Test Bank for Intermediate Accounting
(Volume 1) 14th Canadian Edition by
Kieso, Weygandt, Warfield, Wiley, Wiecek,
and McConomy
Question 1
Which of the following best describes the primary purpose of financial accounting?
A. To determine the amount of income tax payable
B. To provide financial information useful for decision-making
C. To eliminate uncertainty for investors
D. To establish the market value of a company
Answer: _B. To provide financial information useful for decision-making_
Rationale: Financial accounting provides financial information to external users
such as investors, creditors, and other stakeholders so they can make informed
economic decisions.
Question 2
Which qualitative characteristic of useful financial information requires
information to be capable of influencing users' decisions?
A. Comparability
B. Verifiability
C. Relevance
D. Understandability
Answer: _C. Relevance_
Rationale: Relevant information can make a difference in users' decisions by
helping them evaluate past, present, or future events or confirm or correct
previous evaluations.
,Question 3
Under the conceptual framework, faithful representation requires financial
information to be:
A. Comparable, consistent, and timely
B. Complete, neutral, and free from error
C. Relevant, predictive, and confirmatory
D. Understandable, comparable, and verifiable
Answer: _B. Complete, neutral, and free from error_
Rationale: Faithful representation means that information depicts the economic
phenomenon it purports to represent. Completeness, neutrality, and freedom from
error are supporting aspects of faithful representation.
Question 4
A company purchases equipment for $80,000 cash. The equipment has an
estimated useful life of 10 years and no residual value. Which account is initially
increased by the transaction?
A. Equipment expense
B. Accumulated depreciation
C. Equipment
D. Retained earnings
Answer: _C. Equipment_
Rationale: The purchase creates an asset. Equipment is initially recognized at its
cost, while depreciation expense is recognized over the equipment's useful life.
Question 5
Which accounting assumption supports reporting a business separately from its
owners?
A. Going concern assumption
B. Economic entity assumption
C. Monetary unit assumption
D. Periodicity assumption
,Answer: _B. Economic entity assumption_
Rationale: The economic entity assumption treats the activities of the business as
separate from those of its owners and other economic entities.
Question 6
A company receives $12,000 cash in advance from a customer for services to be
provided over the next year. What is recorded when the cash is received?
A. Debit Cash; credit Service Revenue
B. Debit Accounts Receivable; credit Service Revenue
C. Debit Cash; credit Unearned Revenue
D. Debit Unearned Revenue; credit Cash
Answer: _C. Debit Cash; credit Unearned Revenue_
Rationale: The company has received cash but has not yet earned the revenue.
Therefore, a liability called unearned revenue is recognized until the services are
performed.
Question 7
Which financial statement reports an entity's assets, liabilities, and equity at a
specific date?
A. Statement of income
B. Statement of cash flows
C. Statement of financial position
D. Statement of changes in equity
Answer: _C. Statement of financial position_
Rationale: The statement of financial position presents the entity's financial
position at a specific point in time, including assets, liabilities, and equity.
Question 8
Under accrual accounting, revenue is generally recognized when:
A. Cash is received
B. An invoice is issued
, C. The performance obligation is satisfied
D. Management approves the transaction
Answer: _C. The performance obligation is satisfied_
Rationale: Under the revenue recognition framework, revenue is recognized when
or as the entity satisfies its performance obligation by transferring control of
goods or services to the customer.
Question 9
Which of the following would normally be classified as a current asset?
A. Land held for long-term use
B. Patent with a 15-year useful life
C. Accounts receivable expected to be collected within the operating cycle
D. Building used in business operations
Answer: _C. Accounts receivable expected to be collected within the operating
cycle_
Rationale: Accounts receivable expected to be collected within the operating cycle
generally meet the criteria for classification as current assets.
Question 10
A company has total assets of $450,000 and total liabilities of $175,000. What is
the company's total equity?
A. $175,000
B. $275,000
C. $450,000
D. $625,000
Answer: _B. $275,000_
Rationale: The accounting equation is Assets = Liabilities + Equity. Therefore,
Equity = $450,000 − $175,000 = $275,000.
Question 11
Which of the following is an example of a permanent account?
(Volume 1) 14th Canadian Edition by
Kieso, Weygandt, Warfield, Wiley, Wiecek,
and McConomy
Question 1
Which of the following best describes the primary purpose of financial accounting?
A. To determine the amount of income tax payable
B. To provide financial information useful for decision-making
C. To eliminate uncertainty for investors
D. To establish the market value of a company
Answer: _B. To provide financial information useful for decision-making_
Rationale: Financial accounting provides financial information to external users
such as investors, creditors, and other stakeholders so they can make informed
economic decisions.
Question 2
Which qualitative characteristic of useful financial information requires
information to be capable of influencing users' decisions?
A. Comparability
B. Verifiability
C. Relevance
D. Understandability
Answer: _C. Relevance_
Rationale: Relevant information can make a difference in users' decisions by
helping them evaluate past, present, or future events or confirm or correct
previous evaluations.
,Question 3
Under the conceptual framework, faithful representation requires financial
information to be:
A. Comparable, consistent, and timely
B. Complete, neutral, and free from error
C. Relevant, predictive, and confirmatory
D. Understandable, comparable, and verifiable
Answer: _B. Complete, neutral, and free from error_
Rationale: Faithful representation means that information depicts the economic
phenomenon it purports to represent. Completeness, neutrality, and freedom from
error are supporting aspects of faithful representation.
Question 4
A company purchases equipment for $80,000 cash. The equipment has an
estimated useful life of 10 years and no residual value. Which account is initially
increased by the transaction?
A. Equipment expense
B. Accumulated depreciation
C. Equipment
D. Retained earnings
Answer: _C. Equipment_
Rationale: The purchase creates an asset. Equipment is initially recognized at its
cost, while depreciation expense is recognized over the equipment's useful life.
Question 5
Which accounting assumption supports reporting a business separately from its
owners?
A. Going concern assumption
B. Economic entity assumption
C. Monetary unit assumption
D. Periodicity assumption
,Answer: _B. Economic entity assumption_
Rationale: The economic entity assumption treats the activities of the business as
separate from those of its owners and other economic entities.
Question 6
A company receives $12,000 cash in advance from a customer for services to be
provided over the next year. What is recorded when the cash is received?
A. Debit Cash; credit Service Revenue
B. Debit Accounts Receivable; credit Service Revenue
C. Debit Cash; credit Unearned Revenue
D. Debit Unearned Revenue; credit Cash
Answer: _C. Debit Cash; credit Unearned Revenue_
Rationale: The company has received cash but has not yet earned the revenue.
Therefore, a liability called unearned revenue is recognized until the services are
performed.
Question 7
Which financial statement reports an entity's assets, liabilities, and equity at a
specific date?
A. Statement of income
B. Statement of cash flows
C. Statement of financial position
D. Statement of changes in equity
Answer: _C. Statement of financial position_
Rationale: The statement of financial position presents the entity's financial
position at a specific point in time, including assets, liabilities, and equity.
Question 8
Under accrual accounting, revenue is generally recognized when:
A. Cash is received
B. An invoice is issued
, C. The performance obligation is satisfied
D. Management approves the transaction
Answer: _C. The performance obligation is satisfied_
Rationale: Under the revenue recognition framework, revenue is recognized when
or as the entity satisfies its performance obligation by transferring control of
goods or services to the customer.
Question 9
Which of the following would normally be classified as a current asset?
A. Land held for long-term use
B. Patent with a 15-year useful life
C. Accounts receivable expected to be collected within the operating cycle
D. Building used in business operations
Answer: _C. Accounts receivable expected to be collected within the operating
cycle_
Rationale: Accounts receivable expected to be collected within the operating cycle
generally meet the criteria for classification as current assets.
Question 10
A company has total assets of $450,000 and total liabilities of $175,000. What is
the company's total equity?
A. $175,000
B. $275,000
C. $450,000
D. $625,000
Answer: _B. $275,000_
Rationale: The accounting equation is Assets = Liabilities + Equity. Therefore,
Equity = $450,000 − $175,000 = $275,000.
Question 11
Which of the following is an example of a permanent account?
