Question 1

Revenues decrease owner's equity and expenses increase owner's equity.

Accepted Answer

Revenues increase owner's equity by adding to the net income, while expenses decrease owner's equity by reducing the net income.

Question 2

Which of the following would NOT be considered an internal user of accounting data for the ABC Company?

Accepted Answer

The president of the employees' labor union is not considered an internal user of accounting data because they represent the interests of the employees, not the internal operations or management decisions of the company. Internal users typically include employees or managers who use the information for decision-making within the organization.

Question 3

Sometimes Canadian companies will report their results in U.S. dollars.

Accepted Answer

Canadian companies, especially those that operate internationally or are listed on U.S. stock exchanges, may report their financial results in U.S. dollars to provide clarity to investors and align with the currency of their primary market or revenue source.

Question 4

Recognition is the process of recording a transaction in the accounting records.

Accepted Answer

Recognition in accounting refers to the process of formally recording or incorporating an item into the financial statements of an entity.

Question 5

All of the following are steps used to analyze ethical dilemmas EXCEPT

Accepted Answer

Discussing the ethical dilemma with co-workers is not a step used to analyze ethical dilemmas.

Question 6

An external user could be

Accepted Answer

External users are individuals or entities outside a company who use financial information about the company. The Canada Revenue Agency (CRA) is an example of an external user because it is a government entity that requires financial information for tax purposes, unlike employees, management, or the human resource director, who are considered internal users.

Question 7

The proprietorship form of business organization

Accepted Answer

Proprietorship, or sole proprietorship, is the simplest and most common form of business ownership in Canada, representing the largest number of businesses. It does not require a legal distinction between the business and the owner, nor does it combine business records with personal records in a formal sense. It typically involves only one owner, not a minimum of three.

Question 8

The partnership form of business organization

Accepted Answer

The partnership form of business organization is a common form of organization for service-type businesses, such as law firms, accounting firms, and medical practices.

Question 9

Which of the following is NOT an advantage of the corporate form of business organization?

Accepted Answer

The corporate form of business organization does not involve unlimited personal liability for shareholders; instead, it offers limited liability, meaning shareholders are not personally liable for the corporation's debts beyond their investment in the company.

Question 10

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

Accepted Answer

According to data from the U.S. Census Bureau, corporations typically generate higher revenues than partnerships and proprietorships. However, it is not true that corporations are the most prevalent form of business organization or that they are organized exclusively under federal law. While corporations are a separate legal entity, they are established under state laws. It is also not accurate to say that corporate businesses are generally smaller in size than partnerships and proprietorships.

Question 11

A business organized as a corporation

Accepted Answer

Corporations are owned by their shareholders, who invest money in the business by buying shares of the company. This ownership structure is a fundamental characteristic of corporations.

Question 12

The cost and fair value of an asset are the same at the time of acquisition and in all subsequent periods.

Accepted Answer

The cost of an asset at the time of acquisition is its purchase price, whereas its fair value can fluctuate over time due to changes in the market and other factors.

Question 13

Judy and Marilyn 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(n)

Accepted Answer

A partnership is the most common form of business organization for a small law practice like the one described, where two or more individuals agree to share the revenues and expenses of the business.

Question 14

An external user would NOT include

Accepted Answer

An external user is someone outside of the company who has an interest in the company's financial information. Employees are considered internal users because they work within the company.

Question 15

A Balance Sheet can also be called a Statement of Financial Position.

Accepted Answer

A Balance Sheet is indeed also known as a Statement of Financial Position, as it provides a snapshot of an entity's financial position at a specific point in time, detailing assets, liabilities, and equity.

Question 16

The monetary unit assumption assumes that all transactions will take place in Canadian dollars.

Accepted Answer

The monetary unit assumption does not specify Canadian dollars; it simply states that economic activity is recorded in a monetary unit of measure, which can vary depending on the country's currency.

Question 17

Cost value is the amount of the consideration that would be agreed upon in an arm's-length transaction between knowledgeable, willing parties who are under no compulsion to act.

Accepted Answer

Cost value refers to the amount originally paid for an asset, not the amount that would be agreed upon in an arm's-length transaction. The description given is more accurate for fair market value.

Question 18

Which of the following forms of business organizations typically have their shares listed on the Toronto Stock Exchange?

Accepted Answer

Public companies are the type of business organizations that typically have their shares listed on stock exchanges, including the Toronto Stock Exchange. This allows them to raise capital from the public by selling shares.

Question 19

Measurement is the process of determining the amount that should be recognized.

Accepted Answer

Measurement in accounting and various fields involves determining the monetary value that should be recognized or recorded for transactions and balances.

Question 20

The main objective of the financial statements is

Accepted Answer

The main objective of financial statements is to provide useful information to investors, creditors, and other stakeholders to help them make informed decisions about providing resources to the company. This includes assessing the company's financial performance, position, and cash flows.

Quiz 1: Accounting in Action