Test Bank for Financial Accounting, 7th Canadian Edition by Walter T. Harrison

TEST BANK
Kathy Falk
University of Toronto



Financial Accounting
Seventh Canadian Edition
C. William (Bill) Thomas
Baylor University

Wendy M. Tietz
Kent State University

Walter T. Harrison, Jr.
Baylor University

Greg Berberich
University of Waterloo

Catherine Seguin
University of Toronto

,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?
A) the chief executive officer
B) the board of directors
C) the audit committee
D) 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:
A) reports issued by outside consultants who are hired to analyze key operations of the business
B) reports created by management that states it is responsible for the acts of the corporation
C) standard documents that tell us how well a business is performing and where it stands in
financial terms
D) 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

, 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