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Financial Accounting 5th Canadian Edition Test Bank
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, Financial Accounting 5ceChapter 1 – The Financial Statements
Chapter 1 The Financial Statements
1.1 Explain why accounting is the language of business
1) Which of the following persons or groups have the ultimate control of a corporation?
A) the chief executive officer
B) the board of directors
C) the audit committee
D) the shareholders
Answer: D
Diff: 2 Type: MC
L.O.: L.O. 1-1
2) Financial statements are:
A) reports issued by outside consultants who are hired to analyze key operations of the business
B) reports created by management that states it is responsible for the acts of the corporation
C) standard documents that tell us how well a business is performing and where it stands in financial
terms
D) standard documents issued by outside consultants who are hired to analyze key operations of the
business in financial terms
Answer: C
Diff: 1 Type: MC
L.O.: L.O. 1-1
3) The accounting equation can be stated as:
A) Assets + Liabilities = Shareholders' equity
B) Assets = Liabilities + Shareholders' equity
C) Assets = Liabilities - Shareholders' equity
D) Assets + Shareholders' equity = Liabilities
Answer: B
Diff: 1 Type: MC
L.O.: L.O. 1-1
4) The owners' interest in the assets of a corporation is known as:
A) assets
B) shareholders' equity
C) expenses
D) revenues
Answer: B
Diff: 1 Type: MC
L.O.: L.O. 1-1
© 2015 Pearson Canada Inc. 1-1
, Financial Accounting 5ce
Chapter 1 – The Financial Statements
5) On January 1, 2014, total assets for Liftoff Technologies were $125,000; on December 31, 2014, total
assets were $145,000. On January 1, 2014, total liabilities were $110,000; on December 31, 2014, total
liabilities were $115,000. What are the amount of the change and the direction of the change in Liftoff
Technologies shareholders' equity for 2014?
A) decrease of $15,000
B) increase of $15,000
C) increase of $30,000
D) decrease of $30,000
Answer: B
Diff: 2 Type: MC
L.O.: L.O. 1-1
6) Claims held by the shareholders (owners) of a corporation are referred to as:
A) retained earnings
B) share capital
C) share capital minus retained earnings
D) share capital plus retained earnings
Answer: D
Diff: 3 Type: MC
L.O.: L.O. 1-1
7) Payables are classified as:
A) increases in earnings
B) assets
C) decreases in earnings
D) liabilities
Answer: D
Diff: 1 Type: MC
L.O.: L.O. 1-1
8) Receivables are classified as:
A) increases in earnings
B) assets
C) decreases in earnings
D) liabilities
Answer: B
Diff: 1 Type: MC
L.O.: L.O. 1-1
9) Revenues are:
A) increases in liabilities resulting from delivering goods or services to customers
B) increases in retained earnings resulting from delivering goods or services to customers
C) decreases in assets resulting from delivering goods or services to customers
D) decreases in retained earnings resulting from delivering goods or services to customers
Answer: B
Diff: 2 Type: MC
L.O.: L.O. 1-1
© 2015 Pearson Canada Inc. 1-2
, Financial Accounting 5ce
Chapter 1 – The Financial Statements
10) If assets increase $120,000 during a given period and liabilities decrease $25,000 during the same
period, shareholders' equity must:
A) increase $95,000
B) decrease $145,000
C) decrease $95,000
D) increase $145,000
Answer: D
Diff: 3 Type: MC
L.O.: L.O. 1-1
11) If liabilities increase $120,000 during a given period and shareholders' equity decreases $25,000 during
the same period, assets must:
A) decrease $145,000
B) increase $145,000
C) increase $95,000
D) decrease $95,000
Answer: C
Diff: 3 Type: MC
L.O.: L.O. 1-1
12) Expenses are:
A) increases in assets resulting from operations
B) increases in retained earnings resulting from operations
C) increases in liabilities resulting from purchasing assets
D) decreases in retained earnings resulting from operations
Answer: D
Diff: 2 Type: MC
L.O.: L.O. 1-1
13) How do revenues for a period relate to the beginning and ending balances in retained earnings?
A) Revenues will increase the beginning balance of retained earnings for the period.
B) Revenues will decrease the beginning balance of retained earnings for the period.
C) Revenues less expenses will either increase or decrease the beginning balance of retained earnings for
the period.
D) Revenues less expenses will either increase or decrease the ending balance of retained earnings for the
period.
Answer: D
Diff: 2 Type: MC
L.O.: L.O. 1-1
14) Which of the following best describes a liability?
A) Liabilities are a form of share capital.
B) Liabilities are future economic benefits to which a company is entitled.
C) Liabilities are accounts receivable of the company.
D) Liabilities are economic obligations to creditors to be paid at some future date by the company.
Answer: D
Diff: 1 Type: MC
L.O.: L.O. 1-1
15) Shareholders' equity for Raisin Corporation on January 1, 2014 and December 31, 2014 were $60,000
and $75,000, respectively. Assets on January 1, 2014 and December 31, 2014 were $115,000 and $105,000,
respectively. Liabilities on January 1, 2014 were $55,000. What is the amount of liabilities on December 31,
2014?
A) $40,000
© 2015 Pearson Canada Inc. 1-3
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