THE PURPOSE AND USE OF FINANCIAL STATEMENTS

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

CHAPTER 1

THE PURPOSE AND USE OF FINANCIAL STATEMENTS

SUMMARY OF QUESTION TYPES BY STUDY OBJECTIVE AND LEVEL

OF DIFFICULTY

Item SO LOD Item SO LOD Item SO LOD Item SO LOD Item SO LOD True-False Statements

1. 1 E 11. 2 E 21. 3 M 31. 4 E 41. 4 E

2. 1 E 12. 2 E 22. 3 E 32. 4 E 42. 4 M

3. 1 E 13. 2 E 23. 3 E 33. 4 E 43. 4 E

4. 1 E 14. 2 E 24. 3 M 34. 4 E 44. 4 E

5. 1 E 15. 2 E 25. 3 E 35. 4 E 45. 4 M

6. 1 E 16. 3 E 26. 4 M 36. 4 E 46. 4 E

7. 1 E 17. 3 E 27. 4 E 37. 4 E

8. 1 E 18. 3 M 28. 4 M 38. 4 E

9. 1 E 19. 3 M 29. 4 M 39. 4 E

10. 1 E 20. 3 E 30. 4 E 40. 4 M

Multiple Choice Questions

47. 1 E 60. 2 E 73. 3 E 86. 4 M 99. 4 M

48. 1 E 61. 2 E 74. 3 E 87. 4 H 100. 4 M

49. 1 M 62. 2 E 75. 3 E 88. 4 E 101. 4 E

50. 1 M 63. 2 E 76. 3 E 89. 4 M 102. 4 M

51. 1 E 64. 2 M 77. 3 E 90. 4 E 103. 4 M

52. 1 E 65. 2 E 78. 3 E 91. 4 E 104. 4 M

53. 1 E 66. 2 M 79. 3 E 92. 4 E 105. 4 E

54. 1 E 67. 3 E 80. 3 E 93. 4 E 106. 4 E

55. 1 E 68. 3 E 81. 3 E 94. 4 H 107. 4 E

56. 1 E 69. 3 E 82. 4 M 95. 4 M 108. 4 E

57. 2 M 70. 3 E 83. 4 M 96. 4 M 109. 4 E

58. 2 M 71. 3 E 84. 4 E 97. 4 M 110. 4 H

59. 2 M 72. 3 M 85. 4 E 98. 4 M

Exercises

111. 3 M 116. 4 M 121. 4 E 126. 4 E 131. 4 M

112. 3 M 117. 4 E 122. 4 H 127. 4 E 132. 4 H

113. 4 H 118. 4 E 123. 4 E 128. 4 E

114. 4 M 119. 4 M 124. 4 E 129. 4 M

115. 4 E 120. 4 H 125. 4 E 130. 4 E

Matching

133. 1–4 E,M

Short-Answer Essay

134. 1 E 136. 2 M 138. 4 E 140. 4 E

135. 1,2 M 137. 4 M 139. 4 M 141. 4 M

Note: E = Easy M = Medium H = Hard

Financial Accounting Tools for Business Decision-Making 6th Canadian Edition 6e Kimmel Weygandt Kieso Trenholm Irvine (Test Bank All Chapters, 100% Original Verified, A+ Grade) Answers At The End Of Each Chapter 1 / 4

Test Bank for Financial Accounting: Tools for Business Decision-Making, 6th Canadian Edition

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

• - 2

SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE

Item Type Item Type Item Type Item Type Item Type Item Type Item Type Study Objective 1

• TF 5. TF 9. TF 49. MC 53. MC 133-1. Ma

2. TF 6. TF 10. TF 50. MC 54. MC 134. SAE

3. TF 7. TF 47. MC 51. MC 55. MC 135. SAE

4. TF 8. TF 48. MC 52. MC 56. MC

Study Objective 2

• TF 14. TF 58. MC 61. MC 64. MC 133-2. Ma 136. SAE
• TF 15. TF 59. MC 62. MC 65. MC 133-3. Ma

13. TF 57. MC 60. MC 63. MC 66. MC 135. SAE

Study Objective 3

• TF 21. TF 67. MC 72. MC 77. MC 111. Ex 133-7. Ma
• TF 22. TF 68. MC 73. MC 78. MC 112. Ex 133-8. Ma
• TF 23. TF 69. MC 74. MC 79. MC 133-4. Ma
• TF 24. TF 70. MC 75. MC 80. MC 133-5. Ma
• TF 25. TF 71. MC 76. MC 81. MC 133-6. Ma

Study Objective 4

• TF 37. TF 83. MC 94. MC 105. MC 118. Ex 129. Ex
• TF 38. TF 84. MC 95. MC 106. MC 119. Ex 130. Ex
• TF 39. TF 85. MC 96. MC 107. MC 120. Ex 131. Ex
• TF 40. TF 86. MC 97. MC 108. MC 121. Ex 132. Ex
• TF 41. TF 87. MC 98. MC 109. MC 122. Ex 133-9. Ma
• TF 42. TF 88. MC 99. MC 110. MC 123. Ex 133-10. Ma
• TF 43. TF 89. MC 100. MC 113. Ex 124. Ex 137. SAE
• TF 44. TF 90. MC 101. MC 114. Ex 125. Ex 138. SAE
• TF 45. TF 91. MC 102. MC 115. Ex 126. Ex 139. SAE
• TF 46. TF 92. MC 103. MC 116. Ex 127. Ex 140. SAE
• TF 82. MC 93. MC 104. MC 117. Ex 128. Ex 141. SAE

Note: TF = True-False Ma = Matching

MC = Multiple Choice Ex = Exercise SAE = Short-Answer Essay 2 / 4

The Purpose and Use of Financial Statements

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

• - 3

CHAPTER STUDY OBJECTIVES

• Identify the users and uses of accounting. The purpose of accounting is to provide

useful information for decision-making. There are two types of user groups who use accounting information: internal and external users. Internal users work for the business and need accounting information to plan, organize, and run operations. The primary external users are investors, lenders and other creditors. Investors (existing and potential shareholders) use accounting information to help decide whether to buy, hold, or sell shares. Lenders (such as bankers) and other creditors (such as suppliers) use accounting information to evaluate the risk of granting credit or lending money to a business. In order for financial information to have value to its users, both internal and external, it must be prepared by individuals with high standards of ethical behaviour.

• Describe the primary forms of business organizations. There are three types of

organizations that use accounting information: proprietorships, partnerships, and corporations. A proprietorship is a business owned by one person. A partnership is a business owned by two or more people. A corporation is a separate legal entity whose shares provide evidence of ownership. Corporations can be public or private, which means their shares are closely held.Generally accepted accounting principles are a common set of guidelines, which can differ depending on the form of business organization, that are used to record and report economic events. Public corporations follow International Financial Reporting Standards (IFRS) and private corporations have the choice of using IFRS or Accounting Standards for Private Enterprises (ASPE). Proprietorships and partnerships generally follow ASPE.

• Explain the three main types of business activity. Financing activities involve raising the

necessary funds (through debt or equity) to support the business. Investing activities involve acquiring the resources (such as property, plant, and equipment) that are needed to run the business. Operating activities involve putting the resources of the business into action to generate a profit.

• Describe the purpose and content of each of the financial statements. The income

statement presents the revenues and expenses of a company for a specific period of time.The statement of changes in equity summarizes the changes in shareholders’ equity that have occurred for a specific period of time. The statement of financial position reports the assets, liabilities, and shareholders’ equity of a business at a specific date. The statement of cash flows summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time. Notes to the financial statements add explanatory detail where required. The financial statements are included in an annual report, along with nonfinancial and other financial information. 3 / 4

Test Bank for Financial Accounting: Tools for Business Decision-Making, 6th Canadian Edition

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

• - 4

TRUE-FALSE STATEMENTS

• Accounting identifies and records economic events of a business.

• High standards of ethics are not required for preparers of financial information.

• Accounting information is not important to marketing managers.

• Shareholders and creditors are the only people who need accounting information.

• The Canada Revenue Agency is the major external user of information.

• External users of accounting information include the managers who plan, organize, and run a

business.

• The information needs and questions of external users vary considerably.

• Authorities, such as the Canada Revenue Agency, want to know whether a business

complies with the tax laws.

• Accounting communicates financial information about a business to both internal and external

users.

• Two internal users of accounting information are investors and managers.

• A partnership is a business organized as a separate legal entity.

• A proprietor has unlimited liability.

• The liability of corporate shareholders is limited to the amount of their investment.

• A private corporation is one whose shares are traded on an organized stock exchange, like

the Toronto Stock Exchange.

• A proprietorship is usually operated by the owner.
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