Question 1

Proprietorships in the United States generate more revenue than the other two forms of business enterprise.

Accepted Answer

False

Question 2

Assets are resources owned by a business and provide future services or benefits to the business.

Accepted Answer

Assets are resources that have the potential to provide future benefits or services to the business. Examples include cash, buildings, equipment, and inventory.

Question 3

The liability of corporate stockholders is limited to the amount of their investment.

Accepted Answer

This statement is true. Limited liability is a characteristic of corporations, which means that the personal assets of stockholders are protected from any liabilities or debts incurred by the corporation beyond the amount they have invested in the company.

Question 4

Owners of business firms are the only people who need accounting information.

Accepted Answer

Accounting information is useful not only for owners of business firms but also for stakeholders, such as investors, lenders, regulatory agencies, employees, and customers. These groups use accounting information to make decisions about investments, credit, compliance, compensation, and purchasing. Therefore, accounting information has a wide range of relevance and significance for different parties involved in economic activities.

Question 5

Payments to owners are operating activities.

Accepted Answer

Payments to owners, such as dividends or distributions, are financing activities, not operating activities. Operating activities involve transactions related to the main operations of the business, such as sales, purchases of inventory, and expenses.

Question 6

Net income for the period is determined by subtracting total expenses and dividends from revenues.

Accepted Answer

The answer of Net income for the period is determined...

Question 7

The information needs and questions of external users vary considerably.

Accepted Answer

External users of financial statements can have a wide range of information needs and questions depending on their purpose for using the financial statements. For example, investors may be interested in the company's profitability, while creditors may be more concerned with the company's liquidity and ability to repay loans. Other external users such as analysts or government agencies may have different information needs and questions as well.

Question 8

Management of a business enterprise is the major external user of information.

Accepted Answer

Management of a business enterprise is considered an internal user of information, as they are directly involved in the operations and decision-making processes of the company.

Question 9

Two primary external users of accounting information are investors and creditors.

Accepted Answer

Investors and creditors are two primary external users of accounting information as they use financial statements to make investment and lending decisions.

Question 10

Corporate stockholders generally pay higher taxes but have no personal liability.

Accepted Answer

Corporate stockholders are not personally liable for the debts or obligations of the corporation, but they may be subject to higher taxes on their earnings from the corporation.

Question 11

The purchase of equipment is an example of a financing activity.

Accepted Answer

The answer of The purchase of equipment is an example...

Question 12

Accounting communicates financial information about a business to both internal and external users.

Accepted Answer

Accounting is a process of gathering, recording, analyzing, and reporting financial information about a business to its stakeholders, which include both internal users such as management and external users such as investors, creditors, and regulatory bodies. The information communicated through accounting helps stakeholders make informed decisions about the business.

Question 13

Investing activities involve collecting the necessary funds to support the business.

Accepted Answer

Investing activities involve using or acquiring assets such as property, equipment, and investments, rather than collecting funds. Financing activities involve collecting funds to support the business.

Question 14

A business organized as a separate legal entity owned by stockholders is a partnership.

Accepted Answer

A business organized as a separate legal entity owned by stockholders is a corporation, not a partnership. A partnership is owned by two or more individuals who share profits and losses.

Question 15

A business is usually involved in two types of activity-financing and investing.

Accepted Answer

The answer of A business is usually involved in two...

Question 16

Operating activities involve putting the resources of the business into action to generate a profit.

Accepted Answer

Operating activities refer to the day-to-day activities involved in running the business in order to generate revenue and profit.

Question 17

External users of accounting information are managers who plan, organize, and run a business.

Accepted Answer

External users of accounting information are individuals or entities outside of the organization, such as investors, creditors, government agencies, and customers. Managers are internal users of accounting information.

Question 18

The economic resources that are owned by a business are called stockholders' equity.

Accepted Answer

Stockholders' equity refers to the portion of a company's balance sheet that represents the owners' claim on the assets of the business. It is not the actual economic resources owned by the business. These resources include tangible assets such as property, equipment, and inventory, as well as intangible assets such as patents and trademarks.

Question 19

The majority of U.S. business is transacted by proprietorships.

Accepted Answer

The answer of The majority of U.S. business is transacted...

Question 20

Financing activities for corporations include borrowing money and selling shares of their own stock.

Accepted Answer

Financing activities for corporations commonly involve borrowing money through loans or issuing bonds, as well as selling shares of their own stock to investors.

Quiz 1: Introduction to Financial Statements