Question 1

Proprietorships in the United States generate more revenue than the other two forms of business enterprise.

Accepted Answer

False

Question 2

Financing activities for corporations include borrowing money and selling shares of their own stock.

Accepted Answer

Financing activities for corporations include borrowing money (through issuing bonds, taking out loans, etc.) and raising capital by selling shares of their own stock.

Question 3

The purchase of equipment is an example of a financing activity.

Accepted Answer

False

Question 4

Assets are resources owned by a business and provide future services or benefits to the business.

Accepted Answer

Assets are resources that a business owns and will provide future benefits or services to the business. This includes tangible assets such as property, plant, and equipment, as well as intangible assets such as patents and trademarks.

Question 5

A business organized as a separate legal entity owned by stockholders is a partnership.

Accepted Answer

A business organized as a separate legal entity owned by stockholders is a corporation, not a partnership. A partnership is a type of business structure in which two or more people share ownership and responsibility for the business.

Question 6

The economic resources that are owned by a business are called stockholders' equity.

Accepted Answer

The economic resources that are owned by a business are called assets. Stockholders' equity refers to the residual claim on a company's assets after all liabilities are paid off. It represents the portion of a company that actually belongs to shareholders.

Question 7

Management of a business enterprise is the major external user of information.

Accepted Answer

Management of a business enterprise is considered an internal user of information, as they are directly involved in the operations and decision-making processes of the company.

Question 8

Owners of business firms are the only people who need accounting information.

Accepted Answer

Accounting information is needed not only by owners of business firms but also by other stakeholders such as investors, lenders, employees, government agencies, and customers. They all use accounting information for various purposes such as making investment decisions, assessing creditworthiness, analyzing profitability, monitoring compliance, and evaluating the quality of products and services.

Question 9

The information needs and questions of external users vary considerably.

Accepted Answer

External users such as investors, creditors, customers, and regulators have different information needs and questions depending on their roles and interests. They may require financial statements, industry analysis, management discussion and analysis, governance and risk management reports, and other disclosures to make informed decisions and assessments.

Question 10

Payments to owners are operating activities.

Accepted Answer

Payments to owners, such as dividends, are financing activities, not operating activities. Operating activities include cash inflows and outflows directly related to a company's primary business operations.

Question 11

Two primary external users of accounting information are investors and creditors.

Accepted Answer

Investors and creditors are two primary external users of accounting information. Investors use this information to make decisions about buying, holding, or selling stock, while creditors use it to decide whether to lend money to the company.

Question 12

Corporate stockholders generally pay higher taxes but have no personal liability.

Accepted Answer

Corporate stockholders are subject to double taxation, meaning that they pay taxes on the corporation's profits as well as on their personal income when they receive dividends or sell their shares. However, they do not have personal liability for the corporation's debts or legal issues.

Question 13

A business is usually involved in two types of activity-financing and investing.

Accepted Answer

The answer of A business is usually involved in two...

Question 14

External users of accounting information are managers who plan, organize, and run a business.

Accepted Answer

External users are individuals or organizations outside of the business, such as investors, creditors, suppliers, and customers. Managers are considered internal users of accounting information.

Question 15

The majority of U.S. business is transacted by proprietorships.

Accepted Answer

The answer of The majority of U.S. business is transacted...

Question 16

Operating activities involve putting the resources of the business into action to generate a profit.

Accepted Answer

Operating activities involve the day-to-day operations of the business to generate revenue and profits.

Question 17

Investing activities involve collecting the necessary funds to support the business.

Accepted Answer

Investing activities involve using funds to acquire long-term assets or investments, while financing activities involve collecting the necessary funds to support the business.

Question 18

Net income for the period is determined by subtracting total expenses and dividends from revenues.

Accepted Answer

The answer of Net income for the period is determined...

Question 19

The liability of corporate stockholders is limited to the amount of their investment.

Accepted Answer

This means that if a corporation goes bankrupt, the stockholders' personal assets are protected and they cannot lose more money than they have invested in the company.

Question 20

Accounting communicates financial information about a business to both internal and external users.

Accepted Answer

Accounting is a system of recording, analyzing, and communicating financial information about a business to help stakeholders make informed decisions. The stakeholders include internal users such as managers, employees, and owners, as well as external users such as investors, creditors, customers, and government agencies. The financial information communicated through accounting includes financial statements, reports, and other documents that summarize the financial performance and position of the business. Therefore, accounting plays a crucial role in communication of financial information to both internal and external users.

Quiz 1: Introduction to Financial Statements