Question 1

A problem with the monetary unit assumption is that

Accepted Answer

The monetary unit assumption assumes that the currency used in financial statements is stable over time. However, the value of currency can fluctuate over time, leading to problems with this assumption. Therefore, choice A is the correct answer.

Question 2

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

Accepted Answer

A proprietorship is a type of business organization where an individual owns and operates the business on their own. This is the most likely structure for a small neighborhood barber shop since it is owned and operated by a single owner. A joint venture involves two or more parties working together for a specific project or goal, while a partnership involves two or more individuals sharing ownership and responsibilities of a business. A corporation is a separate legal entity from its owners and is typically larger in size and more complex in structure.

Question 3

A basic assumption of accounting that requires activities of an entity be kept separate from the activities of its owner is referred to as the

Accepted Answer

The economic entity assumption requires that the activities of an entity be kept separate from the activities of its owner. This means that business transactions must be recorded separately from personal transactions of the owner, and that the entity must be treated as a separate economic unit for accounting purposes. This assumption is fundamental to the preparation of financial statements that provide accurate and reliable information about the financial position and performance of the entity.

Question 4

Ted Leo is the proprietor (owner) of Ted's, a retailer of golf apparel. When recording the financial transactions of Ted's, Ted does not record an entry for a car he purchased for personal use. Ted took out a personal loan to pay for the car. What accounting concept guides Ted's behavior in this situation?

Accepted Answer

The economic entity assumption states that the financial transactions of the business and the owner should be kept separate. Therefore, Ted should not record the purchase of his personal car in the books of his business.

Question 5

The assumption that the unit of measure remains sufficiently constant over time is part of the

Accepted Answer

The assumption that the unit of measure remains sufficiently constant over time is part of the monetary unit assumption. This principle assumes that only transactions that can be expressed in terms of money are recorded in the financial statements, and that the monetary unit used to measure these transactions is stable and reliable over time.

Question 6

The basic accounting equation may be expressed as

Accepted Answer

The answer of The basic accounting equation may be expressed...

Question 7

A basic assumption of accounting assumes that the dollar is

Accepted Answer

The basic assumption of accounting is that the dollar is the common unit of measure for all business transactions. This means that all financial transactions are recorded and reported in dollars to facilitate measurement, comparison, and analysis. The dollar is therefore a fundamental part of accounting and is used to express the financial results of a business.

Question 8

Liabilities

Accepted Answer

Liabilities are existing debts and obligations, meaning they represent a present obligation for the business to pay or perform some action in the future. They are not future economic benefits (which would be assets), do not possess service potential, and are not things of value used by the business.

Question 9

When assets are distributed to the owners of a corporation, these distributions are termed

Accepted Answer

Distributions of assets to owners of a corporation are generally referred to as dividends, therefore choice C is the correct answer. The other choices - depletions, consumptions, and credit line - do not accurately describe the distribution of assets to owners.

Question 10

The common characteristic possessed by all assets is

Accepted Answer

The common characteristic possessed by all assets is that they provide future economic benefit. This includes tangible assets such as property and equipment as well as intangible assets such as patents and trademarks. The value of an asset lies in its ability to generate revenue or provide cost savings in the future, which is why assets are classified as such on a company's balance sheet. Long life and monetary value are not universal characteristics of all assets, and some assets may not be tangible in nature.

Question 11

Which of the following is true regarding the corporate form of business organization?

Accepted Answer

According to data from the U.S. Census Bureau, corporations generate the largest amount of revenue compared to partnerships and proprietorships. A and B are incorrect because partnerships and proprietorships are more prevalent than corporations. D is incorrect because corporations can be organized under state law as well.

Question 12

Owner's equity is best depicted by the following:

Accepted Answer

Owner's equity is represented by the difference between the company's assets and its liabilities, which is the residual value that belongs to the owners.

Question 13

Stockholders' equity can be described as

Accepted Answer

Stockholders' equity represents the portion of a company's assets that are owned by its shareholders. Therefore, it is an ownership claim on total assets.

Question 14

A dividend is

Accepted Answer

A dividend is a distribution of the company's earnings to its stockholders. It is a way for a company to share its profits with its shareholders and is usually paid out in cash or additional stock. The dividend amount and frequency are determined by the company's board of directors.

Question 15

Liabilities of a company are owed to

Accepted Answer

Liabilities are debts that a company owes to its creditors. Debtors are individuals or entities that owe money to the company, benefactors give donations or gifts to the company, and underwriters are typically involved in the issuance of securities and insurance policies.

Question 16

John and Sam met at law school and decide to start a small law practice after graduation. They agree to split revenues and expenses evenly. The most common form of business organization for a business such as this would be a

Accepted Answer

A partnership is the most common form of business organization for a business such as a small law practice as it allows for the splitting of revenues and expenses evenly between the partners. A joint venture is similar to a partnership, but is typically formed for a specific project or short-term venture. A corporation involves shareholders, is separate from its owners, and has more complex legal and regulatory requirements. A proprietorship is owned by a single individual and does not involve a partnership.

Question 17

Liabilities of a company would not include

Accepted Answer

Liabilities represent the obligations of a company to pay back debts or fulfill promises in the future. Therefore, cash, which represents the company's current assets, would not be considered a liability. Notes payable, accounts payable, and salaries and wages payable are all examples of liabilities because they represent debts the company owes to others.

Question 18

Stockholders' equity is often referred to as

Accepted Answer

Stockholders' equity is often referred to as residual equity because it represents the leftover value after all liabilities have been paid off. It is the portion of the company's assets that belongs to the stockholders.

Question 19

Revenues would not result from

Accepted Answer

Issuance of common stock is not considered revenue because it is a financing activity, not an operating activity. Revenues come from the sale of merchandise, performance of services, rental of property, or other operating activities.

Question 20

Owners enjoy limited liability in a

Accepted Answer

Corporation owners enjoy limited liability, meaning that their personal assets are not at risk if the corporation faces financial issues.

Quiz 1: Accounting in Action