Question 1

A partnership is a business owned by two individuals;if three or more individuals organize a business,it must be established as a corporation.

Accepted Answer

Three or more individuals can also organize a business as a partnership, not just as a corporation.

Question 2

Management accounting is the branch of accounting concerned with communication with internal management.

Accepted Answer

Management accounting focuses on providing financial and non-financial information to internal management to support decision-making and day-to-day operations. It is different from financial accounting, which is concerned with communication with external stakeholders such as investors, creditors, and regulators.

Question 3

An asset is a future economic benefit to a business.

Accepted Answer

An asset is defined as something that can provide future economic benefits to a business, such as property, equipment, or investments.

Question 4

A department store is an example of a manufacturer.

Accepted Answer

A department store is a retailer, not a manufacturer.

Question 5

A grocery store is an example of a wholesaler.

Accepted Answer

A grocery store is an example of a retailer, which sells products directly to the end consumer. A wholesaler, on the other hand, sells products in large quantities to retailers or other businesses.

Question 6

Bondholders are external users of a company's accounting information.

Accepted Answer

Bondholders are investors who have lent money to a company through purchasing its bonds. As external users of the company's financial information, they rely on accounting reports such as financial statements and disclosures to make informed decisions about their investments.

Question 7

An expense is an inflow of assets resulting from the sale of goods and services.

Accepted Answer

An expense is an outflow of assets resulting from the consumption or use of goods and services, not an inflow.

Question 8

An auto repair company is not an example of a manufacturer.

Accepted Answer

An auto repair company repairs or services vehicles and does not manufacture them, making it not an example of a manufacturer.

Question 9

Capital stock indicates the owners' contributions to a corporation.

Accepted Answer

Capital stock represents the amount of money or assets that investors contribute to a corporation in exchange for common or preferred stock. It is a measure of the owners' equity in the company.

Question 10

Since there is a lack of a profit motive in nonbusiness entities,they do not need information provided by an accounting system.

Accepted Answer

Even though nonbusiness entities do not have a profit motive, they still need an accounting system to keep track of their financial transactions and report their financial information to stakeholders such as donors, grantors, and government agencies. This information is crucial for making informed decisions, demonstrating accountability, and complying with legal and regulatory requirements.

Question 11

Under Armour is an example of a service provider.

Accepted Answer

Under Armour is actually an example of a product manufacturer, specifically for athletic apparel and footwear. They provide physical products for consumers to purchase, rather than services.

Question 12

The income statement is a statement that summarizes revenues and expenses for a period.

Accepted Answer

The income statement is a financial statement that summarizes revenues and expenses for a specific period of time, typically a month or a year. It provides information on a company's profitability and is also known as the profit and loss statement, statement of operations, or statement of earnings.

Question 13

The amount of earnings distributed to stockholders can be found in the income statement.

Accepted Answer

The amount of earnings distributed to stockholders is found in the statement of retained earnings or dividends declared, not in the income statement. The income statement reports a company's revenues, expenses, and net income, but not the distributions to shareholders.

Question 14

Someone to whom a company has a debt is known as a creditor.

Accepted Answer

A creditor is a person or entity to whom money is owed by another party. In the context of a company, creditors can include suppliers, banks, or bondholders who have loaned money to the company.

Question 15

The purpose of financial reporting is to provide economic information to external decision makers only.

Accepted Answer

Financial reporting serves the purpose of providing economic information to both external and internal decision makers, such as shareholders, investors, creditors, employees, and management.

Question 16

A partnership is a business owned by two or more individuals.

Accepted Answer

A partnership involves two or more individuals sharing ownership and management of a business.

Question 17

The Internal Revenue Service (IRS)recognizes the separate existence of a proprietorship from its owner.

Accepted Answer

The IRS does not recognize the separate existence of a proprietorship from its owner. In other words, a proprietorship is not a separate legal entity for tax purposes, and the owner is personally responsible for the business's debts and liabilities.

Question 18

Assets can be tangible or intangible in nature.

Accepted Answer

Assets can be physical objects (tangible) such as equipment or property, or they can be rights or intellectual property (intangible) such as patents or trademarks.

Question 19

Business entities and non-business entities are both organized to earn a profit.

Accepted Answer

Non-business entities are not organized to earn a profit. They are usually organized for a social, charitable, or religious purpose. Business entities, on the other hand, are organized specifically to earn a profit.

Question 20

External users of accounting information include present and potential stockholders,bankers and other creditors,and management.

Accepted Answer

External users of accounting information include present and potential stockholders, bankers, and other creditors, but not management, as management is considered an internal user.

Quiz 1: Accounting As a Form of Communication