ACCOUNTING IN ACTION

Principles of Financial Accounting 1st Canadian Edition 1e Jerry Weygandt

(Test Bank all Chapters, Answers at the end of each Chapter) 1 / 4

CHAPTER 1

ACCOUNTING IN ACTION

SUMMARY OF QUESTIONS BY STUDY OBJECTIVES

AND BLOOM’S TAXONOMY

Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT Exercises

1. 1 C 10. 3 K 19. 3 K 28. 5 C 37. 6 AP

2. 1 C 11. 3 K 20. 3 AP 29. 5 C 38. 6 AP

3. 1 K 12. 3 K 21. 3 K 30. 5 C 39. 6 AP

4. 2 N 13. 3 AP 22. 3 AP 31. 5 C 40. 6 AP

5. 2 C 14. 3 AP 23. 3,5 AN 32. 5 C 41. 6 AP

6. 2 C 15. 3 AP 24. 4 K 33. 5 K

7. 2 C 16. 3 AP 25. 4 C 34. 5 C

8. 2 K 17. 3 AP 26. 4 C 35. 5 AP

9. 2 K 18. 3 C 27. 4 K 36. 6 AP

Note: K = Knowledge C = Comprehension AN = Analysis AP = Application

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• - 2 Exercises for Principles of Financial Accounting, Canadian Edition

Copyright © 2014 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

SUMMARY OF QUESTIONS BY LEVEL OF DIFFICULTY (LOD)

Item SO LOD Item SO LOD Item SO LOD Item SO LOD Item SO LOD Exercises

1. 1 H 10. 3 E 19. 3 E 28. 5 M 37. 6 E

2. 1 M 11. 3 E 20. 3 H 29. 5 M 38. 6 M

3. 1 E 12. 3 E 21. 3 E 30. 5 M 39. 6 H

4. 2 E 13. 3 M 22. 3,6 M 31. 5 H 40. 6 M

5. 2 M 14. 3 E 23. 3,5 H 32. 5 H 41. 6 M

6. 2 M 15. 3 E 24. 4 M 33. 5 E

7. 2 E 16. 3 M 25. 4 M 34. 5 M

8. 2 M 17. 3 H 26. 4 E 35. 5 H

9. 2 E 18. 3 M 27. 4 E 36. 6 M

Note: E = Easy M = Medium H=Hard 3 / 4

Accounting in Action

Copyright © 2014 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

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CHAPTER STUDY OBJECTIVES

• Identify the use and users of accounting and the objective of financial reporting.

Accounting is the information system that identifies, records, and communicates the economic events of an organization to a wide variety of interested users. Good accounting is important to people both inside and outside the organization. Internal users, such as management, use accounting information to plan, control, and evaluate business operations. External users include investors and creditors, among others. Accounting data are used by investors (owners or potential owners) to decide whether to buy, hold, or sell their financial interests. Creditors (suppliers and bankers) evaluate the risks of granting credit or lending money based on the accounting information. The objective of financial reporting is to provide useful information to the investors and creditors who make these decisions. Users need information about the business’s ability to earn a profit and generate cash. For our economic system to function smoothly, reliable and ethical accounting and financial reporting are critical.

• Compare different forms of business organizations and explain how Canadian

accounting standards apply to these organizations. The most common examples of business organizations are proprietorships, partnerships, and corporations. Generally accepted accounting principles are a common set of guidelines that are used to prepare and report accounting information. In Canada, there are two sets of standards for profit- oriented businesses. Publicly accountable enterprises follow International Financial Reporting Standards (IFRS) and private enterprises have the choice of following IFRS or Accounting Standards for Private Enterprises (ASPE).The economic entity concept requires the business activities of each economic entity to be kept separate from the activities of its owner and other economic entities. The going concern assumption presumes that a business will continue operations for enough time to use its assets for their intended purpose and to fulfill its commitments.

• Describe the components of the financial statements and explain the accounting

equation. Assets, liabilities, and owner’s equity are reported in the balance sheet. Assets are resources owned or controlled by a business that are expected to provide future services or benefits. Liabilities are current obligations arising from past events to make future payments of assets or services. Owner’s equity is the owner’s claim on the company’s assets and is equal to total assets minus total liabilities. The balance sheet is

based on the accounting equation: Assets = Liabilities + Owner’s Equity.

The income statement reports the profit or loss for a specified period of time. Profit is equal to revenues minus expenses. Revenues are the increase in assets, or decrease in liabilities, that result from business activities that are done to earn profit. Expenses are the cost of assets consumed or services used in a company’s ordinary business activities. They are decreases in assets or increases in liabilities, excluding withdrawals made by the owners, and result in a decrease to owner’s equity.The statement of owner’s equity summarizes the changes in owner’s equity during the period. Owner’s equity is increased by investments by the owner and profits. It is decreased by drawings and losses. Investments are contributions of cash or other assets by owners.Drawings are withdrawals of cash or other assets from the business for the owner’s personal use. Owner’s equity in a partnership is referred to as partners’ equity and in a corporation as shareholders’ equity.

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