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Chapter1: Accounting in action
Test Bank
to accompany
Principles of
financial accounting
3rd edition
PREPARED BY
Barbara Burns
© John Wiley & Sons Australia, Ltd 2013
Full file at http://gettestbank.eu/Test-Bank-for-Principles-of-Financial-Accounting-3rd-Edition-JerryJ-Weygandt
Chapter 1: Accounting in Action
Learning Objectives
Learning Objective 1.1 Explain what accounting is
Learning Objective 1.2 Understand the importance and value of
accounting
Learning Objective 1.3 Understand the role of corporate governance in
enhancing the quality of financial reporting
Learning Objective 1.4 Identify the users and uses of accounting
Learning Objective 1.5 Understand why ethics is a fundamental business
concept
Learning Objective 1.6 Understand the importance of sustainability, and
sustainability reporting, for business
Learning Objective 1.7 Explain the meaning of generally accepted
accounting principles and the cost principle.
Learning Objective 1.8 Explain the meaning of the monetary unit
assumption and the economic entity assumption
Learning Objective 1.9 State the basic accounting equation, and explain
the meaning of assets, liabilities and owner’s
equity
Learning Objective 1.10 Analyse the effects of business transactions on
the basic accounting equation
Learning Objective 1.11 Understand what the complete set of financial
statements is and how statements are prepared
Learning Objective 1.12 Identify the majority fields of the accounting
profession and potential accounting careers.
© John Wiley & Sons Australia, Ltd 2013
1.1
Testbank to accompany Principles of financial accounting 3e by Weygandt et al
Multiple Choice
1.
Communication of economic events is the part of the accounting process that
involves
Learning Objective 1.1 Explain what accounting is
a.
identifying economic events.
b.
quantifying transactions into dollars and cents.
*c.
preparing accounting reports.
d.
recording and classifying information.
2.
The accounting process is correctly sequenced as
Learning Objective 1.2 Understand the importance and value of accounting
a.
identification, communication, recording.
b.
recording, communication, identification.
*c.
identification, recording, communication.
d.
communication, recording, identification.
3.
The first stage of the accounting process is
Learning Objective 1.3 Understand the role of corporate governance in
enhancing the quality of financial reporting
a.
communicating.
*b.
identifying economic events
c.
processing.
d.
recording.
4.
The statement concerning corporate governance that is incorrect is
Learning Objective 1.3 Understand the role of corporate governance in
enhancing the quality of financial reporting
*a.
Managers always act in the best interests of shareholders.
b.
Corporate governance includes how risk is monitored
d.
c.
Corporate governance is about controls in the entity for protecting
shareholders’ interests.
d.
Corporate governance is concerned with how the performance of the
entity is optimised
5.
The use of computers in recording business events
Learning Objective 1.4 Identify the users and uses of accounting
*a.
has made the recording process more efficient.
b.
does not use the same principles as manual accounting systems.
c.
has greatly impacted the identification stage of the accounting process.
d.
is economical only for large businesses.
© John Wiley & Sons Australia, Ltd 2013
1.2
Full file at http://gettestbank.eu/Test-Bank-for-Principles-of-Financial-Accounting-3rd-Edition-JerryJ-Weygandt
6.
Internal users of accounting information include all of the following except
Learning Objective 1.4 Identify the users and uses of accounting
a.
company officers.
*b.
investors.
c.
marketing managers.
d.
production supervisors.
7.
Which of these is an internal user of accounting data?
Learning Objective 1.4 Identify the users and uses of accounting
a.
The CEO of a company.
b.
Clerical staff of a company.
c.
Salespersons of a company.
*d.
All of the options are correct.
8.
Which of these is not an external user of accounting information?
Learning Objective 1.4 Identify the users and uses of accounting
a.
Regulatory agencies.
b.
Customers.
c.
Investors.
*d.
All of the options are correct.
9.
Bookkeeping primarily involves which part of the accounting process?
Learning Objective 1.4 Identify the users and uses of accounting
*a.
Recording
b.
Communication.
c.
Analysis.
d.
Bookkeeping is equally involved in all parts of the accounting process.
10.
The branch of accounting that provides economic and financial information
for investors, creditors and other external
users is
Learning Objective 1.4 Identify the users and uses of accounting
*a.
financial accounting.
b.
management accounting.
c.
cost accounting.
d.
budgeting.
11.
The first step in solving an ethical dilemma is to
Learning Objective 1.4 Identify the users and uses of accounting
a.
identify and analyse the principal elements in the situation.
b.
identify the alternatives.
*c.
recognise an ethical situation and the ethical issues involved.
d.
weigh the impact of each alternative on various stakeholders.
© John Wiley & Sons Australia, Ltd 2013
1.3
Testbank to accompany Principles of financial accounting 3e by Weygandt et al
12.
Which of these is not one of the three components of triple bottom line
reporting?
Learning Objective 1.6 Understand the importance of sustainability, and
sustainability reporting, for business
a.
social reporting.
b.
environmental reporting.
*c.
ethical reporting.
d.
economic reporting.
13.
Generally accepted accounting principles are
Learning Objective 1.7 Explain the meaning of generally accepted accounting
principles and the cost principle.
a.
income tax regulations of the Taxation Department.
*b.
standards that indicate how to report economic events.
c.
theories that are based on physical laws.
d.
principles that have been proven correct by academic researchers.
14.
The cost of an asset and its fair market value are
Learning Objective 1.7 Explain the meaning of generally accepted accounting
principles and the cost principle.
a.
never the same.
b.
the same when the asset is sold.
c.
always the same.
*d.
the same on the date of acquisition.
15.
The standard setting body in Australia is the
Learning Objective 1.7 Explain the meaning of generally accepted accounting
principles and the cost principle.
*a.
Australian Accounting Standards Board
b.
Institute of Chartered Accountants in Australia.
c.
Financial Accounting Standards Board.
d.
CPA Australia.
16.
GAAP stands for
Learning Objective 1.7 Explain the meaning of generally accepted accounting
principles and the cost principle.
a.
Generally Accepted Auditing Procedures.
*b.
Generally Accepted Accounting Principles.
c.
Generally Accepted Auditing Principles.
d.
Generally Accepted Accounting Procedures.
© John Wiley & Sons Australia, Ltd 2013
1.4
Full file at http://gettestbank.eu/Test-Bank-for-Principles-of-Financial-Accounting-3rd-Edition-JerryJ-Weygandt
17.
The ACE Company has factories nationwide that cost $100 million in total.
The current market value of the factories is $180 million. Under the cost
principle the factories will be recorded and reported as assets at
Learning Objective 1.7 Explain the meaning of generally accepted accounting
principles and the cost principle.
*a.
$100 million.
b.
$80 million.
c.
$180 million.
d.
$280 million.
18.
All of the following are advantages that cost has over other approaches to asset
valuation, except
Learning Objective 1.7 Explain the meaning of generally accepted accounting
principles and the cost principle.
a.
reliability.
b.
objectivity.
c.
verifiable.
*d.
relevance.
19.
The proprietorship form of business organisation
Learning Objective 1.8 Explain the meaning of the monetary unit assumption
and the economic entity assumption
a.
must have at least two owners .
*b.
means that the owner is personally liable for business debts.
c.
has an indefinite life.
d.
is characterised by a legal distinction between the business as an
economic unit and the owner.
20.
The partnership form of business organisation
Learning Objective 1.8 Explain the meaning of the monetary unit assumption
and the economic entity assumption
a.
is a separate legal entity.
b.
has limited liability.
*c.
is a common form of organisation for service-type businesses.
d.
all of the options are correct.
21.
Which of the following is not an advantage of the company form of business
organisation?
Learning Objective 1.8 Explain the meaning of the monetary unit assumption
and the economic entity assumption
a.
A lower level of tax compared to the highest personal tax rate.
b.
Transferability of ownership.
*c.
Unlimited personal liability for shareholders.
d.
Unlimited life.
© John Wiley & Sons Australia, Ltd 2013
1.5
Testbank to accompany Principles of financial accounting 3e by Weygandt et al
22.
Which of these events cannot be quantified into dollars and cents and recorded
as an accounting transaction?
Learning Objective 1.8 Explain the meaning of the monetary unit assumption
and the economic entity assumption
*a.
The appointment of a new accounting firm to perform an audit.
b.
The purchase of a new computer.
c.
The sale of store equipment.
d.
Payment of income taxes.
23.
Deb Smith is the proprietor of Smitty's, a retailer of athletic apparel. When
recording the financial transactions of
Smitty's, Deb does not record an
entry for a car she purchased for personal use. Deb took out a personal loan to
pay
for the car. What accounting concept guides Deb's behaviour in this
situation?
Learning Objective 1.8 Explain the meaning of the monetary unit assumption
and the economic entity assumption
a.
Pay back concept.
*b.
Economic entity assumption.
c.
Cash basis concept.
d.
Monetary unit assumption.
24.
A problem with the monetary unit assumption is that
Learning Objective 1.8 Explain the meaning of the monetary unit assumption
and the economic entity assumption
*a.
the dollar has not been stable over time.
b
the dollar is a common medium of exchange.
c.
it is impossible to account for international transactions.
d.
all of the options are correct
25.
Owner's capital at the end of the period is equal to
Learning Objective 1.9 State the basic accounting equation, and explain the
meaning of assets, liabilities and owner’s
equity
a.
owner's capital at the beginning of the period plus profit minus
liabilities.
*b.
owner's capital at the beginning of the period plus profit minus
drawings.
c.
profit.
d.
assets plus liabilities.
26.
The basic accounting equation may be expressed as
Learning Objective 1.9 State the basic accounting equation, and explain the
meaning of assets, liabilities and owner’s
equity
a.
Assets = Equities.
b.
Assets – Liabilities = Owner's Equity.
c.
Assets = Liabilities + Owner's Equity.
*d.
All of the options are correct.
© John Wiley & Sons Australia, Ltd 2013
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27.
As of December 31, 2013, Anders Company has assets of $21 000 and owner's
equity of $12 000. What are the liabilities for Anders Company as of
December 31, 2013?
Learning Objective 1.9 State the basic accounting equation, and explain the
meaning of assets, liabilities and owner’s
equity
*a.
$9000.
b.
$6000.
c.
$15 000.
d.
$12 000.
28.
Liabilities
Learning Objective 1.9 State the basic accounting equation, and explain the
meaning of assets, liabilities and owner’s
equity
a.
are future economic benefits.
*b.
are claims against assets.
c.
possess service potential.
d.
are amounts owed to the owner of the business.
29.
Owner's equity can also be referred to as
Learning Objective 1.9 State the basic accounting equation, and explain the
meaning of assets, liabilities and owner’s
equity
a.
second equity.
b.
leftovers.
c.
spoils.
*d.
net assets.
30.
Revenue would not result from the
Learning Objective 1.9 State the basic accounting equation, and explain the
meaning of assets, liabilities and owner’s
equity
a.
sale of merchandise.
*b.
initial investment of cash by the owner.
c.
performance of services.
d.
rental of property to customers
31.
The Ryder’s Uptown Grill received a bill for $400 from the Erml Advertising
Agency. The owner, John Ryder, is postponing payment of the bill until a
later date. The effect on the accounting equation is
Learning Objective 1.10 Analyse the effects of business transactions on the
basic accounting equation
a.
a decrease in Cash and an increase in Accounts Payable.
b.
a decrease in Cash and an increase in J. Ryder, Capital.
*c.
an increase in Accounts Payable and a decrease in J. Ryder, Capital.
d.
a decrease in Accounts Payable and an increase in J. Ryder, Capital.
© John Wiley & Sons Australia, Ltd 2013
1.7
Testbank to accompany Principles of financial accounting 3e by Weygandt et al
32.
If total liabilities increased by $4000, then
Learning Objective 1.10 Analyse the effects of business transactions on the
basic accounting equation
a.
assets must have decreased by $4000.
b.
owner's equity must have increased by $4000.
*c.
assets must have increased by $4000, or owner's equity must have
decreased by $4000.
d.
assets and owner's equity each increased by $2000.
33.
If expenses are paid in cash, then
Learning Objective 1.10 Analyse the effects of business transactions on the
basic accounting equation
a.
assets will increase.
b.
liabilities will decrease.
c.
owner's equity will increase.
*d.
assets will decrease.
34.
If an owner makes a withdrawal of cash from the business bank account for
private use, then
Learning Objective 1.10 Analyse the effects of business transactions on the
basic accounting equation
*a.
owner's equity will decrease.
b.
there has been a violation of accounting principles.
c.
owner's equity will increase.
d.
there will be a new liability showing the owner owes money to the
business.
35.
If supplies that have been purchased are used in the course of business, then
Learning Objective 1.10 Analyse the effects of business transactions on the
basic accounting equation
a.
a liability will increase.
b.
an asset will increase.
*c.
owner's equity will decrease.
d.
owner's equity will increase.
36.
An income statement
Learning Objective 1.11 Understand what the complete set of financial
statements is and how statements are prepared
a.
summarises the changes in owner's equity for a specific period of time.
b.
reports the changes in assets, liabilities, and owner's equity over a
period of time.
c.
reports the assets, liabilities, and owner's equity at a specific date.
*d.
presents the revenue and expenses for a specific period of time.
© John Wiley & Sons Australia, Ltd 2013
1.8
Full file at http://gettestbank.eu/Test-Bank-for-Principles-of-Financial-Accounting-3rd-Edition-JerryJ-Weygandt
Use the following information for questions 37–39.
Jimmy's Car Repair Shop started the year with total assets of $90 000 and total
liabilities of $60 000. During the
year the business recorded $150 000 in
car repair revenue, $85 000 in expenses, and Jimmy withdrew $15 000.
37.
Jimmy's Capital balance at the end of the year was
Learning Objective 1.11 Understand what the complete set of financial
statements is and how statements are prepared
*a.
$80 000.
b.
$75 000.
c.
$95 000.
d.
$65 000.
38.
The profit reported by Jimmy's Car Repair Shop for the year was
Learning Objective 1.11 Understand what the complete set of financial
statements is and how statements are prepared
a.
$50 000.
*b.
$65 000.
c.
$30 000.
d.
$135 000.
39.
Jimmy's Capital balance changed by what amount from the beginning of the
year to the end of the year?
Learning Objective 1.11 Understand what the complete set of financial
statements is and how statements are prepared
*a.
$50 000.
b.
$15 000.
c.
$65 000.
d.
$30 000.
40.
The ending owner's equity amount is shown on
Learning Objective 1.11 Understand what the complete set of financial
statements is and how statements are prepared
a.
the statement of financial position only.
b.
the statement of changes in equity only.
c.
both the income statement and the statement of changes in equity.
*d.
both the statement of financial position and the statement of changes in
equity.
© John Wiley & Sons Australia, Ltd 2013
1.9
Testbank to accompany Principles of financial accounting 3e by Weygandt et al
41.
Profit results when
Learning Objective 1.11 Understand what the complete set of financial
statements is and how statements are prepared
a.
Assets > Liabilities.
*b.
Revenue > Expenses.
c.
Revenue = Expenses.
d.
Revenue < Expenses.
42.
Morreale Beaver Company buys a $12 000 van on credit. The transaction will
affect the
Learning Objective 1.11 Understand what the complete set of financial
statements is and how statements are prepared
a.
income statement only.
*b.
statement of financial position only.
c.
income statement and statement of changes in equity only.
d.
income statement, statement of changes in equity, and statement of
financial position.
43.
If the owner's equity account increases from the beginning of the year to the
end of the year, then which of these is a
possible explanation?
Learning Objective 1.11 Understand what the complete set of financial
statements is and how statements are prepared
a.
profit is less than owner drawings.
b.
a loss is less than owner drawings.
c.
additional owner investments are less than losses.
*d.
profit is greater than owner’s drawings.
44.
A major employment area in the accounting profession is:
Learning Objective 1.12 Identify the majority fields of the accounting
profession and potential accounting careers.
a.
Public accounting.
b.
Private sector accounting.
c.
Not-for-profit accounting.
*d.
All of the options are correct.
45.
The Joint Code of Professional Conduct issued by CPA Australia and the
Institute of Chartered Accountants in Australia
sets out principles of
conduct. These include all but which one of the following?
Learning Objective 1.5 Understand why ethics is a fundamental business
concept
a.
Acting with respect for confidentiality
b.
Acting with honesty
*c.
Trying to minimize the amount of tax paid
d.
Maintaining technical competence
© John Wiley & Sons Australia, Ltd 2013
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Full file at http://gettestbank.eu/Test-Bank-for-Principles-of-Financial-Accounting-3rd-Edition-JerryJ-Weygandt
46.
Keeping a systematic monetary account of economic events is the key
element of which part of the accounting process?
Learning Objective 1.1 Explain what accounting is
*a.
recording, classifying and summarising information.
b.
identifying economic events.
c.
analysing and interpreting accounting information for users.
d.
preparing accounting reports.
© John Wiley & Sons Australia, Ltd 2013
1.11