Accounting Exam 1 chapter 1 – Flashcards
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The proprietorship form of business organization
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generally receives favorable tax treatment relative to a corporation.
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A business organized as a corporation
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is owned by its stockholders.
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The partnership form of business organization
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is a common form of organization for service-type businesses.
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Which of the following is not one of the three forms of business organization?
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Investors
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Most business enterprises in the United States are
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proprietorships and partnerships.
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A business organized as a separate legal entity is a
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corporation.
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Which of the following is not an advantage of the corporate form of business organization?
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Favorable tax treatment
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An advantage of the corporate form of business is that
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its ownership is easily transferable via the sale of shares of stock.
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Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?
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Reduced legal liability for investors
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A corporation has which of the following set of characteristics?
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Easier to transfer ownership and raise funds, no personal liability
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A small neighborhood barber shop that is operated by its owner would likely be organized as a
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proprietorship.
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A local retail shop has been operating as a sole proprietorship. The business is growing and now the owner wants to incorporate. Which of the following is not a reason for this owner to incorporate?
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The prestige of operating as a corporation
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All of the following are advantages for choosing a proprietorship for a business except
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transfer of ownership is easily achieved through stock sales.
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Jack and Jill form a partnership. Jack runs the business in New York, while Jill vacations in Hawaii. During the time Jill is away from the business, Jack increases the debts of the business by $20,000. Which of the following statements is true regarding this debt?
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Both Jack and Jill are personally liable for the business debt.
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Which one of the following questions is most likely asked by an internal human resources director for the company?
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What average pay raise is affordable for employees this year?
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External users of accounting information, like the Internal Revenue Service, are most commonly known as
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taxing authorities.
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Which of the following statements is not true regarding the Sarbanes-Oxley Act (SOX)?
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The Act calls for decreased independence of outside auditors reviewing corporate financial statements.
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Which of the following would not be considered an internal user of accounting data for the Xanadu Company?
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President of the employees' labor union
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Which of the following groups uses accounting information primarily to insure the entity is operating within prescribed rules?
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Regulatory agencies
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Which of the following groups uses accounting information to determine whether the company can pay its obligations?
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Creditors
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Which type of corporate information is readily available to investors?
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Amount of net income retained in the business
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The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n)
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account payable.
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The right to receive money in the future is called a(n)
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account receivable.
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Borrowing money is an example of a(n)
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financing activity.
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Issuing shares of stock in exchange for cash is an example of a(n)
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financing activity.
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Debt securities sold to investors that must be repaid at a particular date some years in the future are called
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bonds payable.
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Expenses are incurred
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to generate revenues.
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The cost of assets consumed or services used is also known as
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an expense.
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Resources owned by a business are referred to as
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assets.
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Which of the following is not a liability?
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Accounts Receivable
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Which of the following financial statements is divided into major categories of operating, investing, and financing activities?
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The statement of cash flows.
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Ending retained earnings for a period is equal to beginning
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Retained earnings + Net income - Dividends
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Dividends are reported on the
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retained earnings statement.
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Dividends paid
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decrease retained earnings.
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To show how successfully your business performed during a period of time, you would report its revenues and expenses in the
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income statement.
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Net income results when
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Revenues > Expenses.
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Net income will result during a time period when
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revenues exceed expenses.
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Which of the following financial statements is concerned with the company at a point in time?
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Balance sheet
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Which financial statement is prepared first?
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Income statement
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An income statement shows
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revenues, expenses, and net income.
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Henson Company began the year with retained earnings of $330,000. During the year, the company recorded revenues of $500,000, expenses of $380,000, and paid dividends of $40,000. What was Henson's retained earnings at the end of the year?
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$410,000 X Solution: $330,000 + ($500,000 ? $380,000) ? $40,000 = $410,000
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Finney Company began the year by issuing $40,000 of common stock for cash. The company recorded revenues of $370,000, expenses of $320,000, and paid dividends of $20,000. What was Finney's net income for the year?
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$50,000 X $370,000 - $320,000 = $50,000
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A balance sheet shows
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assets, liabilities, and stockholders' equity.
