Seguin, Har Test - Financial Accounting, Cdn. Ed., 7CE (Harrison/H...

Financial Accounting, 7th Canadian Edition, Harrison, Tietz, Berberich, Seguin, Seguin, Har (Test Bank All Chapters)

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1 © 2021 Pearson Canada Inc.Financial Accounting, Cdn. Ed., 7CE (Harrison/Horngren) 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?

• the chief executive officer
• the board of directors
• the audit committee
• the shareholders

Answer: D

Diff: 2 Type: MC

L.O.: 1-1

CPA COMPETENCIES: Chapter 1

1.1.1 Evaluates financial reporting needs

1.1.2 Evaluates the appropriateness of the basis of financial reporting

1.1.3 Evaluates reporting processes to support reliable financial reporting

2) Financial statements are:

• reports issued by outside consultants who are hired to analyze key operations of the business
• reports created by management that states it is responsible for the acts of the corporation
• standard documents that tell us how well a business is performing and where it stands in

financial terms

• 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.: 1-1

CPA COMPETENCIES: Chapter 1

1.1.1 Evaluates financial reporting needs

1.1.2 Evaluates the appropriateness of the basis of financial reporting

1.1.3 Evaluates reporting processes to support reliable financial reporting

3) Since they are both the same activities, the terms "accounting" and "bookkeeping" are synonymous and can be used interchangeably.

Answer: FALSE

Explanation: Bookkeeping is a mechanical part of accounting. Accounting requires an understanding of the principles used.Diff: 2 Type: TF

L.O.: 1-1

CPA COMPETENCIES: Chapter 1

1.1.1 Evaluates financial reporting needs

1.1.2 Evaluates the appropriateness of the basis of financial reporting

1.1.3 Evaluates reporting processes to support reliable financial reporting

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2 © 2021 Pearson Canada Inc.4) The three forms of business organizations are proprietorships, partnerships, and non-profit organizations.

Answer: FALSE

Explanation: Proprietorships, partnerships, and Corporations.

Diff: 1 Type: TF

L.O.: 1-1

CPA COMPETENCIES: Chapter 1

1.1.1 Evaluates financial reporting needs

1.1.2 Evaluates the appropriateness of the basis of financial reporting

1.1.3 Evaluates reporting processes to support reliable financial reporting

5) Accounting is called an information system since it measures business activities, processes data into reports, and communicates results to decision makers.

Answer: TRUE

Diff: 1 Type: TF

L.O.: 1-1

CPA COMPETENCIES: Chapter 1

1.1.1 Evaluates financial reporting needs

1.1.2 Evaluates the appropriateness of the basis of financial reporting

1.1.3 Evaluates reporting processes to support reliable financial reporting

6) From a legal perspective, proprietors, partners, and shareholders are personally liable for a corporation's debts.

Answer: FALSE

Explanation: Shareholders are not personally liable for a corporation.

Diff: 2 Type: TF

L.O.: 1-1

CPA COMPETENCIES: Chapter 1

1.1.1 Evaluates financial reporting needs

1.1.2 Evaluates the appropriateness of the basis of financial reporting

1.1.3 Evaluates reporting processes to support reliable financial reporting

7) From an accounting viewpoint, a proprietorship is a distinct and separate entity from the proprietor.

Answer: TRUE

Diff: 2 Type: TF

L.O.: 1-1

CPA COMPETENCIES: Chapter 1

1.1.1 Evaluates financial reporting needs

1.1.2 Evaluates the appropriateness of the basis of financial reporting

1.1.3 Evaluates reporting processes to support reliable financial reporting

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3 © 2021 Pearson Canada Inc.8) The owners' equity of proprietorships and partnerships is different.

Answer: TRUE

Diff: 2 Type: TF

L.O.: 1-1

CPA COMPETENCIES: Chapter 1

1.1.1 Evaluates financial reporting needs

1.1.2 Evaluates the appropriateness of the basis of financial reporting

1.1.3 Evaluates reporting processes to support reliable financial reporting

9) Financial accounting information is prepared exclusively for external users.

Answer: FALSE

Explanation: Financial accounting information is prepared for both internal and external users.Diff: 1 Type: TF

L.O.: 1-1

CPA COMPETENCIES: Chapter 1

1.1.1 Evaluates financial reporting needs

1.1.2 Evaluates the appropriateness of the basis of financial reporting

1.1.3 Evaluates reporting processes to support reliable financial reporting

10) Management accounting is prepared primarily for external users.

Answer: FALSE

Explanation: Management accounting is prepared primarily for internal users.

Diff: 1 Type: TF

L.O.: 1-1

CPA COMPETENCIES: Chapter 1

1.1.1 Evaluates financial reporting needs

1.1.2 Evaluates the appropriateness of the basis of financial reporting

1.1.3 Evaluates reporting processes to support reliable financial reporting

11) One benefit of organizing a business as a proprietorship is that the proprietor is not required to pay income tax on the business' earnings.

Answer: FALSE

Explanation: The proprietor must report the proprietorship's income on his or her personal tax return.Diff: 1 Type: TF

L.O.: 1-1

CPA COMPETENCIES: Chapter 1

1.1.1 Evaluates financial reporting needs

1.1.2 Evaluates the appropriateness of the basis of financial reporting

1.1.3 Evaluates reporting processes to support reliable financial reporting

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