© 2015 Pearson Canada Inc. 1-1
,Chapter 1 The Financial Statements
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1.1 Explain why accounting is the language of business l l l l l l l
1) Which of the following persons or groups have the ultimate control of a corporation?
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A) the chief executive officer
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B) the board of directors
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C) the audit committee
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D) the shareholders
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Answer: D l
Diff: 2 Type: MC L.
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2) Financial statements are: l l
A) reports issued by outside consultants who are hired to analyze key operations of the business
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B) reports created by management that states it is responsible for the acts of the corporation
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C) standard documents that tell us how well a business is performing and where it stands in financial term
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s
D) standard documents issued by outside consultants who are hired to analyze key operations of the busi
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ness in financial terms
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Answer: C l
Diff: 1 Type: MC L.
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3) The accounting equation can be stated as:
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A) Assets + Liabilities = Shareholders' equity
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B) Assets = Liabilities + Shareholders' equity
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C) Assets = Liabilities - Shareholders' equity
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D) Assets + Shareholders' equity = Liabilities
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Answer: B l
Diff: 1 Type: MC L.
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4) The owners' interest in the assets of a corporation is known as:
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A) assets
B) shareholders' equity l
C) expenses
D) revenues
Answer: B
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Diff: 1 Type: MC L.
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© 2015 Pearson Canada Inc. 1-2
,5) On January 1, 2014, total assets for Liftoff Technologies were $125,000; on December 31, 2014, total asse
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ts were $145,000. On January 1, 2014, total liabilities were $110,000; on December 31, 2014, total liabilities
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were $115,000. What are the amount of the change and the direction of the change in Liftoff Technologies s
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hareholders' equity for 2014? l l l
A) decrease of $15,000 l l
B) increase of $15,000 l l
C) increase of $30,000 l l
D) decrease of $30,000 l l l
Answer: B l
Diff: 2 Type: MC L.
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6) Claims held by the shareholders (owners) of a corporation are referred to as:
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A) retained earnings l
B) share capital l
C) share capital minus retained earnings
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D) share capital plus retained earnings
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Answer: D l
Diff: 3 Type: MC L.
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7) Payables are classified as: l l l
A) increases in earnings l l
B) assets
C) decreases in earnings l l
D) liabilities l
Answer: D l
Diff: 1 Type: MC L.
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8) Receivables are classified as: l l l
A) increases in earnings l l
B) assets
C) decreases in earnings l l
D) liabilities l
Answer: B l
Diff: 1 Type: MC L.
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9) Revenues are: l
A) increases in liabilities resulting from delivering goods or services to customers
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B) increases in retained earnings resulting from delivering goods or services to customers
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C) decreases in assets resulting from delivering goods or services to customers
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D) decreases in retained earnings resulting from delivering goods or services to customers An
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swer: B l
Diff: 2 Type: MC L.
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© 2015 Pearson Canada Inc. 1-3
, 10) If assets increase $120,000 during a given period and liabilities decrease $25,000 during the same peri
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od, shareholders' equity must:
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A) increase $95,000 l
B) decrease $145,000 l
C) decrease $95,000 l
D) increase $145,000 l l
Answer: D l
Diff: 3 Type: MC L.
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11) If liabilities increase $120,000 during a given period and shareholders' equity decreases $25,000 during the
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same period, assets must:
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A) decrease $145,000 l
B) increase $145,000 l
C) increase $95,000 l
D) decrease $95,000 l l
Answer: C l
Diff: 3 Type: MC L.
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12) Expenses are: l
A) increases in assets resulting from operations l l l l l
B) increases in retained earnings resulting from operations
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C) increases in liabilities resulting from purchasing assets
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D) decreases in retained earnings resulting from operations A l l l l l l l
nswer: D l
Diff: 2 Type: MC L.
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13) How do revenues for a period relate to the beginning and ending balances in retained earnings?
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A) Revenues will increase the beginning balance of retained earnings for the period.
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B) Revenues will decrease the beginning balance of retained earnings for the period.
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C) Revenues less expenses will either increase or decrease the beginning balance of retained earnings for the
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period.
D) Revenues less expenses will either increase or decrease the ending balance of retained earnings for the peri
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od.
Answer: D l
Diff: 2 Type: MC L.
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14) Which of the following best describes a liability?
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A) Liabilities are a form of share capital. l l l l l l
B) Liabilities are future economic benefits to which a company is entitled.
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C) Liabilities are accounts receivable of the company. l l l l l l
D) Liabilities are economic obligations to creditors to be paid at some future date by the company. Ans
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wer: D l
Diff: 1 Type: MC L.
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15) Shareholders' equity for Raisin Corporation on January 1, 2014 and December 31, 2014 were $60,000 and $7
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5,000, respectively. Assets on January 1, 2014 and December 31, 2014 were $115,000 and $105,000, respectively.
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Liabilities on January 1, 2014 were $55,000. What is the amount of liabilities on December 31, 2014?
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A) $40,000
© 2015 Pearson Canada Inc. 1-4
,Chapter 1 The Financial Statements
l l l l l
1.1 Explain why accounting is the language of business l l l l l l l
1) Which of the following persons or groups have the ultimate control of a corporation?
l l l l l l l l l l l l l
A) the chief executive officer
l l l
B) the board of directors
l l l
C) the audit committee
l l
D) the shareholders
l l
Answer: D l
Diff: 2 Type: MC L.
l l l l
O.: L.O. 1-1
l l
2) Financial statements are: l l
A) reports issued by outside consultants who are hired to analyze key operations of the business
l l l l l l l l l l l l l l
B) reports created by management that states it is responsible for the acts of the corporation
l l l l l l l l l l l l l l
C) standard documents that tell us how well a business is performing and where it stands in financial term
l l l l l l l l l l l l l l l l l
s
D) standard documents issued by outside consultants who are hired to analyze key operations of the busi
l l l l l l l l l l l l l l l
ness in financial terms
l l l
Answer: C l
Diff: 1 Type: MC L.
l l l l
O.: L.O. 1-1
l l
3) The accounting equation can be stated as:
l l l l l l
A) Assets + Liabilities = Shareholders' equity
l l l l l
B) Assets = Liabilities + Shareholders' equity
l l l l l
C) Assets = Liabilities - Shareholders' equity
l l l l l
D) Assets + Shareholders' equity = Liabilities
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Answer: B l
Diff: 1 Type: MC L.
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O.: L.O. 1-1
l l
4) The owners' interest in the assets of a corporation is known as:
l l l l l l l l l l l
A) assets
B) shareholders' equity l
C) expenses
D) revenues
Answer: B
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Diff: 1 Type: MC L.
l l l l
O.: L.O. 1-1
l l
© 2015 Pearson Canada Inc. 1-2
,5) On January 1, 2014, total assets for Liftoff Technologies were $125,000; on December 31, 2014, total asse
l l l l l l l l l l l l l l l l
ts were $145,000. On January 1, 2014, total liabilities were $110,000; on December 31, 2014, total liabilities
l l l l l l l l l l l l l l l l l
were $115,000. What are the amount of the change and the direction of the change in Liftoff Technologies s
l l l l l l l l l l l l l l l l l l
hareholders' equity for 2014? l l l
A) decrease of $15,000 l l
B) increase of $15,000 l l
C) increase of $30,000 l l
D) decrease of $30,000 l l l
Answer: B l
Diff: 2 Type: MC L.
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O.: L.O. 1-1
l l
6) Claims held by the shareholders (owners) of a corporation are referred to as:
l l l l l l l l l l l l
A) retained earnings l
B) share capital l
C) share capital minus retained earnings
l l l l
D) share capital plus retained earnings
l l l l l
Answer: D l
Diff: 3 Type: MC L.
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O.: L.O. 1-1
l l
7) Payables are classified as: l l l
A) increases in earnings l l
B) assets
C) decreases in earnings l l
D) liabilities l
Answer: D l
Diff: 1 Type: MC L.
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O.: L.O. 1-1
l l
8) Receivables are classified as: l l l
A) increases in earnings l l
B) assets
C) decreases in earnings l l
D) liabilities l
Answer: B l
Diff: 1 Type: MC L.
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O.: L.O. 1-1
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9) Revenues are: l
A) increases in liabilities resulting from delivering goods or services to customers
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B) increases in retained earnings resulting from delivering goods or services to customers
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C) decreases in assets resulting from delivering goods or services to customers
l l l l l l l l l l
D) decreases in retained earnings resulting from delivering goods or services to customers An
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swer: B l
Diff: 2 Type: MC L.
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O.: L.O. 1-1
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© 2015 Pearson Canada Inc. 1-3
, 10) If assets increase $120,000 during a given period and liabilities decrease $25,000 during the same peri
l l l l l l l l l l l l l l l
od, shareholders' equity must:
l l l
A) increase $95,000 l
B) decrease $145,000 l
C) decrease $95,000 l
D) increase $145,000 l l
Answer: D l
Diff: 3 Type: MC L.
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O.: L.O. 1-1
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11) If liabilities increase $120,000 during a given period and shareholders' equity decreases $25,000 during the
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same period, assets must:
l l l
A) decrease $145,000 l
B) increase $145,000 l
C) increase $95,000 l
D) decrease $95,000 l l
Answer: C l
Diff: 3 Type: MC L.
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O.: L.O. 1-1
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12) Expenses are: l
A) increases in assets resulting from operations l l l l l
B) increases in retained earnings resulting from operations
l l l l l l
C) increases in liabilities resulting from purchasing assets
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D) decreases in retained earnings resulting from operations A l l l l l l l
nswer: D l
Diff: 2 Type: MC L.
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O.: L.O. 1-1
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13) How do revenues for a period relate to the beginning and ending balances in retained earnings?
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A) Revenues will increase the beginning balance of retained earnings for the period.
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B) Revenues will decrease the beginning balance of retained earnings for the period.
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C) Revenues less expenses will either increase or decrease the beginning balance of retained earnings for the
l l l l l l l l l l l l l l l l
period.
D) Revenues less expenses will either increase or decrease the ending balance of retained earnings for the peri
l l l l l l l l l l l l l l l l
od.
Answer: D l
Diff: 2 Type: MC L.
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14) Which of the following best describes a liability?
l l l l l l l
A) Liabilities are a form of share capital. l l l l l l
B) Liabilities are future economic benefits to which a company is entitled.
l l l l l l l l l l
C) Liabilities are accounts receivable of the company. l l l l l l
D) Liabilities are economic obligations to creditors to be paid at some future date by the company. Ans
l l l l l l l l l l l l l l l l
wer: D l
Diff: 1 Type: MC L.
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O.: L.O. 1-1
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15) Shareholders' equity for Raisin Corporation on January 1, 2014 and December 31, 2014 were $60,000 and $7
l l l l l l l l l l l l l l l l
5,000, respectively. Assets on January 1, 2014 and December 31, 2014 were $115,000 and $105,000, respectively.
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Liabilities on January 1, 2014 were $55,000. What is the amount of liabilities on December 31, 2014?
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A) $40,000
© 2015 Pearson Canada Inc. 1-4
