Question 1

The common characteristic possessed by all assets is
A) long life.
B) great monetary value.
C) tangible nature.
D) future economic benefit.

Accepted Answer

The common characteristic possessed by all assets is their ability to provide future economic benefits, whether through generating cash flows or increasing in value. Long life, great monetary value, and tangible nature are not applicable to all assets.

Question 2

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.

Accepted Answer

A proprietorship is a type of business organization where a single individual owns and operates the business. In the case of a neighborhood barber shop, it is likely that there is only one owner who is running the business, making a proprietorship the most appropriate organizational structure.

Question 3

Harrod's Inc. purchased land for ₤55,000 in 2004. At December 31, 2014, an appraisal determined the fair value of the land is ₤65,000. If Harrod's follows the historical cost principle, in the 2014 financial statements, the land will be reported at
A) ₤55,000 on the statement of financial position.
B) ₤65,000 on the statement of financial position.
C) ₤55,000 on the income statement.
D) ₤65,000 on the income statement.

Accepted Answer

The historical cost principle states that assets should be recorded at their original cost. Therefore, even though the fair value of the land has increased, Harrod's should report the land at its original cost of ₤55,000 on the statement of financial position. The land should not be reported on the income statement as it is a non-operating item.

Question 4

Equity is best depicted by the following:
A) Assets = Liabilities.
B) Liabilities + Assets.
C) Residual equity + Assets.
D) Assets - Liabilities.

Accepted Answer

Equity is the difference between a company's assets and liabilities, so the equation to represent equity is Assets - Liabilities.

Question 5

Liabilities
A) are future economic benefits.
B) are existing debts and obligations.
C) possess service potential.
D) are things of value used by the business in its operation.

Accepted Answer

Liabilities are existing debts and obligations that a business owes to others. They typically represent amounts owed to creditors, suppliers, employees, and lenders. They are considered a form of financing for a business, and are listed on the balance sheet as a separate category from assets, which are resources owned by the business. Liabilities are not future economic benefits (A), as they represent past transactions or events that have already occurred. They do not possess service potential (C), as they are not items that the business can use in its operations. They are also not things of value used by the business (D), as this would describe assets rather than liabilities.

Question 6

Which of the following is not an advantage of the corporate form of business organization?
A) Limited liability of shareholders
B) Transferability of ownership
C) Unlimited personal liability for shareholders
D) Unlimited life

Accepted Answer

Unlimited personal liability for shareholders is not an advantage of the corporate form of business organization. In fact, one of the primary advantages of the corporate form is limited liability of shareholders, which means that they are not personally responsible for the debts or liabilities of the corporation beyond their investment in the company. Transferability of ownership, unlimited life, and the ability to raise large amounts of capital are all advantages of the corporate form.

Question 7

Asian Company purchased land for W92,000,000 in 2000. At December 31, 2014, an appraisal determined the fair value of the land is W106,000,000. The company has an investment in the ordinary shares of another company for which it paid W49,000,000 in 2012.The shares are actively traded on the South Korea Stock Exchange. The fair value of the investment at December 31, 2014 is W63,000,000. The land and investment will be reported on the December 31, 2014 statement of financial position at
A) W92,000,000 and W49,000,000, respectively.
B) W92,000,000 and W63,000,000, respectively.
C) W106,000,000 and W49,000,000, respectively.
D) W106,000,000 and W63,000,000, respectively.

Accepted Answer

Land is reported at historical cost (W92,000,000) and investments in shares are reported at fair value (W63,000,000) if they are actively traded.

Question 8

Liabilities of a company would not include
A) notes payable.
B) accounts payable.
C) wages payable.
D) cash.

Accepted Answer

Liabilities are obligations or debts that a company owes. Notes payable, accounts payable, and wages payable are all examples of liabilities. Cash, on the other hand, is an asset that a company owns, and it is not considered a liability.

Question 9

Bumi Corporation purchased an investment in the ordinary shares of another corporation for Rp250,000,000 in 2012. The shares are actively traded on the Indonesian Stock Exchange. The fair value of the investment at December 31, 2014 is Rp268,000,000. If the company follows the fair value principle, the investment will be reported in the 2014 financial statement at
A) Rp250,000,000 on the statement of financial position.
B) Rp268,000,000 on the statement of financial position.
C) Rp250,000,000 on the retained earnings statement.
D) Rp268,000,000 on the retained earnings statement.

Accepted Answer

If the company follows the fair value principle, the investment will be reported on the statement of financial position at its current fair value, which is Rp268,000,000 as of December 31, 2014. Therefore, choice B is correct. Choices A and C are incorrect because they do not reflect the fair value of the investment. Choice D is incorrect because the investment is reported on the statement of financial position, not the retained earnings statement.

Question 10

The assumption that enables accounting to quantify (measure) economic events is the
A) economic entity assumption.
B) cost principle.
C) historical cost principle.
D) monetary unit assumption.

Accepted Answer

The monetary unit assumption assumes that only transactions that can be measured in monetary terms are recorded in the accounting system. This enables accounting to quantify economic events in a uniform and objective manner.

Question 11

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
A) joint venture.
B) partnership.
C) corporation.
D) proprietorship.

Accepted Answer

In a partnership, two or more individuals agree to share profits and losses of the business equally or as per their agreed-upon ratios. This is the most appropriate business structure for John and Sam as they want to share revenues and expenses evenly. A joint venture is a temporary business association formed for a specific project or purpose, while a corporation involves complex legal requirements and is not suitable for a small law practice. A proprietorship is a business structure where a single individual owns and controls the business, which is not applicable in this scenario.

Question 12

The economic entity assumption requires that the activities
A) of different entities can be combined if all the entities are corporations.
B) must be reported to the Securities and Exchange Commission.
C) of a sole proprietorship cannot be distinguished from the personal economic events of its owners.
D) of an entity be kept separate from the activities of its owner.

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 the financial statements should reflect only the economic activities of the business entity and not the personal financial activities of the owner. This assumption allows for more accurate financial reporting and analysis of the entity's performance.

Question 13

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.

Accepted Answer

The partnership form of business organization is a common form of organization for service-type businesses. It is not a separate legal entity and does not have limited liability. However, partnerships do not have an unlimited life, as they are dissolved upon the death or withdrawal of a partner.

Question 14

A business whose owners enjoy limited liability is a
A) proprietorship.
B) partnership.
C) corporation.
D) sole proprietorship.

Accepted Answer

Limited liability is a characteristic of corporations. Corporations are separate legal entities from their owners, which means that the owners have limited liability for the debts and actions of the corporation.

Question 15

The proprietorship form of business organization
A) must have at least three owners in most states.
B) requires that the owner be personally liable for all debts of the business.
C) combines the records of the business with the personal records of the owner.
D) is characterized by a legal distinction between the business as an economic unit and the owner.

Accepted Answer

The proprietorship form of business organization requires that the owner be personally liable for all debts of the business, meaning that there is no legal distinction between the business as an economic unit and the owner. There is no requirement for a certain number of owners, and while the owner may combine the records of the business with personal records, this is not a defining characteristic of the form.

Question 16

Which of the following is true regarding the corporate form of business organization?
A) Corporations are the most prevalent form of business organization.
B) Corporate businesses are generally smaller in size than partnerships and proprietor-ships.
C) The revenues of corporations are greater than the combined revenues of partnerships and proprietorships.
D) Corporations are separate legal entities organized exclusively under federal law.

Accepted Answer

According to data from the US Census Bureau, corporations have significantly higher revenues than both partnerships and proprietorships. Option A is incorrect as corporations are not the most prevalent form of business organization, sole proprietorships are. Option B is also incorrect as corporations can vary greatly in size and can often be larger than partnerships and proprietorships. Option D is incorrect as corporations are organized under state law, not exclusively under federal law.

Question 17

A business organized as a corporation
A) is not a separate legal entity in most countries.
B) requires that shareholders be personally liable for the debts of the business.
C) is owned by its shareholders.
D) terminates when one of its original shareholders dies.

Accepted Answer

A corporation is a legal entity that is separate from its shareholders, meaning that it can own property, enter into contracts, and engage in business activities on its own. However, it is ultimately owned by its shareholders who have the power to elect the board of directors and make major business decisions. Shareholders are not personally liable for the debts of the business, which is one of the key advantages of organizing as a corporation. The corporation can continue to exist even if one of its shareholders dies or sells their shares.

Question 18

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
A) stand alone concept.
B) monetary unit assumption.
C) corporate form of ownership.
D) economic entity assumption.

Accepted Answer

The economic entity assumption requires that the accounting records of an entity be kept separate from the personal records of its owner(s) or other entities. This assumption recognizes that a business is a separate and distinct entity from its owners or other related entities, and has its own economic resources, transactions, and activities. This principle helps to ensure that financial statements provide a true and fair view of the financial position and performance of the entity, and facilitates comparisons with other entities.

Question 19

Hyundai Inc. purchased land for W118,000,000 in 2005. At December 31, 2014, an appraisal determined the fair value of the land is W136,000,0000. If Hyundai follows the cost principle, the land will be reported on the statement of financial position at
A) W100,000,000.
B) W118,000,000.
C) W136,000,000.
D) W154,000,000.

Accepted Answer

According to the cost principle, assets are initially recorded at their cost. Therefore, Hyundai will report the land on the statement of financial position at its original cost, which is W118,000,000. The appraisal value is not relevant in this case as the cost principle requires companies to record assets at their historical cost.

Question 20

The basic accounting equation may be expressed as
A) Assets - Equity = Liabilities.
B) Assets - Liabilities = Equity.
C) Assets = Liabilities + Equity.
D) All of these answer choices are correct.

Accepted Answer

The basic accounting equation is Assets = Liabilities + Equity. This equation shows that the total assets of a company are equal to the sum of its liabilities and equity.

Quiz 1: Accounting in Action

The common characteristic possessed by all assets is

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

Harrod's Inc. purchased land for ₤55,000 in 2004. At December 31, 2014, an appraisal determined the fair value of the land is ₤65,000. If Harrod's follows the historical cost principle, in the 2014 financial statements, the land will be reported at

Equity is best depicted by the following:

Liabilities

Which of the following is not an advantage of the corporate form of business organization?

Liabilities of a company would not include

The assumption that enables accounting to quantify (measure) economic events is the

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

The economic entity assumption requires that the activities

The partnership form of business organization

A business whose owners enjoy limited liability is a

The proprietorship form of business organization

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

A business organized as a corporation

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

Hyundai Inc. purchased land for W118,000,000 in 2005. At December 31, 2014, an appraisal determined the fair value of the land is W136,000,0000. If Hyundai follows the cost principle, the land will be reported on the statement of financial position at

The basic accounting equation may be expressed as