lOMoARcPSD| 27435123
TEST BANK FOR ACCOUNTING
PRINCIPLES, 9TH CANADIAN EDITION,
JERRY J. WEYGANDT, DONALD E. KIESO.
CHAPTER 1
ACCOUNTING IN ACTION
CHAPTER LEARNING OBJECTIVES
1. Identify the uses and users of accounting and the objective of financial reporting.
Accounting is the information system that identifies, records, and communicates the economic
events of an organization to a wide variety of interested users. Good accounting is important to
people both inside and outside the organization. Internal users, such as management, use
accounting information to plan, control, and evaluate business operations. External users
include investors and creditors, among others. Accounting data are used by investors (owners
or potential owners) to decide whether to buy, hold, or sell their financial interests. Creditors
(suppliers and bankers) evaluate the risks of granting credit or lending money based on the
accounting information. The objective of financial reporting is to provide useful information to
investors and creditors to make these decisions. Users need information about the business’s
ability to earn a profit and generate cash. For our economic system to function smoothly,
reliable and ethical accounting and financial reporting are critical.
2. Compare the different forms of business organization. The most common examples
of business organization are proprietorships, partnerships, and corporations. Proprietorships
and partnerships are not separate legal entities but are separate entities for accounting
purposes; income taxes are paid by the owners and owners have unlimited liability.
Corporations are separate legal entities as well as separate entities for accounting purposes;
income taxes are paid by the corporation and owners of the corporation have limited liability.
3. Explain the building blocks of accounting: ethics and the concepts included in the
conceptual framework. Generally accepted accounting principles are a common set of
guidelines that are used to prepare and report accounting information. The conceptual
framework outlines some of the body of theory used by accountants to fulfill their goal of
providing useful accounting information to users. Ethical behaviour is fundamental to fulfilling
the objective of financial accounting. The reporting entity concept requires the business
activities of each reporting entity to be kept separate from the activities of its owner and other
economic entities. The going concern assumption presumes that a business will continue
operations for enough time to use its assets for their intended purpose and to fulfill its
commitments. The periodicity concept requires businesses to divide up economic activities into
distinct periods of time. Qualitative characteristics include fundamental and enhancing
characteristics that help to ensure accounting information is useful.
, lOMoARcPSD| 27435123
Only events that cause changes in the business’s economic resources or changes to the claims
on those resources are recorded. Recognition is the process of recording transactions and
measurement is the process of determining the amount that should be recognized. The
historical cost concept states that economic resources should be recorded at their historical
(original) cost. Fair value may be a more appropriate measure for certain types of resources.
TRUE-FALSE STATEMENTS
1. Accounting is the information system that identifies, records, and communicates the economic
events of an organization to a wide variety of interested users.
CORR ANS: True
2. A working knowledge of accounting can be useful to doctors or lawyers.
CORR ANS: True
3. The main objective of financial statements is to provide useful information to management.
CORR ANS: False
4. Sales managers are an example of an external user of accounting information.
CORR ANS: False
5. Creditors are an example of an internal user of accounting information.
CORR ANS: False
6. Accounting information is used only by external users with a direct financial interest in a
company.
CORR ANS: False
7. In a proprietorship, there may be two or more owners.
CORR ANS: False
8. One of the disadvantages of a proprietorship is that there is unlimited liability for the owner.
CORR ANS: True
9. Under the proprietorship form of business organization, no legal distinction is made between
the business as an economic unit and its owner.
CORR ANS: True
, lOMoARcPSD| 27435123
10. A partnership must have at least two people in the partnership.
CORR ANS: True
11. In a partnership, all of the partners will generally have unlimited liability for the debts of the
partnerships.
CORR ANS: True
12. A corporation may only be formed under federal legislation.
CORR ANS: False
13. A corporation is only subject to the federal laws of corporations.
CORR ANS: False
14. A corporation may be formed under provincial, federal, or territorial legislation.
CORR ANS: True
, lOMoARcPSD| 27435123
15. A corporation’s ownership is divided into transferable shares.
CORR ANS: True
16. One of the main advantages of a corporation is limited liability for the shareholders of the
corporation.
CORR ANS: True
17. Owners of a corporation are responsible for reporting the business profits on their personal
income tax returns. CORR ANS: False
18. An advantage of the corporation is that the shares of the corporation are easily transferable.
CORR ANS: True
19. Ethics are critical in the preparation of accounting information.
CORR ANS: True
TEST BANK FOR ACCOUNTING
PRINCIPLES, 9TH CANADIAN EDITION,
JERRY J. WEYGANDT, DONALD E. KIESO.
CHAPTER 1
ACCOUNTING IN ACTION
CHAPTER LEARNING OBJECTIVES
1. Identify the uses and users of accounting and the objective of financial reporting.
Accounting is the information system that identifies, records, and communicates the economic
events of an organization to a wide variety of interested users. Good accounting is important to
people both inside and outside the organization. Internal users, such as management, use
accounting information to plan, control, and evaluate business operations. External users
include investors and creditors, among others. Accounting data are used by investors (owners
or potential owners) to decide whether to buy, hold, or sell their financial interests. Creditors
(suppliers and bankers) evaluate the risks of granting credit or lending money based on the
accounting information. The objective of financial reporting is to provide useful information to
investors and creditors to make these decisions. Users need information about the business’s
ability to earn a profit and generate cash. For our economic system to function smoothly,
reliable and ethical accounting and financial reporting are critical.
2. Compare the different forms of business organization. The most common examples
of business organization are proprietorships, partnerships, and corporations. Proprietorships
and partnerships are not separate legal entities but are separate entities for accounting
purposes; income taxes are paid by the owners and owners have unlimited liability.
Corporations are separate legal entities as well as separate entities for accounting purposes;
income taxes are paid by the corporation and owners of the corporation have limited liability.
3. Explain the building blocks of accounting: ethics and the concepts included in the
conceptual framework. Generally accepted accounting principles are a common set of
guidelines that are used to prepare and report accounting information. The conceptual
framework outlines some of the body of theory used by accountants to fulfill their goal of
providing useful accounting information to users. Ethical behaviour is fundamental to fulfilling
the objective of financial accounting. The reporting entity concept requires the business
activities of each reporting entity to be kept separate from the activities of its owner and other
economic entities. The going concern assumption presumes that a business will continue
operations for enough time to use its assets for their intended purpose and to fulfill its
commitments. The periodicity concept requires businesses to divide up economic activities into
distinct periods of time. Qualitative characteristics include fundamental and enhancing
characteristics that help to ensure accounting information is useful.
, lOMoARcPSD| 27435123
Only events that cause changes in the business’s economic resources or changes to the claims
on those resources are recorded. Recognition is the process of recording transactions and
measurement is the process of determining the amount that should be recognized. The
historical cost concept states that economic resources should be recorded at their historical
(original) cost. Fair value may be a more appropriate measure for certain types of resources.
TRUE-FALSE STATEMENTS
1. Accounting is the information system that identifies, records, and communicates the economic
events of an organization to a wide variety of interested users.
CORR ANS: True
2. A working knowledge of accounting can be useful to doctors or lawyers.
CORR ANS: True
3. The main objective of financial statements is to provide useful information to management.
CORR ANS: False
4. Sales managers are an example of an external user of accounting information.
CORR ANS: False
5. Creditors are an example of an internal user of accounting information.
CORR ANS: False
6. Accounting information is used only by external users with a direct financial interest in a
company.
CORR ANS: False
7. In a proprietorship, there may be two or more owners.
CORR ANS: False
8. One of the disadvantages of a proprietorship is that there is unlimited liability for the owner.
CORR ANS: True
9. Under the proprietorship form of business organization, no legal distinction is made between
the business as an economic unit and its owner.
CORR ANS: True
, lOMoARcPSD| 27435123
10. A partnership must have at least two people in the partnership.
CORR ANS: True
11. In a partnership, all of the partners will generally have unlimited liability for the debts of the
partnerships.
CORR ANS: True
12. A corporation may only be formed under federal legislation.
CORR ANS: False
13. A corporation is only subject to the federal laws of corporations.
CORR ANS: False
14. A corporation may be formed under provincial, federal, or territorial legislation.
CORR ANS: True
, lOMoARcPSD| 27435123
15. A corporation’s ownership is divided into transferable shares.
CORR ANS: True
16. One of the main advantages of a corporation is limited liability for the shareholders of the
corporation.
CORR ANS: True
17. Owners of a corporation are responsible for reporting the business profits on their personal
income tax returns. CORR ANS: False
18. An advantage of the corporation is that the shares of the corporation are easily transferable.
CORR ANS: True
19. Ethics are critical in the preparation of accounting information.
CORR ANS: True
