ACC 556 Week 5 Midterm Exam – Strayer NEW

ACC 556 Week 5 Midterm Exam – Strayer NEW

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Chapters 1 Through 8

CHAPTER 1

INTRODUCTION TO FINANCIAL STATEMENTS

TRUE-FALSE STATEMENTS
1. A business organized as a separate legal entity owned by stockholders is a partnership.


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


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


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


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


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


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


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


9. The information needs and questions of external users vary considerably.


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


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


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


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


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


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


16. Payments to owners are operating activities.


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


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


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


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


21. A different set of financial statements usually is prepared for each user.


22. The heading for the income statement might include the line “As of December 31, 20xx.”


23. Net income is another term for revenue.


24. Cash is another term for stockholders’ equity.


25. The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company for a specific period of time.


26. The balance sheet reports assets and claims to those assets at a specific point in time.



27. The basic accounting equation states that Assets = Liabilities.


28. One way of stating the accounting equation is: Assets + Liabilities = Stockholders’ Equity.


29. The accounting equation can be expressed as Assets - Stockholders’ Equity = Liabilities.


30. The accounting equation can be expressed as Assets - Liabilities = Stockholders’ Equity.


31. If the assets owned by a business total $150,000 and liabilities total $105,000, stockholders’ equity totals $45,000.


32. If the assets owned by a business total $100,000 and liabilities total $65,000, stockholders’ equity totals $25,000.


33. Claims of creditors and owners on the assets of a business are called liabilities.


34. Creditors’ rights to assets supersede owners’ rights to the assets.


35. All publicly traded U.S. companies must provide their stockholders with an annual report each year.


36. Information in the notes to the financial statements has to be quantifiable (numeric).


37. An auditor is an accounting professional who conducts an independent examination of the accounting data presented by a company.


38. The management discussion and analysis (MD & A) section of an annual report covers various financial aspects of a company.


39. Explanatory notes and supporting schedules are an optional part of an annual report.


40. Examples of notes are descriptions of the significant accounting policies and methods used in preparing the statements, explanations of contingencies, and various statistics.




MULTIPLE CHOICE QUESTIONS
41. 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.


42. 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.


43. 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.


44. Which of the following is not one of the three forms of business organization?
a. Corporations
b. Partnerships
c. Proprietorships
d. Investors


45. Most business enterprises in the United States are
a. proprietorships and partnerships.
b. partnerships.
c. corporations.
d. government units.


46. A business organized as a separate legal entity is a
a. corporation.
b. proprietor.
c. government unit.
d. partnership.


47. 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


48. 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.


49. 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


50. 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



51. 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.


52. 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


53. 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.


54. 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 $20,000. Which of the following statements is trueregarding 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.


55. 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?



56. Which of the following are internal reports that accounting provides to internal users?
a. Forecasts of cash needs for next year.
b. Financial comparisons of operating activity alternatives.
c. Both forecasts of cash needs and financial comparisons are internal reports.
d. Neither forecasts of cash needs or financial comparisons is an internal report.


57. 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.


58. External users of accounting information, like the Internal Revenue Service, are most commonly known as
a. taxing authorities.
b. labor unions.
c. customers.
d. regulatory agencies.


59. 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.


60. Which of the following is not a step for solving an ethical dilemma?
a. Identifying the alternatives and weighing the impact of each alternat