© i#2015 i#Pearson i#Canada 1-1
i#Inc.
,Chapter i#1 i # Thel i#Financial i#Statements
1.1 Explainwhy#iaccountingisthelanguageofbusiness
1) Whichofthefollowingpersons i#orgroupshave i#the i#ultimatelcontrolofa i#corporation?
A) thechief i#executive i#officer
B) thei#boardofdirectors
C) theauditcommittee
D) theshareholders
i#Answer: i#D
Diff:2
i # Type:MClL.
O.: i#L.O.#i1-1
2) Financialstatementsare:
A) reportsissued i#byoutsideconsultantslwho i#are i#hired i#to i#analyze i#key i#operationslofthe i#business
B) reportslcreated i#by i#managementthat i#states i#itislresponsible i#forthe i#actslofthe i#corporation
C) standard#idocuments#ithatltelluslhow#iwell#iabusiness#iisperforming#iand#iwhere#iitlstands#iinfinanciali#term
i#s
D) standard#idocuments#iissuedi#by#ioutside#iconsultantslwho#iare#ihired#ito#ianalyze#ikey#ioperations#iofthelbusi
i#nessinfinanciali#terms
Answer: i# C
Diff:1
i # Type:MClL.
O.: i#L.O.#i1-1
3) Thelaccountingequationcan i#be i#stated i#as:
A) Assets+ i#Liabilities i#=lShareholders' i#equity
B) Assetsl=lLiabilitiesl+Shareholders' i # equity
C) Assetsl=lLiabilities i#-lShareholders' i#equity
D) Assets+Shareholders'#iequity#i=Liabilities
i#Answer: i#B
Diff:1
i # Type:MCi#L.
O.: i#L.O.#i1-1
4) Thelowners'i#interesti#ini#thelassetsi#ofacorporationislknownlas:
A) assets
B) shareholders' i#equity
C) expenses
D) revenues
i#Answer:
i#B
Diff:1
i # Type:MClL.
O.: i#L.O.#i1-1
© i#2015 i#Pearson i#Canada 1-2
i#Inc.
,5) On i#January i#1, i#2014, i#total i#assets i#for i#Liftoff i#Technologies i#were i#$125,000; i#on i#December i#31, i#2014,
i#total i#asse i#tslwere i#$145,000. i#On i#January i#1, i#2014, i#total i#liabilities i#were i#$110,000; i#on i#December i#31,
i#2014, i#total i#liabilities i#were i#$115,000. i#What i#are i#theamountofthe i#change i#and
i#theldirectionofthelchange i#in i#Liftoff i#Technologies i#s i#hareholders' i#equity i#for i#2014?
A) decreaselofi#$15,000
B) increaseof$15,000
C) increasei#ofl$30,000
D) decreaselof$30,000
i#Answer: i#B
Diff:2
i # Type:MClL.
O.: i#L.O.#i1-1
6) Claimsheld i#bytheshareholders(owners)i#ofacorporationlare#ireferredi#toi#as:
A) retainedearnings
B) share#icapital
C) sharelcapitalminuslretained i#earnings
D) sharecapitalplusretainedearningsl
i # Answer: i#D
Diff:3
i # Type:MClL.
O.: i#L.O.#i1-1
7) Payablesarelclassifiedas:
A) increaseslinlearnings
B) assets
C) decreasesi#ini#earnings
D) liabilities
i#Answer:
i#D
Diff:1
i # Type:MClL.
O.: i#L.O.#i1-1
8) Receivableslareclassifiedas:
A) increaseslinlearnings
B) assets
C) decreasesi#ini#earnings
D) liabilities
i#Answer:
i#B
Diff:1
i # Type:MClL.
O.: i#L.O.#i1-1
9) Revenueslare:
A) increasesinlliabilitieslresultingfromdeliveringlgoodsorservicestocustomers
B) increasesinretainedearningsresultinglfromdeliveringgoodsorservicesto i # customers
C) decreases#iinassets#iresulting#ifromldeliveringgoodsorserviceslto#icustomers
D) decreasesi#inlretained#iearningsresultinglfromdeliveringi#goodsorserviceslto#icustomersi#An
i#swer: i#B
Diff:2
i # Type:MClL.
O.: i#L.O.#i1-1
© i#2015 i#Pearson i#Canada 1-3
i#Inc.
, 10) Ifassetsincreasei#$120,000i#duringi#ai#givenperiodi#andliabilitiesi#decrease$25,000i#duringi#the
i#samelperi i#od, i#shareholders' i#equity i#must:
A) increase$95,000
B) decrease$145,000
C) decrease$95,000
D) increasel$145,000l
i # Answer: i#D
Diff:3
i # Type:MCi#L.
O.: i#L.O.#i1-1
11) Ifliabilities#iincreasei#$120,000#iduring#ialgivenperiod#iandshareholders'#iequity#idecreases#i$25,000lduring#ithe
i#samei#period,i#assetslmust:
A) decreasel$145,000
B) increase$145,000
C) increase$95,000
D) decrease$95,000
i#Answer: i#C
Diff:3
i # Type:MClL.
O.: i#L.O.#i1-1
12) Expensesare:
A) increasesi#inlassetsi#resultinglfromoperations
B) increasesinretainedearningsresultinglfromoperations
C) increasesinlliabilitiesresultingfrompurchasing i#assets
D) decreasesinlretainedearningsresulting#ifromloperationsi#A
i#nswer: i#D
Diff:2
i # Type:MClL.
O.: i#L.O.#i1-1
13) Howdo i#revenues i#foraperiodrelatelto i#the i#beginningland i#endinglbalances i#in i#retainedearnings?
A) Revenueswill i#increasethe i#beginning i#balance i#ofretained i#earningslfortheperiod.
B) Revenueswilldecreaselthe#ibeginningbalance#iofretainedi#earningsfortheperiod.
C) Revenueslless#iexpensesi#will#ieither#iincrease#iordecreaselthe#ibeginning#ibalance#iofretained#iearnings#iforthe
i#period.
D) Revenues#ilesslexpenses#iwill#ieither#iincrease#iordecrease#ithe#iending#ibalance#iofretained#iearnings#iforthei#peri
i#od.
Answer: i# D
Diff:2
i # Type:MClL.
O.: i#L.O.#i1-1
14) Whichofthefollowingi#best#idescribesla#iliability?
A) Liabilitiesare i#aformof i#sharelcapital.
B) Liabilitiesare i#future i#economiclbenefitsto i#whichlalcompanyisentitled.
C) Liabilitiesare i#accounts i#receivableofthelcompany.
D) Liabilitiesare#ieconomicobligations#ito#icreditorstoi#be#ipaid#iati#somefuture#idatei#byi#the#icompany.i#Ans
i#wer: i#D
Diff:1
i # Type:MClL.
O.: i#L.O.#i1-1
© i#2015 i#Pearson i#Canada 1-4
i#Inc.
i#Inc.
,Chapter i#1 i # Thel i#Financial i#Statements
1.1 Explainwhy#iaccountingisthelanguageofbusiness
1) Whichofthefollowingpersons i#orgroupshave i#the i#ultimatelcontrolofa i#corporation?
A) thechief i#executive i#officer
B) thei#boardofdirectors
C) theauditcommittee
D) theshareholders
i#Answer: i#D
Diff:2
i # Type:MClL.
O.: i#L.O.#i1-1
2) Financialstatementsare:
A) reportsissued i#byoutsideconsultantslwho i#are i#hired i#to i#analyze i#key i#operationslofthe i#business
B) reportslcreated i#by i#managementthat i#states i#itislresponsible i#forthe i#actslofthe i#corporation
C) standard#idocuments#ithatltelluslhow#iwell#iabusiness#iisperforming#iand#iwhere#iitlstands#iinfinanciali#term
i#s
D) standard#idocuments#iissuedi#by#ioutside#iconsultantslwho#iare#ihired#ito#ianalyze#ikey#ioperations#iofthelbusi
i#nessinfinanciali#terms
Answer: i# C
Diff:1
i # Type:MClL.
O.: i#L.O.#i1-1
3) Thelaccountingequationcan i#be i#stated i#as:
A) Assets+ i#Liabilities i#=lShareholders' i#equity
B) Assetsl=lLiabilitiesl+Shareholders' i # equity
C) Assetsl=lLiabilities i#-lShareholders' i#equity
D) Assets+Shareholders'#iequity#i=Liabilities
i#Answer: i#B
Diff:1
i # Type:MCi#L.
O.: i#L.O.#i1-1
4) Thelowners'i#interesti#ini#thelassetsi#ofacorporationislknownlas:
A) assets
B) shareholders' i#equity
C) expenses
D) revenues
i#Answer:
i#B
Diff:1
i # Type:MClL.
O.: i#L.O.#i1-1
© i#2015 i#Pearson i#Canada 1-2
i#Inc.
,5) On i#January i#1, i#2014, i#total i#assets i#for i#Liftoff i#Technologies i#were i#$125,000; i#on i#December i#31, i#2014,
i#total i#asse i#tslwere i#$145,000. i#On i#January i#1, i#2014, i#total i#liabilities i#were i#$110,000; i#on i#December i#31,
i#2014, i#total i#liabilities i#were i#$115,000. i#What i#are i#theamountofthe i#change i#and
i#theldirectionofthelchange i#in i#Liftoff i#Technologies i#s i#hareholders' i#equity i#for i#2014?
A) decreaselofi#$15,000
B) increaseof$15,000
C) increasei#ofl$30,000
D) decreaselof$30,000
i#Answer: i#B
Diff:2
i # Type:MClL.
O.: i#L.O.#i1-1
6) Claimsheld i#bytheshareholders(owners)i#ofacorporationlare#ireferredi#toi#as:
A) retainedearnings
B) share#icapital
C) sharelcapitalminuslretained i#earnings
D) sharecapitalplusretainedearningsl
i # Answer: i#D
Diff:3
i # Type:MClL.
O.: i#L.O.#i1-1
7) Payablesarelclassifiedas:
A) increaseslinlearnings
B) assets
C) decreasesi#ini#earnings
D) liabilities
i#Answer:
i#D
Diff:1
i # Type:MClL.
O.: i#L.O.#i1-1
8) Receivableslareclassifiedas:
A) increaseslinlearnings
B) assets
C) decreasesi#ini#earnings
D) liabilities
i#Answer:
i#B
Diff:1
i # Type:MClL.
O.: i#L.O.#i1-1
9) Revenueslare:
A) increasesinlliabilitieslresultingfromdeliveringlgoodsorservicestocustomers
B) increasesinretainedearningsresultinglfromdeliveringgoodsorservicesto i # customers
C) decreases#iinassets#iresulting#ifromldeliveringgoodsorserviceslto#icustomers
D) decreasesi#inlretained#iearningsresultinglfromdeliveringi#goodsorserviceslto#icustomersi#An
i#swer: i#B
Diff:2
i # Type:MClL.
O.: i#L.O.#i1-1
© i#2015 i#Pearson i#Canada 1-3
i#Inc.
, 10) Ifassetsincreasei#$120,000i#duringi#ai#givenperiodi#andliabilitiesi#decrease$25,000i#duringi#the
i#samelperi i#od, i#shareholders' i#equity i#must:
A) increase$95,000
B) decrease$145,000
C) decrease$95,000
D) increasel$145,000l
i # Answer: i#D
Diff:3
i # Type:MCi#L.
O.: i#L.O.#i1-1
11) Ifliabilities#iincreasei#$120,000#iduring#ialgivenperiod#iandshareholders'#iequity#idecreases#i$25,000lduring#ithe
i#samei#period,i#assetslmust:
A) decreasel$145,000
B) increase$145,000
C) increase$95,000
D) decrease$95,000
i#Answer: i#C
Diff:3
i # Type:MClL.
O.: i#L.O.#i1-1
12) Expensesare:
A) increasesi#inlassetsi#resultinglfromoperations
B) increasesinretainedearningsresultinglfromoperations
C) increasesinlliabilitiesresultingfrompurchasing i#assets
D) decreasesinlretainedearningsresulting#ifromloperationsi#A
i#nswer: i#D
Diff:2
i # Type:MClL.
O.: i#L.O.#i1-1
13) Howdo i#revenues i#foraperiodrelatelto i#the i#beginningland i#endinglbalances i#in i#retainedearnings?
A) Revenueswill i#increasethe i#beginning i#balance i#ofretained i#earningslfortheperiod.
B) Revenueswilldecreaselthe#ibeginningbalance#iofretainedi#earningsfortheperiod.
C) Revenueslless#iexpensesi#will#ieither#iincrease#iordecreaselthe#ibeginning#ibalance#iofretained#iearnings#iforthe
i#period.
D) Revenues#ilesslexpenses#iwill#ieither#iincrease#iordecrease#ithe#iending#ibalance#iofretained#iearnings#iforthei#peri
i#od.
Answer: i# D
Diff:2
i # Type:MClL.
O.: i#L.O.#i1-1
14) Whichofthefollowingi#best#idescribesla#iliability?
A) Liabilitiesare i#aformof i#sharelcapital.
B) Liabilitiesare i#future i#economiclbenefitsto i#whichlalcompanyisentitled.
C) Liabilitiesare i#accounts i#receivableofthelcompany.
D) Liabilitiesare#ieconomicobligations#ito#icreditorstoi#be#ipaid#iati#somefuture#idatei#byi#the#icompany.i#Ans
i#wer: i#D
Diff:1
i # Type:MClL.
O.: i#L.O.#i1-1
© i#2015 i#Pearson i#Canada 1-4
i#Inc.
