Question 1

Accounting is an information system that measures business activities.

Accepted Answer

Accounting is an information system that measures, processes, and communicates financial information about economic entities (such as businesses and corporations). This information is used by decision-makers (such as managers, investors, and regulators) to make informed judgments and decisions about the organization's operations and financial performance.

Question 2

Which of the following statements is TRUE for a limited liability partnership?
A)The partners all have limited liability for the debts of the partnership.
B)The partners all have limited liability for the acts of the other partners.
C)The general partner has unlimited liability for the debts of the partnership.
D)The limited partners have unlimited liability for the debts of the partnership.

Accepted Answer

C

Question 3

The accounting process begins and ends with people making decisions.

Accepted Answer

Accounting information is used by people to make decisions such as determining how much to invest in a company, whether to approve a loan, or how much tax is owed. The accounting process involves gathering, recording, analyzing, and reporting financial information to help individuals and organizations make informed decisions. Therefore, the accounting process begins with people deciding what information is needed and ends with people using that information to make decisions.

Question 4

Which statement is TRUE about partnerships?
A)Legally,a partnership is separate from the partners.
B)A partnership has one capital account.
C)For accounting purposes,a partnership is separate from the partners.
D)For accounting purposes,a partnership is not separate from the partners.

Accepted Answer

For accounting purposes, a partnership is considered separate from the partners, allowing it to maintain its own financial records and accounts.

Question 5

Accounting produces financial statements,which report information about a business entity.

Accepted Answer

Accounting is the process of recording, classifying, and summarizing financial transactions of a business entity. One of the main outputs of accounting is financial statements, which provide information about the financial position, performance, and cash flows of a company. Therefore, the statement "Accounting produces financial statements, which report information about a business entity" is true.

Question 6

Which of the following have unlimited liability for a company's debts?
A)owners of a corporation
B)members of a limited liability company
C)limited partners in a limited liability partnership
D)general partner in a limited liability partnership

Accepted Answer

General partner in a limited liability partnership has unlimited liability for a company's debts.

Question 7

Which of the following statements is TRUE for a limited liability partnership?
A)The partnership pays no federal income taxes.
B)Only the limited partners pay federal income taxes on their shares of the partnership's profits.
C)Only the general partner pays federal income taxes on his or her share of the partnership's profits.
D)Only the members pay federal income taxes on their shares of the partnership's profits.

Accepted Answer

Limited liability partnerships (LLPs) do not pay federal income taxes directly; instead, the profits pass through to the partners, who then report the income on their personal tax returns.

Question 8

Habitat for Humanity does not use accounting information since they are not concerned about making a profit.

Accepted Answer

Although Habitat for Humanity is a non-profit organization, they still use accounting information to track and manage their finances, monitor donations and grants, and ensure legal compliance. They may not prioritize making a profit, but they still need to maintain financial stability and accountability.

Question 9

Accounting:
A)measures business activities.
B)processes data into reports and communicates the data to decision makers.
C)is often called the language of business.
D)is all of the above.

Accepted Answer

Accounting includes all the activities mentioned in choices A, B, and C. It measures business activities, processes data into reports, and is commonly known as the language of business.

Question 10

Which of the following statements is TRUE for a limited liability company?
A)Members have unlimited liability for the debts of the business.
B)Members have limited liability for the debts of the business.
C)Only the limited partners have limited liability for the debts of the business.
D)The general partner has unlimited liability for the debts of the business.

Accepted Answer

In a limited liability company (LLC), members have limited liability for the debts of the business. This means that their personal assets cannot be used to pay off the company's debts in case of bankruptcy or similar circumstances. This is one of the main advantages of forming an LLC. Choice A is incorrect as it is the opposite of the correct answer. Choice C is incorrect as it pertains to limited partnerships, which is a different type of business structure. Choice D is also incorrect as the general partner in a limited partnership has unlimited liability.

Question 11

Accounting information is used by investors and lenders,but not by regulatory bodies.

Accepted Answer

This statement is false. Regulatory bodies such as the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), and the International Financial Reporting Standards (IFRS) use accounting information to regulate financial reporting and ensure compliance with accounting standards.

Question 12

Which of the following entities pays federal income taxes?
A)limited liability partnership
B)general partnership
C)limited liability company
D)corporation

Accepted Answer

Only corporations are required to pay federal income taxes as they are considered separate legal entities from their owners, unlike partnerships and LLCs.

Question 13

Bookkeeping is the mechanical part of accounting.

Accepted Answer

Bookkeeping involves the recording, classifying, and organizing financial transactions, while accounting includes the interpreting, analyzing, and communicating of financial information. Therefore, bookkeeping can be considered as the mechanical part of accounting.

Question 14

Federal income taxes are paid by ________ in a limited liability company.
A)the company
B)limited partners only
C)general partners only
D)members

Accepted Answer

In a limited liability company, federal income taxes are not paid by the company itself or limited or general partners. Instead, they are passed through to the members who report their share of the company's income on their personal tax returns. Therefore, the correct choice is D - members.

Question 15

Accounting is often called the language of business.

Accepted Answer

Accounting is often referred to as the language of business because it communicates the financial performance and position of a company to various stakeholders, such as investors, creditors, and management.

Question 16

The two types of accounting are:
A)profit and nonprofit.
B)financial and managerial.
C)internal and external.
D)bookkeeping and decision-oriented.

Accepted Answer

The two types of accounting are financial accounting and managerial accounting. Financial accounting focuses on preparing financial statements for external stakeholders such as investors, creditors, and regulators. On the other hand, managerial accounting provides financial information to internal stakeholders such as managers and employees to help them make better business decisions. Option A is incorrect because profit and nonprofit are not types of accounting, but rather types of organizations. Option C is incorrect because internal and external are not types of accounting, but rather refer to the audience for whom the accounting information is intended. Option D is incorrect because bookkeeping is a subset of accounting and decision-oriented accounting may be considered a component of managerial accounting.

Question 17

Decision makers who use accounting information include:
A)creditors.
B)the Internal Revenue Service.
C)the Securities and Exchange Commission.
D)all of the above.

Accepted Answer

All of the options listed use accounting information in some way. Creditors use accounting information to assess a company's ability to repay loans, the Internal Revenue Service uses accounting information to ensure accurate tax reporting, and the Securities and Exchange Commission uses accounting information in regulating companies that issue securities.

Question 18

The business records of a sole proprietorship should include the proprietor's personal assets such as a house.

Accepted Answer

The business records of a sole proprietorship should only include information about the business transactions and assets, not the personal assets of the proprietor. Personal assets, such as a house, should be listed separately on the proprietor's personal financial statements.

Question 19

Which of the following statements is TRUE for a proprietorship?
A)Legally,a proprietorship is separate from the proprietor.
B)For accounting purposes,a proprietorship is separate from the proprietor.
C)For accounting purposes,a proprietorship is not separate from the proprietor.
D)A and B

Accepted Answer

For accounting purposes, a proprietorship is considered separate from the proprietor to track business performance, even though legally they are not separate entities.

Question 20

A disadvantage of general partnerships is:
A)double taxation of distributed profits.
B)the partnership's assets are commingled with each partner's personal assets.
C)state rules and regulations must be followed.
D)each partner may conduct business in the name of the entity and make agreements that legally bind all partners.

Accepted Answer

In a general partnership, each partner has the authority to act on behalf of the partnership, which means they can make decisions and agreements that legally bind all partners, potentially leading to liabilities for actions taken by one partner.

Quiz 1: The Financial Statements

Accounting is an information system that measures business activities.

Which of the following statements is TRUE for a limited liability partnership?

The accounting process begins and ends with people making decisions.

Which statement is TRUE about partnerships?

Accounting produces financial statements,which report information about a business entity.

Which of the following have unlimited liability for a company's debts?

Which of the following statements is TRUE for a limited liability partnership?

Habitat for Humanity does not use accounting information since they are not concerned about making a profit.

Accounting:

Which of the following statements is TRUE for a limited liability company?

Accounting information is used by investors and lenders,but not by regulatory bodies.

Which of the following entities pays federal income taxes?

Bookkeeping is the mechanical part of accounting.

Federal income taxes are paid by ________ in a limited liability company.

Accounting is often called the language of business.

The two types of accounting are:

Decision makers who use accounting information include:

The business records of a sole proprietorship should include the proprietor's personal assets such as a house.

Which of the following statements is TRUE for a proprietorship?

A disadvantage of general partnerships is: