Question 1

Which of the following is NOT a characteristic of a traditional partnership?

Accepted Answer

A traditional partnership is not owned by shareholders or stockholders; it is owned by the partners themselves.

Question 2

Lindsey Smith decided to start her own CPA practice as a professional corporation, Smith CPA Ltd. Her corporation purchased an office building for $35 000 which her real estate agent said was worth $50 000 in the current market. The corporation records the building as a $50 000 asset because Lindsey believes that is the real value of the building. Which of the following concepts or principles of accounting is being violated?

Accepted Answer

The cost principle states that assets should be recorded at their cost at the time of purchase, not at their current market value. Lindsey's corporation should record the building at the purchase price of $35,000, not $50,000.

Question 3

Which of the following concepts (or principles)would require that an item be recorded at the amount actually paid rather than at the estimated market value?

Accepted Answer

The cost principle requires that assets be recorded at their original cost, the amount actually paid, rather than at their estimated market value.

Question 4

The assets and liabilities of Matt Wesley Mechanics are as follows: Cash, $10 000; Accounts receivable, $8 200; Supplies, $1 050; Land, $25 000; Accounts payable, $6 530. What is the amount of owners' equity?

Accepted Answer

Owners' equity is calculated as Assets - Liabilities. Total assets are $44,250 ($10,000 + $8,200 + $1,050 + $25,000) and total liabilities are $6,530. Therefore, owners' equity is $44,250 - $6,530 = $37,720.

Question 5

Caleb Brown has been the sole owner of a bicycle sales and repair shop for many years. Which of the following business types would best protect Caleb's personal assets from product liability exposure?

Accepted Answer

A Limited Liability Company (LLC) provides protection for personal assets from business liabilities, including product liability, unlike a proprietorship or partnership.

Question 6

Which of the following concepts (or principles)would dictate that a person with three different businesses keep three different bank accounts?

Accepted Answer

The entity concept dictates that each business should be treated as a separate entity, requiring separate financial records and bank accounts for each business.

Question 7

Recognising an expense as an asset in the accounting records would result in a(n)(increase/decrease)in profit.

Accepted Answer

The answer of Recognising an expense as an asset in...

Question 8

The owners' claims to the assets of the business are called:

Accepted Answer

Owners' equity represents the owners' claims to the assets of the business after all liabilities have been deducted.

Question 9

GAAP refer to the set of accounting rules for international accounting.

Accepted Answer

GAAP stands for Generally Accepted Accounting Principles, which is a set of accounting rules specific to the United States. Other countries may have their own set of accounting rules and standards.

Question 10

Which of the following concepts (or principles)require an assumption that the entity will remain in operation for the foreseeable future?

Accepted Answer

The going-concern concept assumes that the entity will remain in operation for the foreseeable future. This assumption is necessary for the application of the cost principle, profit recognition principle, and entity concept.

Question 11

Bill Rogers has three different businesses. He has only one bank account for transactions relating to all of his various businesses. Which of the following concepts or principles of accounting is Bill violating?

Accepted Answer

Bill is violating the entity concept, which requires that the transactions of a business be kept separate from those of its owner or other businesses.

Question 12

The conservatism principle requires accountants to record the highest possible profit.

Accepted Answer

The conservatism principle requires accountants to report expenses and liabilities as soon as possible, but only recognize revenues and assets when they are assured, thus not overstating profits.

Question 13

Android Electronics received an order for 50 digital radios on 1 June. The customer took delivery of the radios on 15 June. Android Electronics received payment from the customer on 20 June. The customer returned the goods as being unsuitable on 2 August. According to the profit recognition principle, on which date would the income be recorded?

Accepted Answer

The answer of Android Electronics received an order for 50...

Question 14

A corporation possesses all but one of the following characteristics. Which of the following is NOT a characteristic of a corporation?

Accepted Answer

Corporations provide limited liability protection, meaning that if a corporation cannot pay its debts, lenders cannot take the owners' personal assets to satisfy the obligations.

Question 15

David has decided to open an auto- detailing business. He will pick up an automobile from the client, take it to his parents' garage, detail it, and return it to the client. If he does all of the work himself and takes no legal steps to form a special organisation, which type of business organisation, in effect, has he chosen?

Accepted Answer

David has chosen a proprietorship, as he is operating the business by himself without forming any legal entity, making it a sole proprietorship by default.

Question 16

Which of the following is the CORRECT accounting equation?

Accepted Answer

The accounting equation states that Assets must equal Liabilities plus Owners' Equity. This means that the resources a company owns (assets) are financed by debt (liabilities) and shareholder or owner investment (owners' equity).

Question 17

Corporate ownership is a very popular type of ownership in Australia. Which of the following is a major reason that corporate ownership is popular?

Accepted Answer

Corporate shareholders have limited liability for the debts of the corporation, meaning they are not personally responsible for the corporation's debts beyond their investment in the company. This makes corporate ownership attractive as it reduces personal financial risk.

Question 18

Which of the following is TRUE for a proprietorship?

Accepted Answer

A proprietorship has a single owner.

Question 19

Accountants often refer to GAAP. What do the letters GAAP represent in accounting?

Accepted Answer

GAAP stands for Generally Accepted Accounting Principles, which are the standard framework of guidelines for financial accounting used in any given jurisdiction.

Question 20

Assets are $150 000 and total liabilities are $90 000. Total owners' equity will be:

Accepted Answer

Total owners' equity is calculated by subtracting total liabilities from total assets: $150,000 - $90,000 = $60,000.

Quiz 1: The Role of Accounting in Business