period. Assets increased 50% and liabilities decreased 60% during the period. What is owner's equity at the end of the period?

A)$47,000
B)$43,300
C)$99,700
D)$105,700

Question 50

The accounting equation can be stated as assets + liabilities = owner's equity.

Question 51

A promise by a customer to pay cash in the future is a(n):

A)account receivable.
B)liability.
C)prepaid asset.
D)note payable.

Question 52

The purchase of supplies on account would have an effect on the owner's equity of the firm.

Question 53

Total assets and total liabilities were $31,000 and $26,000 respectively at the beginning of the period. Assets increased by 20% and liabilities increased by 10% during the period. What is the owner's equity at the end of the period?

A)$8,600
B)$65,800
C)$290
D)$5,000

Question 54

Increases in owner's equity result from revenues and owner investments while decreases result from expenses and owner withdrawals.

Question 55

The recording of an owner withdrawal has the same effect on owner's equity as the recording of an owner investment.

Question 56

Owner's equity is an:

A)insider claim to the business's assets.
B)outsider claim to the business's assets.
C)obligation to pay cash today.
D)obligation to pay cash in the future.

Question 57

An owner investment would increase the assets and decrease the liabilities of the firm.

Question 58

All of the following describe a liability except:

A)investments by owners.
B)economic obligations to creditors.
C)debts to creditors.
D)outsider claims.

Question 59

If total liabilities decrease by $22,000 and owner's equity increases by $8,000 during the period, then assets must have:

A)increased $30,000.
B)decreased $30,000.
C)increased $14,000.
D)decreased $14,000.

Question 60

One way of increasing the equity of a business is to increase a liability.

Question 61

Earning a revenue on account would:

A)have no effect on owner's equity.
B)increase owner's equity.
C)decrease owner's equity.
D)decrease total assets.

Question 62

Purchasing supplies for cash would:

A)decrease total assets and decrease owner's equity.
B)increase total assets and increase liabilities.
C)decrease liabilities and decrease total assets.
D)have no effect on total assets.

Question 63

If owner's equity is $200,000 and total assets are $325,000, total liabilities would be:

A)$200,000.
B)$525,000.
C)$125,000.
D)$325,000.

Question 64

If total liabilities are $98,000 and owner's equity is $150,000, total assets would be:

A)$52,000.
B)$248,000.
C)$98,000.
D)$300,000.

Question 65

Purchasing office equipment on account would:

A)increase total assets and increase liabilities.
B)increase total assets and decrease owner's equity.
C)have no effect on total assets or liabilities.
D)increase liabilities and decrease owner's equity.

Question 66

Purchasing a parcel of land for $100,000 by paying $10,000 in cash and signing a promissory note for the remainder would:

A)decrease owner's equity by $90,000.
B)increase owner's equity by $10,000.
C)decrease liabilities by $90,000.
D)increase total assets by $90,000.

Question 67

A cash investment into the business by the owner would:

A)increase liabilities and increase owner's equity.
B)increase total assets and decrease owner's equity.
C)increase owner's equity and increase total assets.
D)increase total assets and decrease liabilities.

Question 68

Earning a revenue and immediately collecting the related cash would:

A)decrease total assets.
B)have no effect on owner's equity.
C)have no effect on total assets.
D)increase owner's equity.

Question 69

Earning a revenue on account would:

A)increase liabilities.
B)decrease owner's equity.
C)increase accounts receivable.
D)decrease total assets.

Question 70

Purchasing office equipment on account would:

A)decrease owner's equity.
B)increase owner's equity.
C)have no effect on owner's equity.
D)decrease liabilities.

Question 71

The payment of an account payable would:

A)increase owner's equity.
B)decrease owner's equity.
C)have no effect on total assets.
D)have no effect on owner's equity.

Question 72

Collection of an account receivable would:

A)decrease liabilities.
B)have no effect on owner's equity.
C)decrease owner's equity.
D)increase total assets.

Question 73

Borrowing money from a bank would:

A)have no effect on owner's equity.
B)decrease assets.
C)decrease liabilities.
D)increase revenues.

Question 74

Purchasing a building for $120,000 by paying cash of $30,000 and obtaining a mortgage for $90,000 would:

A)increase assets and increase liabilities by $90,000.
B)increase owner's equity by $90,000.
C)increase liabilities by $30,000.
D)decrease assets and decrease liabilities by $30,000.

Question 75

Transactions affecting owner's equity include:

A)owner withdrawals and owner investments.
B)purchases of assets for cash.
C)purchases of assets on account.
D)only owner investments.

Question 76

On December 31, the assets of a business are: Cash, $3,500, Accounts Receivable, $14,000, and Supplies, $1,050. The liabilities on December 31 total $7,600. The owner's equity on December 31 is:

A)$18,550.
B)$25,100.
C)$10,950.
D)$11,100.

Question 77

Earning revenue on account:

A)decreases assets.
B)increases liabilities.
C)decreases owner's equity.
D)increases owner's equity.

Question 78

An owner investment of office furniture into the business would:

A)decrease owner's equity and decrease liabilities.
B)increase total assets and increase liabilities.
C)increase owner's equity and increase total assets.
D)decrease owner's equity and increase liabilities.

Question 79

The amount owed by an entity when it makes a purchase on account is termed a(n):

A)accounts receivable.
B)accounts payable.
C)note receivable.
D)note payable.

Question 80

The payment of rent each month for office space would:

A)increase total assets.
B)increase owner's equity.
C)decrease liabilities.
D)increase expenses.