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Financial Accounting 4th Edition by Robert Libby, Patricia Libby , Daniel G Short -Test Bank
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Financial Accounting 4th Edition by Robert Libby, Patricia Libby , Daniel G Short -Test Bank
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, ch01Student: ___________________________________________________________________________
1. Accounting is a system that collects and processes financial information about an organization and
reports that information to decision makers.
True False
2. The purpose of the statement of financial position is to report the financial position (amount of assets,
liabilities, and shareholders' equity) of an accounting entity at a particular point in time.
True False
3. In accounting and reporting for a business entity, the accounting and reporting for the business must be
kept separate from other economic affairs of its owners.
True False
4. The debts of a corporation can be generally viewed as debts of its owners.
True False
5. A balance sheet should be dated for a period (such as "For the year ended December 31, 20A"), whereas
an income statement should be dated at a point in time (such as "December 31, 20A").
True False
6. The accounting period in which service revenue is recognized (i.e., revenue for services rendered) is
generally the period in which the cash is collected.
True False
7. If expenses are understated on the income statement, shareholders' equity is overstated on the balance
sheet.
True False
8. Total assets are $60,000, total liabilities, $30,000, and share capital is $20,000; therefore, retained
earnings is $5,000.
True False
9. Assets are measured and reported on the balance sheet at their current market value at the date of the
balance sheet.
True False
10. The payment of a cash dividend to shareholders reduces shareholders' equity.
True False
11. The report of management indicates management's primary responsibility for financial statement
information and the steps to ensure the accuracy of the company's records.
True False
12. The organization for which financial data are to be collected and reported is called an accounting
entity.
True False
13. The accounting model for the balance sheet is: Assets + Liabilities - Shareholders' Equity.
True False
14. One feature of the cash flow statement is to show the change in cash for the period.
True False
,15. Profit (also called net income or net earnings) is the excess of total revenues over total expenses incurred
to generate revenue during a specific period.
True False
16. The financial statements prepared by a corporation include a balance sheet, income statement, cash flow
statement, and statement of money.
True False
17. A banker who is considering making a loan to a corporation would be one of the corporation's internal
decision makers.
True False
18. Assets are economic resources controlled by the entity as a result of past business events and from which
future economic benefits can be obtained.
True False
19. The financial statement that shows an entity's economic resources and its liabilities is the statement of
retained earnings.
True False
20. The statement of comprehensive income reports the change in shareholders' equity during a period from
business activities other than investments by shareholders or distributions to shareholders.
True False
21. A note payable is a borrowing instrument that generally does not involve the payment of interest.
True False
22. If a corporation does not pay its obligations when they are due, its creditors may be able to force the sale
of the business's assets to pay their claims.
True False
23. When a company ships products to a customer and bills the customer, the company should recognize
revenue as earned.
True False
24. The amount of cash paid by a business for office rent would be reported on the cash flow statement as a
financing activity.
True False
25. Repayment of a bank loan is classified on the cash flow statement as an operating activity.
True False
26. Liabilities are the entity's legal obligations that result from past business events.
True False
27. International Financial Accounting Standards are produced by the International Accounting Standards
Board (IASB), which is an independent standard-setting board consisting of 15 members from nine
countries.
True False
28. Accounting is based on man-made rules that sometimes undergo change.
True False
29. Primary responsibility for the information in the financial statements lies with management.
True False
30. The AcSB is currently the body responsible for establishing accounting standards.
True False
, 31. The Accounting Standards Board (AcSB) is an agency of the federal government that establishes
generally accepted accounting principles for businesses.
True False
32. Generally accepted accounting principles (GAAP) are essentially identical in most developed
countries.
True False
33. Independent CAs in the public practice of accounting are viewed as employees of their clients.
True False
34. An audit involves the examination of the financial reports (prepared by the management of the company)
to ensure that they represent what they claim and conform with IFRS.
True False
35. Many opportunities exist for managers to intentionally prepare misleading financial reports.
True False
36. Failure to comply with professional rules of conduct can result in serious penalties for professional
accountants, but not the rescinding of the professional designation of an offending member.
True False
37. In terms of economic importance, the sole proprietorship is the dominant form of organization in Canada
because of its ease of formation.
True False
38. One of the disadvantages of a corporation when compared to a partnership is the limited liability of the
owners.
True False
39. A partnership is an incorporated entity that has more than one owner.
True False
40. Accountants generally must meet educational requirements, pass a rigorous exam, and meet experience
requirements before becoming licensed CAs, CGAs, or CMAs.
True False
41. What is the primary purpose of the balance sheet?
A. To measure the net income of a business up to a particular point in time.
B. To report the difference between cash inflows and cash outflows for the period.
C. To report the financial position of the reporting entity at a particular point in time.
D. To report assets at their current market value at a particular point in time.
42. On January 1, 20A, two individuals invested $150,000 each to form Hornbeck Corporation. Hornbeck
had total revenues of $15,000 during 20A and $40,000 during 20B. Total expenses for the same periods
were $8,000 and $22,000, respectively. Cash dividends paid out to shareholders totalled $6,000 in 20A
and $12,000 in 20B. What was the ending balance in Hornbeck's retained earnings account at the end of
20A and 20B?
A. $1,000 and $6,000 respectively.
B. $1,000 and $7,000, respectively.
C. $7,000 and $19,000 respectively.
D. $301,000 and $306,000 respectively.
43. The BAT Corporation had 20B revenues of $110,000, expenses of $85,000, and an income tax rate of 20
percent. What would net income after taxes be?
A. $5,000.
B. $15,000.
C. $20,000.
D. $25,000.
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