Chapter 11 - Test Bank PDF

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Business Essentials, Canadian Edition, 9e (Ebert) Chapter 11 Understanding Accounting11 Multiple Choice Questions ________ is the comprehensive information system for collecting, analyzing, and communicating financial information, while ________ is the recording of financial transactions. A) Financi...

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Business Essentials, Canadian Edition, 9e (Ebert) Chapter 11 Understanding Accounting 11.1 Multiple Choice Questions 1) ________ is the comprehensive information system for collecting, analyzing, and communicating financial information, while ________ is the recording of financial transactions. A) Financial accounting; managerial accounting B) Managerial accounting; financial accounting C) Bookkeeping; accounting D) Accounting; bookkeeping E) Controlling; accounting Answer: D Diff: 2 Type: MC Page Ref: 240 Skill: Knowledge Objective: 11.1 2) Employees and unions use accounting information A) to plan for tax inflows. B) to set goals, develop plans, set budgets, and evaluate prospects. C) to estimate returns. D) to decide if the company is a good credit risk. E) to plan for benefits. Answer: E Diff: 1 Type: MC Page Ref: 240 Skill: Comprehension Objective: 11.1 3) Janice is a bookkeeper. Her primary function would be to A) generate financial statements. B) measure business performance. C) record accounting transactions. D) complete the same tasks as accountants do. E) determine the value of the firm to investors. Answer: C Diff: 1 Type: MC Page Ref: 240 Skill: Comprehension Objective: 11.1

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4) The field of accounting that is concerned with external users of a company's financial information is called A) managerial accounting. B) bookkeeping. C) public accounting. D) financial accounting. E) auditing. Answer: D Diff: 1 Type: MC Page Ref: 241 Skill: Knowledge Objective: 11.1 5) The field of accounting that serves internal users of a company's financial information is A) financial accounting. B) auditing. C) public accounting. D) bookkeeping. E) managerial accounting. Answer: E Diff: 1 Type: MC Page Ref: 241 Skill: Knowledge Objective: 11.1 6) David is an accountant who calls attention to problems and helps managers carry out the planning, decision making, and controlling functions. David is involved in ________ accounting. A) budgeting B) financial C) auditing D) managerial E) generally accepted accounting principles Answer: D Diff: 1 Type: MC Page Ref: 241 Skill: Comprehension Objective: 11.1 7) Marshall is preparing a statement of estimated profits and losses for a new product that has just been introduced by his company. The field of accounting that Marshall is working in is A) managerial accounting. B) auditing. C) public accounting. D) financial accounting. E) bookkeeping. Answer: A Diff: 1 Type: MC Page Ref: 241 Skill: Comprehension Objective: 11.1 2 Copyright © 2020 Pearson Canada Inc.

8) Arthur's primary responsibility as an auditor is A) publishing the audit report results in the Financial Post. B) preparing budgets for the forthcoming year. C) ensuring the firm's accounting practices adhere to generally accepted accounting principles. D) collecting taxes. E) determining that the company has the inventory that it says it has. Answer: C Diff: 1 Type: MC Page Ref: 242 Skill: Comprehension Objective: 11.1 9) Which of the following is correct with respect to generally accepted accounting principles? A) Public and private businesses can no longer use generally accepted accounting principles. B) They are used in many foreign countries but not in Canada. C) Public companies in Canada have moved away from using generally accepted accounting principles and have adopted International Financial Reporting Standards (IFRS). D) Private companies must use the new International Financial Reporting Standards (IFRS). E) None of these statements is correct. Answer: C Diff: 1 Type: MC Page Ref: 242 Skill: Comprehension Objective: 11.1 10) The CPA Canada Handbook now has various parts, Part I is known as ________ and is designed for publicly accountable enterprises and government private enterprises; Part II is known by the abbreviation ________ and is designed for private companies. A) ASPE, IMF B) IFRS, ASPE C) Global GAAP, GAAP D) CPA, CGA E) GAAP, IPRS Answer: B Diff: 1 Type: MC Page Ref: 242 Skill: Knowledge Objective: 11.1 11) ________ call(s) attention to problems and helps managers carry out the planning, decision making, and controlling functions. A) Budgeting B) Financial accounting C) Auditing D) Managerial accounting E) Generally accepted accounting principles Answer: D Diff: 1 Type: MC Page Ref: 242 Skill: Knowledge Objective: 11.1 3 Copyright © 2020 Pearson Canada Inc.

12) Who manages the entire firm's accounting activities? A) Venture capitalist B) Private accountant C) Controller D) Public (not chartered) accountant E) Auditor Answer: C Diff: 1 Type: MC Page Ref: 241 Skill: Knowledge Objective: 11.1 13) Government agencies would be most interested in the output of ________ accountants, while company salespeople would be most interested in the output of ________ accountants. A) public; private B) private; public C) managerial; financial D) financial; managerial E) financial; financial Answer: D Diff: 2 Type: MC Page Ref: 241 Skill: Knowledge Objective: 11.1 14) Rose is reviewing a company's accounting system, checking the ledgers and journals, and tracking some transactions to see how they were handled. Rose is engaged in A) financial accounting. B) managerial accounting. C) auditing. D) public accounting. E) bookkeeping. Answer: C Diff: 1 Type: MC Page Ref: 242 Skill: Comprehension Objective: 11.1 15) Martin is a salaried accountant who has been hired by Lexar Corp. to carry out its day-to-day financial activities. Martin is a(n) A) public accountant. B) auditor. C) controller. D) private accountant. E) advisor. Answer: D Diff: 1 Type: MC Page Ref: 243 Skill: Comprehension Objective: 11.1 4 Copyright © 2020 Pearson Canada Inc.

16) A(n) ________ examines a company's accounting system to determine whether its financial reports fairly present its operations. A) tax analysis B) preliminary examination C) company-wide analysis D) portfolio analysis E) audit Answer: E Diff: 1 Type: MC Page Ref: 242 Skill: Knowledge Objective: 11.1 17) Forensic accountants are sometimes used to A) ensure that the accounting system adheres to GAAP. B) track down hidden funds in business firms. C) ensure auditors follow auditing standards. D) ensure businesses remain profitable. E) do all of these. Answer: B Diff: 2 Type: MC Page Ref: 243 Skill: Comprehension Objective: 11.1 18) Which of the following is correct with regard to auditing? A) An audit focuses specifically on whether the inventory the company claims it has is actually there. B) Companies do not normally have to supply audited financial statements when they apply for loans or when selling stock. C) Audits determine if the firm has controls in place to prevent errors or fraud from going undetected. D) Auditors generally do not have to examine documents such as cancelled cheques, payroll record, and cash receipts in order to conduct their audit. E) Auditors ensures that the financial state of the company will be accurately reported. Answer: C Diff: 2 Type: MC Page Ref: 242 Skill: Comprehension Objective: 11.1

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19) Al Rosen is working as a private investigator of white-collar crimes. He is A) an IFRS accountant. B) a financial scanner. C) a whistleblower. D) an auditor. E) a forensic accountant. Answer: E Diff: 2 Type: MC Page Ref: 260 Skill: Comprehension Objective: 11.1 20) Which of the following is correct with regard to private accountants? A) They are hired by business firms who do not want to use the services of CPAs. B) They are employed by business firms in areas such as marketing research, law, and production technology. C) They are becoming less common as CPAs become more prominent and skilled. D) They are almost exclusively found at the head office of business firms. E) They are hired to deal with companies' day-to-day accounting needs. Answer: E Diff: 2 Type: MC Page Ref: 243 Skill: Comprehension Objective: 11.1 21) Janice is a private accountant. The first thing she must do when working through the accounting cycle is to A) record transactions in a journal. B) do a trial balance. C) analyze transaction documents. D) analyze the financial statements using ratio analysis. E) transfer entries from the journal to the ledger. Answer: C Diff: 2 Type: MC Page Ref: 244 Skill: Application Objective: 11.1 22) Barry is a private accountant who is working through the accounting cycle. He has already analyzed transaction documents. His next step is to A) record transactions in a journal. B) do a trial balance. C) prepare financial statements. D) analyze the financial statements using ratio analysis. E) transfer entries from the journal to the ledger. Answer: A Diff: 2 Type: MC Page Ref: 243 Skill: Application Objective: 11.1 6 Copyright © 2020 Pearson Canada Inc.

23) Sheena is a private accountant who is working through the accounting cycle. She has completed transferring entries from the journal to a ledger. Her next step is to A) record transactions in a journal. B) do a trial balance. C) prepare financial statements. D) analyze the financial statements using ratio analysis. E) transfer entries from the journal to the ledger. Answer: B Diff: 2 Type: MC Page Ref: 244 Skill: Application Objective: 11.1 24) The accounting equation is A) owners' equity - assets = liabilities. B) owners' equity - liabilities = assets. C) assets + liabilities = owners' equity. D) assets + owners' equity = liabilities. E) assets = liabilities + owners' equity. Answer: E Diff: 1 Type: MC Page Ref: 244 Skill: Knowledge Objective: 11.2 25) A(n) ________ is any economic resource expected to benefit a firm or the individual who owns it. A) owners' equity B) asset C) debit D) liability E) credit Answer: B Diff: 1 Type: MC Page Ref: 244 Skill: Knowledge Objective: 11.2 26) A(n) ________ is a debt owed by a firm to an outside organization or individual. A) liability B) owners' equity C) debit D) asset E) credit Answer: A Diff: 1 Type: MC Page Ref: 244 Skill: Knowledge Objective: 11.2

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27) ________ is the amount of money owners would theoretically receive if they sold all of a firm's assets and paid all of its liabilities. A) Asset B) Debit C) Credit D) Liability E) Owners' equity Answer: E Diff: 1 Type: MC Page Ref: 244 Skill: Knowledge Objective: 11.2 28) What is the formula for determining owners' equity? A) Assets minus liabilities B) Assets plus liabilities C) Assets minus goodwill D) Current assets minus current liabilities E) There is no formula for computing owners' equity. Answer: A Diff: 1 Type: MC Page Ref: 244 Skill: Knowledge Objective: 11.2 29) Owners' equity consists of two sources of capital. They are A) the amount that the owners originally invested, and profits earned by and reinvested in the company. B) bank loans and money received from factoring accounts receivable. C) bank loans and proceeds from the sale of stock. D) trade credit and bank loans. E) dividends received by investors and bank loans. Answer: A Diff: 1 Type: MC Page Ref: 244 Skill: Knowledge Objective: 11.2 30) An asset is A) the amount of money originally invested in a business by its owners. B) the amount of money that owners would receive if they sold all a firm's assets and paid all of its liabilities. C) the profits earned by and reinvested in the company. D) any economic resource expected to benefit a firm or an individual who owns it. E) a debt owed by a firm to an outside organization or individual. Answer: D Diff: 2 Type: MC Page Ref: 244 Skill: Comprehension Objective: 11.2 8 Copyright © 2020 Pearson Canada Inc.

31) Owners' equity is A) the profits earned by and reinvested in the company. B) the amount of money that owners would receive if they sold all a firm's assets and paid all of its liabilities. C) the amount of money originally invested in a business by its owners. D) a debt owed by a firm to an outside organization or individual. E) any economic resource expected to benefit a firm or an individual who owns it. Answer: B Diff: 2 Type: MC Page Ref: 261 Skill: Comprehension Objective: 11.2 32) Under which condition is owners' equity positive? A) Assets are greater than liabilities. B) Assets and liabilities are equal. C) Credits exceed debits. D) Liabilities are greater than assets. E) Debits exceed credits. Answer: A Diff: 2 Type: MC Page Ref: 244 Skill: Comprehension Objective: 11.2 33) Under which condition is owners' equity negative? A) Credits exceed debits. B) Assets are greater than liabilities. C) Assets and liabilities are equal. D) Debits exceed credits. E) Liabilities are greater than assets. Answer: E Diff: 2 Type: MC Page Ref: 244 Skill: Comprehension Objective: 11.2 34) According to the accounting equation, if assets equal $4000 and liabilities equal $1500, then owner's equity would equal A) $5500. B) $2500. C) $3500. D) $8000. E) It is not possible to tell with the information given. Answer: B Diff: 2 Type: MC Page Ref: 244 Skill: Application Objective: 11.2

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35) Which of the following is correct with respect to the issue of owners' equity? A) It is the amount of cash listed on the balance sheet. B) It is the amount of money the owners would receive if they sold all a company's assets and paid all its liabilities. C) If a company's assets exceed its liabilities, owners' equity equals $10 000 for each dollar of assets. D) If a company's liabilities exceed its assets, owners' equity equals minus $10 000 for each dollar of liabilities. E) All of these are correct. Answer: B Diff: 3 Type: MC Page Ref: 244 Skill: Comprehension Objective: 11.2 36) Financial statements fall into three broad categories, which are A) debits, credits, and loans. B) income statements, balance sheets, and statements of cash flows. C) assets, liabilities, and owners' equity. D) cash, marketable securities, and goodwill. E) budgets, income statements, and profit-and-loss statements. Answer: B Diff: 2 Type: MC Page Ref: 245 Skill: Knowledge Objective: 11.3 37) Which of the following ensures that the accounting equation is always kept in balance? A) Credits B) Debits C) Double-entry accounting D) Balance sheet E) T-accounts Answer: C Diff: 1 Type: MC Page Ref: 245 Skill: Knowledge Objective: 11.3 38) Peter, an accountant, enters every transaction in the journal to reflect its impact on assets and its impact on liabilities and owners' equity. He is using A) a double-entry accounting system. B) a balance sheet. C) a financial ratio. D) breakeven analysis. E) a financial statement. Answer: A Diff: 2 Type: MC Page Ref: 245 Skill: Comprehension Objective: 11.3 10 Copyright © 2020 Pearson Canada Inc.

39) The financial statement detailing a firm's assets, liabilities, and owners' equity is the A) income statement. B) statement of cash flows. C) balance sheet. D) manufacturing statement. E) statement of retained earnings. Answer: C Diff: 1 Type: MC Page Ref: 245 Skill: Knowledge Objective: 11.3 40) What are the three types of assets that will typically be found on a balance sheet? A) Local, national, and international B) Positive, negative, and neutral C) Land, buildings, and equipment D) Current, fixed, and intangible E) Short term, long term, and medium term Answer: D Diff: 2 Type: MC Page Ref: 245-246 Skill: Knowledge Objective: 11.3 41) A balance sheet would not be able to help a manager answer which question? A) Is it a good time to try to grow the business? B) Can the company survive if a period of low revenues happens? C) Does the company have an excessive number of employees? D) Is the company able to take on more debt? E) What is the total value of all the company's assets? Answer: C Diff: 1 Type: MC Page Ref: 245-246 Skill: Comprehension Objective: 11.3 42) If the following facts were known, which one would strengthen the argument that a company would be able to meet its current financial obligations? A) The level of accounts payable is high. B) Liabilities exceed assets. C) The company currently has a negative cash flow. D) The company needs to increase the number of customers it serves. E) Assets exceed liabilities. Answer: E Diff: 3 Type: MC Page Ref: 245-246 Skill: Analysis Objective: 11.3

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43) A current asset is A) an expense, such as rent, that is paid before the upcoming period in which it is due. B) a nonphysical asset, such as a patent or trademark, that has economic value in the form of expected benefit. C) an amount due from a customer who has purchased goods on credit. D) an asset with long-term use or value, such as land, buildings, and equipment. E) an asset that can or will be converted to cash within the following year. Answer: E Diff: 2 Type: MC Page Ref: 245-246 Skill: Comprehension Objective: 11.3 44) ________ are purchased as short-term investments and are only slightly less liquid than cash. A) Prepaid expenses B) Patents C) Accounts receivable D) Marketable securities E) Futures Answer: D Diff: 2 Type: MC Page Ref: 245-246 Skill: Knowledge Objective: 11.3 45) Stephen is looking at a financial statement that shows detailed information about the accounting equation factors. He is looking at the company's A) T-accounts. B) income statement. C) balance sheet. D) double-entry accounting system. E) profit-and-loss statement. Answer: C Diff: 2 Type: MC Page Ref: 245-246 Skill: Comprehension Objective: 11.3 46) What purpose does the balance sheet serve? A) It shows the stock price of the firm during the last year and how much fluctuation there have been in the stock price. B) It shows short- and long-term liquidity ratios, profitability ratios, and activity ratios. C) It shows a firm's financial condition on a particular date in terms of its assets, liabilities, and owners' equity. D) It shows investors how much profit the firm made during the last year. E) It shows a firm's sources and uses of cash. Answer: C Diff: 2 Type: MC Page Ref: 245-246 Skill: Comprehension Objective: 11.3 12 Copyright © 2020 Pearson Canada Inc.

47) Which term is used to identify how quickly assets can be converted into cash? A) Acid-test ratio B) Activity C) Accounts receivable D) Current ratio E) Liquidity Answer: E Diff: 1 Type: MC Page Ref: 245-246 Skill: Knowledge Objective: 11.3 48) ________ are amounts due from customers who have purchased goods on credit. A) Accounts owed B) Accounts receivable C) Accounts forwarded D) Accounts payable E) Account balances Answer: B Diff: 1 Type: MC Page Ref: 245-246 Skill: Knowledge Objective: 11.3 49) ________ is an asset that represents the cost of merchandise which was made or bought for sale to customers and that is still on hand. A) Accounts payable B) Prepaid expenses C) Cost of goods sold D) Merchandise inventory E) Accounts receivable Answer: D Diff: 1 Type: MC Page Ref: 245-246 Skill: Knowledge Objective: 11.3 50) Which of the following is an intangible asset? A) An inventory level of 1000 copies of a book B) The copyright for a textbook C) A printing press used in the publication of a book D) A $1000 Canada Savings Bond E) The building in which a book was printed Answer: B Diff: 2 Type: MC Page Ref: 245-246 Skill: Comprehension Objective: 11.3

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51) What is the accounting term that describes an amount paid for an existing business above the value of its other assets? A) A patent B) A copyright C) Goodwill D) A franchise fee E) Reputation Answer: C Diff: 1 Type: MC Page Ref: 245-246 Skill: Knowledge Objective: 11.3 52) ________ are non-physical assets, such as a patent or trademark, that have economic value in the form of expected benefits. A) Intangible assets B) Fixed assets C) Prepaid assets D) Current assets E) Long-term assets Answer: A Diff: 1 Type: MC Page Ref: 245-246 Skill: Knowledge Objective: 11.3 53) An account receivable represents A) an asset with long-term use or value, such as land, buildings, and equipment. B) an amount due from a customer who has purchased goods on credit. C) an expense, such as rent, that is paid before the upcoming period in which it is due. D) a nonphysical asset, such as a patent or trademark, that has economic value in the form of expected benefit. E) an asset that can or will be converted to cash within the following year. Answer: B Diff: 2 ...