Ch03 - CH3 PDF

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CHAPTER 3THE ACCOUNTING INFORMATION SYSTEMSUMMARY OF QUESTIONS BY LEARNING OBJECTIVE AND BLOOM’S TAXONOMYItem LO BT Item LO BT Item LO BT Item LO BT Item LO BTTrue-False Statements1. 1 K 11. 1 K 21. 1 K 31. 2 C 41. 2 C2. 1 K 12. 1 K 22. 1 K 32. 2 C 42. 2 C3. 1 K 13. 1 K 23. 1 K 33. 2 K 43. 2 K4. 1 K...

Description

CHAPTER 3 THE ACCOUNTING INFORMATION SYSTEM SUMMARY OF QUESTIONS BY LEARNING OBJECTIVE AND BLOOM’S TAXONOMY Item

LO

BT

Item

LO

BT

Item

LO

BT

Item

LO

BT

Item

LO

BT

2 2 2 2 2 2 2 2 2 2

C C K K K K K K K C

41. 42. 43. 44. 45. 46. 47. 48. 49. 50.

2 2 2 2 2 2 2 2 2 2

C C K C C C C C C C

108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 126.

2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

C C C C C C C C C C C C C C C C C C AN

127. 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141.

2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

AP AP AP AP AP AP AP AP AP AP AP AP AP K K

151. 152.

2 2

AP AP

162. 163. 164.

2 2 2

AP AP AP

1 1

K K

173. 174.

1 1

K K

True-False Statements 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

1 1 1 1 1 1 1 1 1 1

K K K K K K C C K K

11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

1 1 1 1 1 1 1 1 1 1

K K K K K K K K K K

21. 22. 23. 24. 25. 26. 27. 28. 29. 30.

1 1 1 1 1 1 1 2 2 2

51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69.

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

K K K K K K K K K K K K K K K K K K K

70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88.

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

C C C K C C C C K C C K K K K C K K K

89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107.

142. 143. 144

1 1 1

K K C

145. 146. 147.

1 1 1

C C K

148. 149. 150.

153. 154. 155.

2 2 2

C AP AP

156. 157. 158.

2 2 2

AP AP AP

159. 160. 161.

165. 166.

1 1

K K

1 1

K K

K K K K K K K K C C

31. 32. 33. 34. 35. 36. 37. 38. 39. 40.

Multiple Choice Questions 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2

K K C C K K C C C AP AP AP C C C C C C C

Brief Exercises 2 2 2

C AP AP

Exercises 2 2 2

AP AP AP

Completion Statements 167. 168.

169. 170.

1 1

K K

171. 172.

FOR INSTRUCTOR USE ONLY

3-2

Test Bank for Survey of Accounting, First Edition

Matching 175.

1

K

176. 177.

1 1

C C

Short Answer Essay 175. 176.

1 1

C K

180. 181.

1 1

K E

182.

1

E

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE

Item

Type

Item

Type

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

TF TF TF TF TF TF TF TF TF TF TF TF TF TF TF TF TF

18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 51. 52. 53. 54. 55. 56. 57.

TF TF TF TF TF TF TF TF TF TF MC MC MC MC MC MC MC

Item

Type

Item

Type

28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41.

TF TF TF TF TF TF TF TF TF TF TF TF TF TF

42. 43. 44. 45. 46. 47. 48. 49. 50. 98. 99. 100. 101. 102.

TF TF TF TF TF TF TF TF TF TF TF MC MC MC

Note: TF = True-False MC = Multiple Choice Ma = Matching

Learning Objective 1 Item Type Item Type

Item

Type

Item

Type

92. 93. 94. 95. 96. 97. 142. 143. 144. 145. 146. 147. 165. 166. 167. 168. 169.

MC MC MC MC MC MC BE BE BE BE BE BE CS CS CS CS CS

170. 171. 172. 173. 174. 175. 176. 177. 178. 179. 180. 181. 182.

CS CS CS CS CS MA SA SA SA SA SA SA SA

Learning Objective 2 Item Type Item Type

Item

Type

Item

Type

103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116.

131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 148. 149. 150.

MC MC MC MC MC MC MC MC MC MC MC BE BE BE

151. 152. 153. 154. 155. 156. 157. 158. 159. 160. 161. 162. 163. 164.

BE BE E E E E E E E E E E E E

58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74.

MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC

MC MC MC MC MC MC MC MC MC MC MC MC MC MC

75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91.

117. 118. 119. 120. 121. 122. 123. 124. 125. 126. 127. 128. 129. 130.

MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC

MC MC MC MC MC MC MC MC MC MC MC MC MC MC

C = Completion Ex = Exercise SA = Short Answer Essay FOR INSTRUCTOR USE ONLY

The Accounting Information System

3-3

CHAPTER LEARNING OBJECTIVES 1. Discuss financial reporting concepts. Generally accepted accounting principles are a set of rules and practices recognized as a general guide for financial reporting purposes. The basic objective of financial reporting is to provide information that is useful for decision making. To be judged useful, information should have the primary characteristics of relevance and faithful representation. In addition, useful information is comparable, consistency, verifiable, timely, and understandable. 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 states that economic events can be identified with a particular unit of accountability. The periodicity assumption states that the economic life of a business can be divided into artificial time periods and that meaningful accounting reports can be prepared for each period. The going concern assumption states that the company will continue in operation long enough to carry out its existing objectives and commitments. The historical cost principle states that the companies should record assets at their cost. The fair value principle indicates that assets and liabilities should be reported at fair value. The full disclosure principle requires that companies disclose circumstances and events that matter to financial statement users. The cost constraint weighs the cost that companies incur to provide a type of information against its benefit to financial statement users. 2. Analyze the effect of business transactions on the basic accounting equation. Each business transaction must have a dual effect on the accounting equation. For example, if an individual asset is increased, there must be a corresponding (a) decrease in another asset, or (b) increase in a specific liability, or (c) increase in stockholders’ equity.

FOR INSTRUCTOR USE ONLY

3-4

Test Bank for Survey of Accounting, First Edition

TRUE-FALSE STATEMENTS 1.

The primary accounting standard-setting body in the United States is the Securities and Exchange Commission.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

2.

Generally accepted accounting principles are rules and practices that are recognized as a general guide for financial reporting purposes.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

3.

GAAP stands for generally accepted accounting procedures.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

4.

To be faithfully representative, accounting information should predict future events, confirm prior expectations, and be reported on a timely basis.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

5.

In order for information to be relevant, it must be reported on a monthly basis.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

6.

For information to be useful, it must be both relevant and faithfully representative.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

7.

Consistent use of the same accounting principles and methods is necessary for meaningful analysis of trends within a company.

Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: measurement, IMA: Reporting

8.

Consistency in accounting means that a company uses the same generally accepted accounting principles from one accounting period to the next accounting period.

Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

9.

The convention of consistency pertains to the use of the same accounting principles by firms in the same industry.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, AICPA PC: None, IMA: Reporting

10.

The periodicity assumption states that the business will remain in operation for the foreseeable future.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, AICPA PC: None, IMA: Reporting

11.

The most generally accepted measurement value used in accounting is market value.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

12.

For accounting purposes, business transactions should be kept separate from the personal transactions of the stockholders of the business.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

13. The economic entity assumption states that economic events can be identified with a particular unit of accountability. Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

14.

The economic entity assumption states that assets should be recorded at their cost.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

FOR INSTRUCTOR USE ONLY

The Accounting Information System

15.

3-5

The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

16.

The monetary unit assumption has led to an increase in the notes to financial statements.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

17.

The going concern assumption is that the business will continue in operation long enough to carry out its existing objectives and commitments.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

18.

When preparing financial statements, the accountant assumes that the business will stay in business for the foreseeable future.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

19.

Full disclosure of all important facts aids in overcoming the limitations of accounting information.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

20.

The economic entity assumption is that a company will remain in operations for the foreseeable future.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

21.

Materiality is a company-specific aspect of faithful representation.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, None, IMA: Reporting

22.

Relevance and cost are two constraints in accounting.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

23.

Materiality relates to whether an item is significant enough to likely influence the decision of an investor or creditor.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

24.

The cost constraint weighs the cost that companies incur to provide a type of information against the information’s benefit to financial statement users.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

25.

In general, the FASB indicates that most assets must follow the fair value measurement principle.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

26.

A material item is one that is likely to influence an investor’s decision.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

27.

The periodicity assumption states that every economic entity can be separately identified and accounted for.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Measurement, IMA: Reporting

28.

Economic events that are required to be recorded in the financial statements are called accounting transactions.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Reporting, IMA: Reporting

FOR INSTRUCTOR USE ONLY

3-6

29.

Test Bank for Survey of Accounting, First Edition

Revenue increases stockholders’ equity and should be recorded whenever cash is received from customers.

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Reporting, IMA: Reporting

30.

Collection on an account receivable will increase both cash and accounts receivable.

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Reporting, IMA: Reporting

31.

The payment of a liability decreases both cash and accounts payable.

Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Reporting, IMA: Reporting

32.

If total assets are increased, there must be a corresponding increase in liabilities or a decrease in stockholders’ equity.

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Reporting, IMA: Reporting

33.

A new account is opened for each transaction entered into by a business firm.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Reporting, IMA: Reporting

34.

The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Reporting, IMA: Reporting

35.

Revenues are a subdivision of stockholders’ equity.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Reporting, IMA: Reporting

36.

Prepaid expenses are assets.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Reporting, IMA: Reporting

37.

Salaries and Wages Payable is a type of expense.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Reporting, IMA: Reporting

38.

Dividends are classified as an expense.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Reporting, IMA: Reporting

39.

Unearned Service Revenue is classified as a liability on the balance sheet.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Reporting, IMA: Reporting

40.

Hiring a new employee affects both sides of the accounting equation.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA FC: Reporting, IMA: Reporting

41.

Cash received in advance of providing a service affects both Cash and Stockholders' Equity.

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, AACSB: None, AICPA FC: Reporting, IMA: Reporting

42.

The income statement reports on the profitability of a company at a specific point in time.

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, AACSB: None, AICPA FC: Reporting, IMA: Reporting

43.

When expenses exceed revenues, a net loss results.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA FC: Reporting, IMA: Reporting

44.

The issuance of additional shares of common stock increases a company's revenues. FOR INSTRUCTOR USE ONLY

The Accounting Information System

3-7

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, AACSB: None, AICPA FC: Reporting, IMA: Reporting

45.

The retained earnings statement reports the changes in stockholders' equity for a specific period of time.

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, AACSB: None, AICPA FC: Reporting, IMA: Reporting

46.

If there is a net loss, it is shown as a deduction on the retained earnings statement.

Ans: T, LO: 2, Bloom: C, Difficulty: Easy, AACSB: None, AICPA FC: Reporting, IMA: Reporting

47.

The balance sheet reports assets, liabilities, and stockholders' equity at a specific date.

Ans: T, LO: 2, Bloom: C, Difficulty: Easy, AACSB: None, AICPA FC: Reporting, IMA: Reporting

48.

The balance sheet lists current assets before property, plant, and equipment.

Ans: T, LO: 2, Bloom: C, Difficulty: Easy, AACSB: None, AICPA FC: Reporting, IMA: Reporting

49.

The balance sheet lists current liabilities before stockholders' equity.

Ans: T, LO: 2, Bloom: C, Difficulty: Easy, AACSB: None, AICPA FC: Reporting, IMA: Reporting

50.

On the balance sheet, stockholders' equity consists of net income and retained earnings.

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, AACSB: None, AICPA FC: Reporting, IMA: Reporting

Answers to True-False Statements 1. 2. 3. 4. 5. 6. 7. 8. 9.

F T F F F T T T F

10. 11. 12. 13. 14. 15. 16. 17. 18.

F F T T F T F T T

19. 20. 21. 22. 23. 24. 25. 26. 27.

T F F F T T F T F

28. 29. 30. 31. 32. 33. 34. 35. 36.

T F F T F F F T T

37. 38. 39. 40. 41. 42. 43. 44. 45.

F F T F F F T F F

46. 47. 48. 49. 50.

T T T T F

MULTIPLE CHOICE QUESTIONS 51.

Which of the following organizations issues accounting ...