Question 1

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

A partnership is the most common form of business organization for small businesses run by two or more owners. In a partnership, the owners agree to split revenues and expenses and share in the profits and losses of the business. This is exactly the arrangement that John and Sam have agreed upon for their law practice. Joint ventures are more commonly used for short-term partnerships between two or more businesses, while corporations and proprietorships are not ideal for partnerships with multiple owners.

Question 2

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 potential to provide future economic benefits to the owner. This means that the asset has the potential to generate cash flows or increase the value of the owner's investment over time. This characteristic applies to both tangible and intangible assets, regardless of their size, value, or lifespan. Therefore, choice D - future economic benefit - is the best answer.

Question 3

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

Accepted Answer

Liabilities refer to the debts owed by a company, such as notes payable and accounts payable. Salaries and wages payable also qualify as liabilities since they represent outstanding payments owed to employees. Cash, on the other hand, is an asset that a company possesses, and hence, cannot be considered a liability.

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?
A) Pay back concept
B) Economic entity assumption
C) Cash basis concept
D) Monetary unit assumption

Accepted Answer

The economic entity assumption states that business transactions should be kept separate from personal transactions. Therefore, Ted should not record the car purchase for personal use in Ted's financial transactions, as it is a personal transaction and not related to the business.

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 obligations or debts that a business owes to external parties, such as creditors or suppliers. They arise from past transactions or events and are expected to be settled in the future by delivering assets or providing services. Liabilities do not represent future economic benefits or things of value used by the business. While some liabilities may possess service potential, this is not a defining characteristic of liabilities.

Question 6

When assets are distributed to the owners of a corporation, these distributions are termed
A) depletions.
B) consumptions.
C) dividends.
D) a credit line.

Accepted Answer

Assets distributed to the owners of a corporation are called dividends. Depletions and consumptions refer to the use of resources, whereas a credit line involves borrowing funds from a lender.

Question 7

Stockholders' equity can be described as
A) creditorship claim on total assets.
B) ownership claim on total assets.
C) benefactor's claim on total assets.
D) debtor claim on total assets.

Accepted Answer

Stockholders' equity represents the ownership claim on a company's total assets. It is the residual interest in the assets of the company after liabilities are deducted.

Question 8

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

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 9

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

Accepted Answer

Unlimited personal liability for stockholders is not an advantage of the corporate form of business organization. The limited liability of stockholders and unlimited life of the corporation are advantages, as are the transferability of ownership and the ability to raise large amounts of capital through the sale of stock.

Question 10

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

Partnership is a common form of organization for service-type businesses as it allows for shared management and expertise among partners.

Question 11

Stockholders' equity is often referred to as
A) residual equity.
B) leftovers.
C) spoils.
D) second equity.

Accepted Answer

Stockholders' equity is often referred to as residual equity because it represents the residual claim on assets after all liabilities have been paid off. It is the amount of the company that remains for shareholders after all obligations have been met. The terms leftovers, spoils, and second equity are not commonly used or appropriate to describe stockholders' equity.

Question 12

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

Accepted Answer

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

Question 13

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 U.S. Census Bureau, corporations have significantly higher average revenues than partnerships and sole proprietorships. Therefore, option C is the correct choice. Option A is incorrect as partnerships and sole proprietorships combined outnumber corporations. Option B is incorrect as corporations are generally larger in size than partnerships and sole proprietorships. Option D is incorrect as corporations can be organized under state law as well.

Question 14

A basic assumption of accounting assumes that the dollar is
A) unrelated to business transactions.
B) a poor measure of economic activities.
C) the common unit of measure for all business transactions.
D) useless in measuring an economic event.

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 transactions are measured in terms of dollars, making it easier to compare and analyze financial information. Options A, B, and D are incorrect because they are all untrue statements about the role of the dollar in accounting.

Question 15

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 activities of an entity be kept separate from the activities of its owner. This means that the financial statements of a business should only reflect the financial transactions of the business itself, not the personal transactions of the owner or any other entities. A and B are not correct because there is no "stand alone concept" in accounting, and while the monetary unit assumption is a fundamental principle, it does not relate to the separation of activities. C is not the best choice because it does not accurately describe the assumption being referred to.

Question 16

The assumption that the unit of measure remains sufficiently constant over time is part of the
A) economic entity assumption.
B) cost principle.
C) historical cost principle.
D) monetary unit assumption.

Accepted Answer

The monetary unit assumption assumes that the unit of measure remains constant over time. This means that the value of money is assumed to be stable and not impacted by inflation or changes in the economy.

Question 17

Owners enjoy limited liability in a
A) proprietorship.
B) partnership.
C) corporation.
D) sole proprietorship.

Accepted Answer

In a corporation, owners enjoy limited liability, meaning their personal assets are not at risk in case the corporation incurs debts or lawsuits. This is not the case in a proprietorship or a partnership where the owners are personally liable for the business's debts and legal issues. A sole proprietorship is not a separate legal entity, so the owner and the business are seen as one entity, and the owner is personally liable for any issues.

Question 18

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 business that is owned and operated by a single individual. This type of business is the simplest and most common form of organization for small businesses such as a neighborhood barber shop.

Question 19

Liabilities of a company are owed to
A) debtors.
B) benefactors.
C) creditors.
D) underwriters.

Accepted Answer

Liabilities refer to the amount of money a company owes to creditors, such as banks, suppliers, and other entities from which the company has borrowed money or received goods or services on credit. Therefore, the correct answer is C – creditors.

Question 20

A problem with the monetary unit assumption is that
A) the dollar has not been stable over time.
B) the dollar has been stable over time.
C) the dollar is a common medium of exchange.
D) it is impossible to account for international transactions.

Accepted Answer

The monetary unit assumption assumes that the dollar (or any monetary unit used in accounting) is stable over time. However, this is not always the case, as inflation and other economic factors can cause the value of the dollar to fluctuate. This can make it difficult to accurately measure and report financial information using the monetary unit assumption.

Quiz 1: Accounting in Action

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 common characteristic possessed by all assets is

Liabilities of a company would not include

Liabilities

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

Stockholders' equity can be described as

Owner's equity is best depicted by the following:

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

The partnership form of business organization

Stockholders' equity is often referred to as

The basic accounting equation may be expressed as

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

A basic assumption of accounting assumes that the dollar is

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

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

Owners enjoy limited liability in a

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

Liabilities of a company are owed to

A problem with the monetary unit assumption is that