Question 1

Which of the following is the best definition of an internal user of accounting information? A)Investors who use accounting information to decide whether to buy or sell stock. B)Creditors like banks that use accounting information to evaluate the risk of lending money. C)Labor unions who use accounting information to examine the ability of the company to pay increased wages and benefits. D)Managers who use accounting information to plan organize and run a business.

Accepted Answer

Internal users of accounting information are those who are directly involved in managing and operating a business, such as managers, employees or owners. They use accounting information to make informed decisions regarding the day-to-day operations, strategic planning, budgeting and resource allocation of a company. Option D is the only option that describes such users.

Question 2

A small neighborhood barber shop that is operated by its owner would likely be organized as a
A)joint venture.
B)partnership.
C)corporation.
D)proprietorship.

Accepted Answer

A small neighborhood barber shop that is operated by its owner would likely be organized as a proprietorship because it is owned and managed by a single individual.

Question 3

Which of the following is not an advantage of the corporate form of business organization? A)No personal liability B)Easy to transfer ownership C)Favorable tax treatment D)Easy to raise funds

Accepted Answer

The corporate form of business organization generally does not have favorable tax treatment as corporations are subject to double taxation. This means that profits are taxed at the corporate level and again when distributed to shareholders as dividends. Therefore, C is not an advantage of the corporate form of business organization. A, B, and D are advantages.

Question 4

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? A)Ability to raise capital for expansion B)Desire to limit the owner's personal liability C)The prestige of operating as a corporation D)The ease in transferring shares of the corporation's stock

Accepted Answer

While incorporating may provide some level of prestige, it is not a primary reason for a business owner to choose to incorporate. The other options, such as the ability to raise capital and limit personal liability, are common reasons for incorporation. The ease of transferring shares may also be a factor, depending on the owner's long-term goals for the business.

Question 5

Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?
A)Reduced legal liability for investors
B)Harder to transfer ownership
C)Lower taxes
D)Most common form of organization

Accepted Answer

One advantage of corporations is reduced legal liability for investors. This means that the personal assets of shareholders are protected in case the corporation is sued or declares bankruptcy. This is not the case for partnerships and sole proprietorships, where owners are personally liable for the debts and obligations of the business.

Question 6

A business organized as a corporation
A)is not a separate legal entity in most states.
B)requires that stockholders be personally liable for the debts of the business.
C)is owned by its stockholders.
D)has tax advantages over a proprietorship or partnership.

Accepted Answer

A corporation is owned by its stockholders, who hold shares of stock in the company. This ownership structure allows for the separation of ownership and control, as stockholders elect a board of directors to oversee the management of the business. The stockholders are not personally liable for the debts of the corporation, as the business is considered a separate legal entity. Corporations also offer tax advantages, as they can deduct certain expenses, such as employee benefits, from their taxable income.

Question 7

An advantage of the corporate form of business is that
A)it has limited life.
B)its owner's personal resources are at stake.
C)its ownership is easily transferable via the sale of shares of stock.
D)it is simple to establish.

Accepted Answer

The advantage of the corporate form of business is that its ownership is easily transferable via the sale of shares of stock. This means that investors can easily buy and sell ownership in the company, which provides liquidity and flexibility for both the company and its investors.

Question 8

The proprietorship form of business organization
A)must have at least two owners in most states.
B)generally receives favorable tax treatment relative to a corporation.
C)combines the records of the business with the personal records of the owner.
D)is classified as a separate legal entity.

Accepted Answer

Proprietorship form of business organization is a business owned and run by a single individual, which makes it a sole proprietorship. In this form of organization, the tax treatment is favorable, which means the owner only pays personal income tax on the business profits. Additionally, proprietorship does not have a separate legal entity; hence their records are combined with those of the owner. As a result, the proprietor is responsible for the debts and liabilities incurred by the business.

Question 9

All of the following are advantages for choosing a proprietorship for a business except A)a proprietorship is a simple form of business to set up. B)a proprietorship gives the owner control of the business. C)proprietorship receive more favorable tax treatment. D)transfer of ownership is easily achieved through stock sales.

Accepted Answer

Transfer of ownership is not easily achieved through stock sales in a proprietorship as there are no stocks to sell. Proprietorships are owned by a single individual and do not have shareholders.

Question 10

The Internal Revenue Service is an external user of accounting information and a
A)taxing authority.
B)labor union.
C)customer.
D)regulatory agency.

Accepted Answer

The Internal Revenue Service (IRS) is a taxing authority and is responsible for collecting taxes from individuals and businesses in accordance with the tax laws of the United States. As an external user of accounting information, the IRS relies on accurate financial statements and tax returns to determine the amount of tax owed by taxpayers. Therefore, choice A is the most appropriate answer as it accurately reflects the role of the IRS in the accounting and taxation process.

Question 11

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 $20000.Which of the following statements is true regarding this debt? A)Only Jack is personally liable for the debt since he has been the managing partner during that time. B)Only Jill is personally liable for the debt of the business since Jack has been working and she has not. C)Both Jack and Jill are personally liable for the business debt. D)Neither Jack nor Jill is personally liable for the business debt since the partnership is a separate legal entity.

Accepted Answer

Both Jack and Jill are personally liable for the business debt because they are partners in a general partnership. In a general partnership, all partners are jointly and severally liable for the debts of the partnership, regardless of whether one partner has been managing the business or not. Therefore, even though Jill was on vacation during the time the debt was incurred, she is still personally liable for it.

Question 12

Which of the following is not a step for solving an ethical dilemma? A)Identifying the alternatives and weighing the impact of each alternative on various stakeholders. B)Certifying the ethical accuracy of the financial information. C)Identifying and analyzing the principal elements in the situation. D)Recognizing the ethical situation and issues involved.

Accepted Answer

Certifying the ethical accuracy of financial information is not a step for solving an ethical dilemma. The other three options (identifying and analyzing the principal elements, recognizing the ethical situation and issues, and identifying alternatives and weighing their impact on stakeholders) are all important steps in ethical decision-making.

Question 13

A business organized as a separate legal entity is a
A)corporation.
B)proprietor.
C)government unit.
D)partnership.

Accepted Answer

A corporation is a separate legal entity that is owned by shareholders and operates independently from those shareholders. Proprietors and partnerships are not separate legal entities, while government units are typically considered a distinct category from business entities.

Question 14

The partnership form of business organization
A)is a separate legal entity.
B)is a common form of organization for service-type businesses.
C)enjoys an unlimited life.
D)has limited liability.

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. This is because partnerships allow for the pooling of resources and expertise between partners to provide services to clients. However, partnerships do not have a separate legal entity, an unlimited life, or limited liability.

Question 15

Which of the following is not one of the three forms of business organization? A)Corporations B)Partnerships C)Proprietorships D)Investors

Accepted Answer

Investors are not a form of business organization, but rather individuals or entities that provide funding or capital to businesses. The three forms of business organization are corporations, partnerships, and proprietorships, which are legal structures that businesses can adopt to establish ownership, liability, and operational frameworks.

Question 16

Which of the following statements is not true regarding the Sarbanes-Oxley Act (SOX)? A)The Act calls for increased oversight responsibilities for boards of directors. B)The Act has resulted in increased penalties for financial fraud by top management. C)The Act calls for decreased independence of outside auditors reviewing corporate financial statements. D)The Act is meant to decrease the likelihood of unethical corporate behavior.

Accepted Answer

SOX actually calls for increased independence of outside auditors reviewing corporate financial statements. This is to ensure that the auditors are not swayed by any conflicts of interest or pressure from the company they are auditing. Increased independence of the auditors is viewed as a crucial step in detecting and preventing financial fraud.

Question 17

Which of the following are internal reports that accounting provides to internal users?
A)Forecasts of cash needs for next year but not financial comparisons of operating activity alternatives.
B)Financial comparisons of operating activity alternatives but not forecasts of cash needs for next year.
C)Both forecasts of cash needs and financial comparisons are internal reports.
D)Neither forecasts of cash needs nor financial comparisons are internal reports.

Accepted Answer

Internal reports that accounting provides to internal users can include both forecasts of cash needs and financial comparisons of operating activity alternatives. These reports are used by internal users such as managers to make decisions related to the organization's operations and financial management.

Question 18

Which one of the following questions is most likely asked by an internal human resources director for the company? A)Which product line is most profitable? B)What price for our product will maximize the company income? C)What average pay raise is affordable for employees this year? D)Should any product lines be eliminated?

Accepted Answer

The question about an affordable pay raise for employees is most relevant to an internal human resources director as they are responsible for managing employee compensation and benefits. The other questions are more relevant to a finance or operations director.

Question 19

A corporation has which of the following set of characteristics?
A)Shared control tax advantages increased skills and resources
B)Simple to set up and maintains control with founder
C)Easier to transfer ownership and raise funds no personal liability
D)Harder to raise funds and gives owner control

Accepted Answer

A corporation is a type of business organization that has the characteristic of easier transfer of ownership and the ability to raise funds through stock offerings. It also provides its owners with limited liability protection from business debts and obligations.

Question 20

Most business enterprises in the United States are
A)proprietorships and partnerships.
B)partnerships.
C)corporations.
D)government units.

Accepted Answer

The answer of Most business enterprises in the United States...

Quiz 1: Introduction to Financial Statements

Which of the following is the best definition of an internal user of accounting information?

A small neighborhood barber shop that is operated by its owner would likely be organized as a

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

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?

Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?

A business organized as a corporation

An advantage of the corporate form of business is that

The proprietorship form of business organization

All of the following are advantages for choosing a proprietorship for a business except

The Internal Revenue Service is an external user of accounting information and a

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 $20000.Which of the following statements is true regarding this debt?

Which of the following is not a step for solving an ethical dilemma?

A business organized as a separate legal entity is a

The partnership form of business organization

Which of the following is not one of the three forms of business organization?

Which of the following statements is not true regarding the Sarbanes-Oxley Act (SOX) ?

Which of the following are internal reports that accounting provides to internal users?

Which one of the following questions is most likely asked by an internal human resources director for the company?

A corporation has which of the following set of characteristics?

Most business enterprises in the United States are