172 Test Bank for Financial Accounting IFRS Edition
2nd Edition
by Weygandt
Multiple Choice Questions
Equity is best depicted by the following:
1.

a. Assets = Liabilities.

2.

b. Liabilities + Assets.

3.

c. Residual equity + Assets.

4.

d. Assets – Liabilities.

The basic accounting equation may be expressed as
1.

a. Assets - Equity = Liabilities.

2.

b. Assets – Liabilities = Equity.

3.

c. Assets = Liabilities + Equity.

4.

d. All of these answer choices are correct.

Which one of the following is not an external user of accounting
information?
1.

a. Regulatory agencies.

2.

b. Customers.

3.

c. Investors.

4.

d. All of these answer choices are correct.

Which of the following would not be considered internal users of
accounting data for a company?
1.

a. The president of a company.


2.

b. The controller of a company.


3.

c. Creditors of a company.

4.

d. Salesmen of a company.

Liabilities
1.

a. are future economic benefits.

2.

b. are existing debts and obligations.

3.

c. possess service potential.

4.

d. are things of value used by the business in its operation.


External users of accounting information include the
1.

a. lnternational Accounting Standards Board.

2.

b. shareholders of Ferragamo.

3.

c. Marketing department at Olivetti.

4.

d. CEO of Air Italy.

Which of the following is true regarding the corporate form of
business organization?
1.

a. Corporations are the most prevalent form of business organization.

2.

b. Corporate businesses are generally smaller in size than partnerships and
proprietor-ships.

3.


c. The revenues of corporations are greater than the combined revenues of
partnerships and proprietorships.

4.

d. Corporations are separate legal entities organized exclusively under
federal law.

The accounting process involves all of the following except
1.
2.

3.

a. identifying economic events that are relevant to the business.
b. communicating financial information to users by preparing financial
reports.
c. recording non-quantifiable economic events.


4.

d. analyzing and interpreting financial reports.

The body that has the power to prescribe the accounting
practices and standards used by most US companies is the
1.

a. FASB.


2.

b. IASB.

3.

c. GAAP.

4.

d. IFRS.

Internal users of accounting information include all of following
except the
1.

a. CEO of Sony.

2.

b. Human Resources department at Hyundai.

3.

c. Marketing department at Braun.

4.

d. Shareholders of Airbus.


The fair value principle
1.

a. is one of the two costing principles followed by the IASB.

2.

b. is more useful than the historical cost principle for valuing some assets.

3.

4.

c. dictates that an asset should be valued at the price at which it could be
sold.
d. All of these answer choices are correct.

Asian Company purchased land for W92,000,000 in 2000. At
December 31, 2014, an appraisal determined the fair value of the
land is W106,000,000. The company has an investment in the
ordinary shares of another company for which it paid
W49,000,000 in 2012.The shares are actively traded on the South
Korea Stock Exchange. The fair value of the investment at
December 31, 2014 is W63,000,000. The land and investment will
be reported on the December 31, 2014 statement of financial
position at


1.


a. W92,000,000 and W49,000,000, respectively.

2.

b. W92,000,000 and W63,000,000, respectively.

3.

c. W106,000,000 and W49,000,000, respectively.

4.

d. W106,000,000 and W63,000,000, respectively.

Which of the following techniques is not used by accountants to
interpret and report financial information?
1.

a. Graphs.

2.

b. Special memos for each class of external users.

3.

c. Charts.

4.


d. Ratios.

Which of the following would not be considered an external user
of accounting data for the GHI Company?
1.

a. Taxing authority representative.

2.

b. Management.

3.

c. Creditors.

4.

d. Customers.

Recording of economic events involves
1.

a. keeping a systematic, chronological diary of events.

2.

b. analyzing reported information.


3.

c. explaining the meaning of reported data.

4.

d. preparing accounting reports.

Which of the following is not an advantage of the corporate form
of business organization?
1.

a. Limited liability of shareholders

2.

b. Transferability of ownership


3.

c. Unlimited personal liability for shareholders

4.

d. Unlimited life

Accountants refer to an economic event as a
1.


a. purchase.

2.

b. sale.

3.

c. transaction.

4.

d. change in ownership.

A business organized as a corporation
1.
2.

a. is not a separate legal entity in most countries.
b. requires that shareholders be personally liable for the debts of the
business.

3.

c. is owned by its shareholders.

4.

d. terminates when one of its original shareholders dies.


The economic entity assumption requires that the activities
1.

a. of different entities can be combined if all the entities are corporations.

2.

b. must be reported to the Securities and Exchange Commission.

3.

4.

c. of a sole proprietorship cannot be distinguished from the personal
economic events of its owners.
d. of an entity be kept separate from the activities of its owner.

Bookkeeping primarily involves which of the following parts of the
accounting process?
1.

a. Identification.

2.

b. Communication.

3.

c. Recording.


4.

d. Analysis.


Liabilities of a company would not include
1.

a. notes payable.

2.

b. accounts payable.

3.

c. wages payable.

4.

d. cash.

The assumption that enables accounting to quantify (measure)
economic events is the
1.

a. economic entity assumption.

2.


b. cost principle.

3.

c. historical cost principle.

4.

d. monetary unit assumption.

Which of the following is an external user of accounting
information?
1.

a. Labor unions.

2.

b. Finance directors.

3.

c. Company officers.

4.

d. Managers.

The first step in solving an ethical dilemma is to

1.

a. identify and analyze the principal elements in the situation.

2.

b. identify the alternatives.

3.

c. recognize an ethical situation and the ethical issues involved.

4.

d. weigh the impact of each alternative on various stakeholders.

GAAP stands for
1.

a. Generally Accepted Auditing Procedures.


2.

b. Generally Accepted Accounting Principles.

3.

c. Generally Accepted Auditing Principles.


4.

d. Generally Accepted Accounting Procedures.

The origins of accounting are generally attributed to the work of
1.

a. Christopher Columbus.

2.

b. Abner Doubleday.

3.

c. Luca Pacioli.

4.

d. Leonardo da Vinci.

Internal users of accounting information include
1.

a. the shareholders of Royal Dutch Shell.

2.

b. the State Administration of Taxation of China.


3.

c. the Chief Financial officer of Credit Suisse.

4.

d. the International Accounting Standards Board.

The final step in solving an ethical dilemma is to
1.

a. identify and analyze the principal elements in the situation.

2.

b. recognize an ethical situation.

3.

4.

c. identify the alternatives and weigh the impact of each alternative on
stakeholders.
d. recognize the ethical issues involved.

Most assets should be valued at cost because fair values
1.

a. are not useful for decision-making.


2.

b. may not be representationally faithful.

3.

c. are not relevant.

4.

d. may be higher or lower than historical cost.


Equity is often referred to as
1.

a. residual equity.

2.

b. leftovers.

3.

c. spoils.

4.

d. second equity.


Equity can be described as
1.

a. creditorship claim on total assets.

2.

b. ownership claim on total assets.

3.

c. benefactor's claim on total assets.

4.

d. debtor claim on total assets.

The Duce Company has five plants nationwide that cost $200
million. The current fair value of the plants is $500 million. The
plants will be recorded and reported as assets at
1.

a. $200 million.

2.

b. $700 million.

3.


c. $300 million.

4.

d. $500 million.

A small neighborhood barber shop that is operated by its owner
would likely be organized as a
1.

a. joint venture.

2.

b. partnership.

3.

c. corporation.

4.

d. proprietorship.

Convergence refers to
1.

a. using the same accounting principles from one period to the next.



2.

b. use of the same accounting principles by all companies.

3.

c. the elimination of all accounting standard-setting bodies except the
International Accounting Standards Board.

4.

d. the process of reducing the differences between IFRS and GAAP.

The historical cost principle requires that companies record
assets at their
1.

a. appraisal value.

2.

b. cost.

3.

c. market price.

4.

d. list price.


The partnership form of business organization
1.

a. is a separate legal entity.

2.

b. is a common form of organization for service-type businesses.

3.

c. enjoys an unlimited life.

4.

d. has limited liability.

The common characteristic possessed by all assets is
1.

a. long life.

2.

b. great monetary value.

3.

c. tangible nature.


4.

d. future economic benefit.

External users of accounting information include all of following
except
1.

a. the shareholders of Air Italy.

2.

b. the management of Pirelli.

3.

c. a potential customers of Olivetti.


4.

d. All of these answer choices are correct.

Which of the following events cannot be quantified into dollars
and cents and recorded as an accounting transaction?
1.

a. The appointment of a new accounting firm to perform an audit.


2.

b. The purchase of a new computer.

3.

c. The sale of store equipment.

4.

d. Payment of income taxes.

The accounting process includes each of the following except
1.

a. communication.

2.

b. convergence.

3.

c. identification.

4.

d. recording.

Liabilities of a company are owed to

1.

a. debtors.

2.

b. benefactors.

3.

c. creditors.

4.

d. underwriters.

A basic assumption of accounting that requires activities of an
entity be kept separate from the activities of its owner is referred
to as the
1.

a. stand alone concept.

2.

b. monetary unit assumption.

3.

c. corporate form of ownership.


4.

d. economic entity assumption.


Bumi Corporation purchased an investment in the ordinary shares
of another corporation for Rp250,000,000 in 2012. The shares are
actively traded on the Indonesian Stock Exchange. The fair value
of the investment at December 31, 2014 is Rp268,000,000. If the
company follows the fair value principle, the investment will be
reported in the 2014 financial statement at
1.

a. Rp250,000,000 on the statement of financial position.

2.

b. Rp268,000,000 on the statement of financial position.

3.

c. Rp250,000,000 on the retained earnings statement.

4.

d. Rp268,000,000 on the retained earnings statement.

A business whose owners enjoy limited liability is a
1.


a. proprietorship.

2.

b. partnership.

3.

c. corporation.

4.

d. sole proprietorship.

Ethics are the standards of conduct by which one's actions are
judged as
1.

a. right or wrong.

2.

b. honest or dishonest.

3.

c. fair or unfair.

4.


d. All of these answer choices are correct.

Communication of economic events is the part of the accounting
process that involves
1.

a. identifying economic events.

2.

b. quantifying transactions into dollars and cents.

3.

c. preparing accounting reports.


4.

d. recording and classifying information.

The proprietorship form of business organization
1.

a. must have at least three owners in most states.

2.

b. requires that the owner be personally liable for all debts of the business.


3.

c. combines the records of the business with the personal records of the
owner.

4.

d. is characterized by a legal distinction between the business as an
economic unit and the owner.

Which of the following would not be considered an internal user of
accounting data for GHI Company?
1.

a. President of the company.

2.

b. Production manager.

3.

c. Merchandise inventory clerk.

4.

d. President of the employees' labor union.

IFRS are determined by the

1.

a. Internal Accounting Standards Body.

2.

b. International Accounting Studies Board.

3.

c. International Accounting Standards Board.

4.

d. International Auditors' Standards Body.

Harrod's Inc. purchased land for ₤55,000 in 2004. At December
31, 2014, an appraisal determined the fair value of the land is
₤65,000. If Harrod's follows the historical cost principle, in the
2014 financial statements, the land will be reported at
1.

a. ₤55,000 on the statement of financial position.

2.

b. ₤65,000 on the statement of financial position.

3.


c. ₤55,000 on the income statement.


4.

d. ₤65,000 on the income statement.

Hyundai Inc. purchased land for W118,000,000 in 2005. At
December 31, 2014, an appraisal determined the fair value of the
land is W136,000,0000. If Hyundai follows the cost principle, the
land will be reported on the statement of financial position at
1.

a. W100,000,000.

2.

b. W118,000,000.

3.

c. W136,000,000.

4.

d. W154,000,000.

The accounting process is correctly sequenced as
1.


a. identification, communication, recording.

2.

b. recording, communication, identification.

3.

c. identification, recording, communication.

4.

d. communication, recording, identification.

Financial accounting provides economic and financial information
for each of the following except
1.

a. creditors.

2.

b. investors.

3.

c. managers.

4.


d. other external users.

John and Sam met at law school and decide to start a small law
practice after graduation. They agree to split revenues and
expenses evenly. The most common form of business
organization for a business such as this would be a
1.

a. joint venture.

2.

b. partnership.


3.

c. corporation.

4.

d. proprietorship.

When assets are distributed to the shareholders of a corporation,
these distributions are termed
1.

a. depletions.

2.


b. consumptions.

3.

c. dividends.

4.

d. a credit line.

172 Free Test Bank for Financial Accounting IFRS
Edition 2nd Edition by Weygandt Multiple Choice
Questions - Page 2
As of December 31, 2014, Lojas Company reported assets of
R$7,400,000, liabilities of R$2,200,000, share capital of
R$1,980,000 and retained earnings of R$3,220,000. Total equity
reported on the statement of financial position as of that date is
1.

a. R$1,240,000.

2.

b. R$5,200 000.

3.

c. R$5,400 000.


4.

d. R$7,400.000.

An investment of cash by an owner of a business increases
assets and
1.

a. increases liabilities.

2.

b. increases equity.

3.

c. decreases equity.

4.

d. decreases liabilities.


On November 4, Vivo Company performed services on account
for R$295,000. On November 26, the company collected the
balance due. The November 26 transaction will increase
1.

a. Cash and Accounts Payable by R$295,000.


2.

b. Accounts Receivable and Service Revenue by R$295,000

3.

c. Cash and decrease Accounts Receivable by R$295,000

4.

d. Service Revenue and decrease Accounts Receivable by R$295,000.

As of June 30, 2014, Dallas Company has assets of $140,000
and equity of $10,000. What are the liabilities for Dallas Company
as of June 30, 2014?
1.

a. $150,000

2.

b. $120,000

3.

c. $130,000

4.

d. $140,000


Collection of a $500 accounts receivable
1.

a. increases an asset $500; decreases an asset $500.

2.

b. increases an asset $500; decreases a liability $500.

3.

c. decreases a liability $500; increases equity $500.

4.

d. decreases an asset $500; decreases a liability $500.

McDonagal Inc. sold ordinary shares for £2,200,000. This
transaction will increase
1.

a. Cash and increase Retained Earnings by £2,200,000.

2.

b. Cash and increase Share Capital by £2,200,000.

3.


c. Service Revenue and increase Share Capital by £2,200,000.

4.

d. Service Revenue and increase Cash by £2,200,000.


A statement of financial position shows
1.

a. revenues, liabilities, and equity.

2.

b. expenses, dividends and equity.

3.

c. revenues, expenses, and dividends.

4.

d. assets, liabilities, and equity.

A company increases its share capital by
1.

a. selling ordinary shares to its investors.

2.


b. performing services for cash.

3.

c. selling goods on account.

4.

d. paying dividends to its shareholders.

A payment on account decreases
1.

a. assets and equity.

2.

b. liabilities and equity.

3.

c. assets and liabilities.

4.

d. assets, liabilities and equity.

Sources of increases to equity are
1.


a. issuance of shares.

2.

b. purchases of merchandise.

3.

c. dividends.

4.

d. expenses.

Sao Paulo Company performed services on account for
R$160,000. This transaction will
1.

a. increase assets and liabilities by R$160,000.

2.

b. increase assets and equity by R$160,000.


3.

c. increase liabilities and equity by R$160,000.


4.

d. have no effect on the accounting equation.

As of December 31, 2014, Thames Company reported assets of
₤6,480,000, liabilities of ₤1,920,000 and retained earnings of
₤3,315,000. Share capital reported on the December 31, 2014
statement of financial position is
1.

a. ₤1,245,000.

2.

b. ₤1,395,000.

3.

c. ₤5,235,000.

4.

d. ₤9,795,000.

As of December 31, 2014, Oxford-welsh Inc. had assets of
₤6,520,000, liabilities of ₤1,980,000, and share capital of
₤2,820,000. Retained earnings as of that date are
1.

a. ₤1,720,000.


2.

b. ₤3,700,000.

3.

c. ₤4,540,000.

4.

d. ₤6,520,000.

Which of the following events is not a business transaction?
1.

a. Issuance of shares in exchange for cash

2.

b. Hired employees

3.

c. Incurred utility expenses for the month

4.

d. Earned revenue for services provided


On January 11, 2014, Britannica Corporation sold ordinary shares
to investors for ₤6,550,000. This transaction will increase assets
and
1.

a. decrease liabilities by ₤6,550,000.


2.

b. decrease equity by ₤6,550,000.

3.

c. increase revenues by ₤6,550,000.

4.

d. increase equity by ₤6,550,000.

On its December 31, 2014 statement of financial position, Adaro
Corporation reported liabilities of Rp5,132,000,000, share capital
of Rp2,662,000,000 and retained earnings of Rp4,202,000,000.
Total assets as of December 31, 2014 are
1.

a. Rp1,732,000,000.

2.


b. Rp4,202,000,000.

3.

c. Rp6,864,000,000.

4.

d. Rp11,996,000,000.

If total liabilities increased by ¥35,000 and equity increased by
¥10,000 during a period of time, then total assets must change by
what amount and direction during that same period?
1.

a. ¥45,000 decrease

2.

b. ¥45,000 increase

3.

c. ¥60,000 increase

4.

d. ¥70,000 increase

If services are rendered for credit, then

1.

a. assets will decrease.

2.

b. liabilities will increase.

3.

c. equity will increase.

4.

d. liabilities will decrease.

As of December 31, 2014, Deitrich Inc. had assets of
€13,050,000, liabilities of €4,650,000, share capital of ₤3,300,000


and retained earnings of €5,100,000. Total equity as of that date
is
1.

a. €3,300,000.

2.

b. €3,750,000.


3.

c. €8,400,000.

4.

d. €13,050,000.

The equity section of a statement of financial position has two
components:
1.

a. share capital and liablities.

2.

b. assets and liablities.

3.

c. share capital and retained earnings.

4.

d. share capital and assets.

If expenses are paid in cash, then
1.

a. assets will increase.


2.

b. liabilities will decrease.

3.

c. equity will increase.

4.

d. assets will decrease.

The basic accounting equation cannot be restated as
1.

a. Assets – Liabilities = Equity.

2.

b. Assets – Equity = Liabilities.

3.

c. Equity + Liabilities = Assets.

4.

d. Assets + Liabilities = Equity.


As of December 31, 2014, Sievers Company has assets of
₤90,000 and equity of ₤40,000. What are the liabilities for Sievers
Company as of December 31, 2014?


1.

a. ₤50,000.

2.

b. ₤20,000.

3.

c. ₤30,000.

4.

d. ₤40,000.

If an individual asset is increased, then
1.

a. there must be an equal decrease in a specific liability.

2.

b. there must be an equal decrease in equity.


3.

c. there must be an equal decrease in another asset.

4.

d. None of these answer choices are correct.

Revenues would not result from
1.

a. sale of merchandise.

2.

b. issuance of ordinary shares.

3.

c. performance of services.

4.

d. rental of property.

Total equity changed by what amount from the beginning of the
year to the end of the year?
1.

a. $90,000.


2.

b. $390,000.

3.

c. $180,000.

4.

d. $300,000.

If total liabilities decreased by ¥30,000 and equity increased by
¥5,000 during a period of time, then total assets must change by
what amount and direction during that same period?
1.

a. ¥25,000 decrease

2.

b. ¥25,000 increase


3.

c. ¥30,000 increase

4.


d. ¥35,000 increase

The net income reported by Carla's Computer Repair Shop for the
year was
1.

a. $300,000.

2.

b. $390,000.

3.

c. $180,000.

4.

d. $810,000.

Equity is decreased by all of the following except
1.

a. issuance of shares.

2.

b. dividends.


3.

c. expenses.

4.

d. net losses.

On February 1, Potter Company paid £900 for advertisements to
run during the month of February. This transaction will
1.

a. decrease Cash and increase Advertising Expense by £900.

2.

b. increase Advertising Expense and increase Accounts Payable by £900.

3.

c. decrease Accounts Payable and decrease Cash by £900.

4.

d. decrease Cash and decrease Advertising Expense by £900.

If the retained earnings account increases from the beginning of
the year to the end of the year, then
1.


a. net income is less than dividends.

2.

b. net loss is less than dividends.

3.

c. the company must have sold shares.

4.

d. net income is greater than dividends.


Retained earnings at the end of the period is equal to
1.

a. retained earnings at the beginning of the period plus net income minus
liabilities.

2.

b. retained earnings at the beginning of the period plus net income minus
dividends.

3.

c. net income.


4.

d. assets plus liabilities.

Revenues are
1.

a. the cost of assets consumed during the period.

2.

b. gross increases in equity resulting from business activities.

3.

c. the cost of services used during the period.

4.

d. actual or expected cash outflows.

All of the following transactions increase revenue except the
1.

a. sale of additional ordinary shares by British Airways.

2.

b. sale of clothing by the French Connection.


3.

c. performance of acccounting services by PricewaterhouseCoopers.

4.

d. sale of pertroleum by Royal Dutch Shell.

Equity is decreased by
1.

a. assets.

2.

b. revenues.

3.

c. expenses.

4.

d. liabilities.

The retained earnings section of the statement of financial
position is determined by
1.

a. assets,liabilities and share capital.



2.

b. revenues, expenses and share capital.

3.

c. share capital, dividends and residual equity.

4.

d. revenues, expenses and dividends.

Equity at the end of the year was
1.

a. $480,000.

2.

b. $450,000.

3.

c. $570,000.

4.

d. $390,000.


If total liabilities decreased by ¥35,000 and equity decreased by
¥10,000 during a period of time, then total assets must change by
what amount and direction during that same period?
1.

a. ¥45,000 increase

2.

b. ¥25,000 increase

3.

c. ¥45,000 decrease

4.

d. ¥25,000 decrease

Gafisa Inc. performed services for R$195,000. The company
collected R$65,000 in cash. The balance will be collected in 30
days. Performing services for R$195,000 will increase
1.

a. assets by R$65,000 and equity by R$130,000.

2.

b. assets by R$65,000, liablities by R$130,000 and equity by R$195,000.


3.

c. liabilites and equity by R$195,000.

4.

d. assets and equity by R$195,000.

A dividend is
1.

a. a distribution of the company's earnings to its shareholders.

2.

b. equal to liabilities minus equity.


3.

c. equal to assets minus equity.

4.

d. equal to revenues less expenses.

Vita Corporation performed services on account for €22,000. This
transaction will
1.

2.

a. increase Cash and increase Service Revenue by €22,000.
b. increase Accounts Receivable and increase Service Revenue by
€22,000.

3.

c. decrease Accounts Payable and increase Cash by €22,000.

4.

d. increase Cash and decrease Accounts Receivable by €22,000.

Freirs Company paid the monthly rent of €6,000. This transaction
will
1.

a. increase Cash and decrease Rent Expense by €6,000.

2.

b. decrease Cash and decrease Rent Expense by €6,000.

3.

c. decrease Cash and increase Rent Expense by €6,000.

4.


d. have no effect on the accounting equation.

On June 6, Wing Wah Inc. purchased supplies on account for
HK$60,000. On June 30, the company paid half of the balance
due. The June 30 payment will
1.

a. decrease Cash and increase Supplies Expense by HK$ 60,000.

2.

b. increase Cash and decrease Accounts Receivable by HK$30,000.

3.

c. decrease Cash and decrease Accounts Payable by HK$30,000.

4.

d. decrease Supplies and increase Supplies Expense by HK$30,000.

The statement of financial position is frequently referred to as
1.

a. an operating statement.

2.

b. the balance sheet.


3.

c. the statement of cash flows.


4.

d. the statement of changes in equity.

Bennoit Corporation paid dividends totaling €295,000 to its
shareholders. This transaction will decrease assets and
1.

a. decrease equity by €295,000.

2.

b. decrease liabilities by €295,000.

3.

c. increase expenses by €295,000.

4.

d. have no effect on the accounting equation.

Net income results when
1.


a. Assets > Liabilities.

2.

b. Revenues = Expenses.

3.

c. Revenues > Expenses.

4.

d. Revenues < Expenses.

The purchase of supplies on account increases assets and
1.

a. also decreases assets so there is no net change.

2.

b. increases liabilities.

3.

c. decreases equity.

4.

d. increases equity.


If total liabilities decreased by ¥35,000 and equity increased by
¥10,000 during a period of time, then total assets must change by
what amount and direction during that same period?
1.

a. ¥45,000 increase

2.

b. ¥25,000 decrease

3.

c. ¥25,000 increase

4.

d. ¥35,000 decrease