Question 1

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 financial transactions are recorded and reported in terms of dollars, making it easier to compare and analyze financial information.

Question 2

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

The unlimited personal liability for stockholders is not an advantage of the corporate form of business organization. In a sole proprietorship or partnership, the owners have unlimited personal liability for the debts and obligations of the business. However, in a corporation, stockholders have limited liability, meaning they are only liable for the amount of their investment in the company. The other options, limited liability of stockholders, transferability of ownership, and unlimited life, are advantages of the corporate form of business organization.

Question 3

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 is what remains after all liabilities have been paid off. It is the shareholders' claims on assets after all debts have been settled.

Question 4

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 total assets. This is the residual interest in the assets of the company after all liabilities have been paid off. It includes issues such as common stock, preferred stock, retained earnings, and additional paid-in capital. It does not represent creditorship claims, benefactor's claims, or debtor claims on the company's total assets.

Question 5

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 6

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 that they provide future economic benefit. This is the defining feature of an asset and distinguishes it from a liability, which represents an obligation to provide future economic benefit to others. While some assets may also have a tangible nature and a long life, and may possess great monetary value, these characteristics are not universal to all assets.

Question 7

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)terminates when one of its original stockholders dies.

Accepted Answer

A corporation is owned by its stockholders, who have limited liability for the debts of the business. This means that their personal assets are generally not at risk if the corporation incurs debts or suffers legal judgments.

Question 8

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 9

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 small neighborhood barber shop that is operated by its owner would likely be organized as a proprietorship, which is a popular choice for small businesses with a single owner as it offers simplicity and control.

Question 10

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 debts and obligations that exist currently and will require future payments or actions to be fulfilled. They represent a decrease in the company's assets and are recorded on the balance sheet. Options A, C, and D describe assets, not liabilities.

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

A partnership is the most common form of business organization for a small law practice such as John and Sam's. It allows for equal distribution of revenues and expenses and does not require formalities such as incorporation. A joint venture may be appropriate for a temporary collaboration on a specific project, but is not a sustainable form of business organization. A corporation involves more formalities and legal requirements, and may not be necessary or desirable for a small law practice. A proprietorship involves only one owner and is not appropriate for a partnership.

Question 12

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 other chosen currency) is stable over time, but this is not always the case. Inflation and changes in exchange rates can affect the stability of the currency, which makes it difficult to accurately measure the value of assets and liabilities in financial statements.

Question 13

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 requires that the personal transactions of the owner be kept separate from the transactions of the business. Thus, Ted should not record the car purchase in the books of Ted's.

Question 14

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.

Question 15

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

Corporations tend to have larger revenues than partnerships and proprietorships. This is because corporations have the ability to sell stocks to raise capital, and they can also access larger loans and lines of credit due to their legal structure and financial stability. However, it is important to note that while corporations may have higher revenues, they may also have higher expenses and face more complex regulatory requirements.

Question 16

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

Accepted Answer

Liabilities of a company represent the financial obligation that a company owes to others. The term "creditors" refers specifically to those who are owed money by the company, such as suppliers, lenders, and other parties who have extended credit to the company. Therefore, the correct answer is C) creditors.

Question 17

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 transactions and events recorded in an entity's accounting system only pertain to the entity and not to the owner, even if the owner is a sole proprietor. The stand alone concept is not a commonly used term in accounting, and both the monetary unit assumption and corporate form of ownership relate to other accounting principles.

Question 18

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

Accepted Answer

Owners of a corporation enjoy limited liability, which means that their personal assets are separate from the business's assets and their liability is limited to the amount they have invested in the company. This is not the case in a proprietorship or partnership, where owners have unlimited liability and can be held personally responsible for the debts and obligations of the business. A sole proprietorship is similar to a proprietorship, where the owner is responsible for all aspects of the business and has unlimited liability.

Question 19

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 financial obligations and debts owed by a company. Notes payable, accounts payable, and salaries and wages payable are all examples of liabilities, but cash is not a liability. Cash is considered an asset because it represents a company's available resources and is available to be used for future obligations or investments.

Question 20

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 assumption that the unit of measure remains sufficiently constant over time is part of the monetary unit assumption. This assumption states that only transactions that can be expressed in monetary terms are recorded in the accounting records, and that the unit of measure used for these transactions remains stable over time.

Quiz 1: Accounting in Action

A basic assumption of accounting assumes that the dollar is

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

Stockholders' equity is often referred to as

Stockholders' equity can be described as

Owner's equity is best depicted by the following:

The common characteristic possessed by all assets is

A business organized as a corporation

The basic accounting equation may be expressed as

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

Liabilities

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 problem with the monetary unit assumption is that

The partnership form of business organization

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

Liabilities of a company are owed to

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

Owners enjoy limited liability in a

Liabilities of a company would not include

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