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Chapter 1 Review Questions True-False Statements

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A business organized as a separate legal entity owned by stockholders is a partnership,
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False
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Corporate stockholder generally pay higher taxes but have no personal liability.
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True
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The liability of corporate stockholders is limited to the amount of their investment.
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True
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The majority of U.S. business is transacted by proprietorships.
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False
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Proprietorships in the United States generate more revenue than the other two forms of business enterprise.
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False
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Owners of business firms are the only people who need accounting information.
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False
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Management of a business firms are the only people who need accounting information.
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False
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External users of accounting information are managers who plan, organize, and run a business.
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False
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The information needs and questions of external users vary considerably.
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True
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Accounting communicates financial information about a business to both internal and external users.
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True
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Two primary external users of accounting information are investors and creditors.
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True
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Financing activities for corporations include borrowing money and selling shares of their own stock.
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True
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Investing activities involve collecting the necessary funds to support the business.
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False
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The purchase of equipment is an example of a financing activity.
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False
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Assets are resources owned by a business and provide future services or benefits to the business.
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True
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Payments to the owners are operating activities.
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False
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The economic resources that are owned by a business are called stockholders’ equity.
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False
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Operating activities involve putting the resources of the business into action to generate a profit.
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True
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A business is usually involved in two types of activity -financing and investing.
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False
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Net income for the period if determined by subtracting total expenses and dividends from revenues.
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False
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A different set of financial statements usually is prepared for each user.
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False
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The heading for the income statement might include the line “As of December 31, 20xx.”
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False
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Net income is another term for revenue.
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False
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Cash is another term for Stockholders’ Equity.
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False
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The primary purpose of statement of cash flows is to provide information about the cash receipts and cash payments of a company for a specific period of time.
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True
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The balance sheet reports assets and claims to those assets at a specific point in time.
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True