Question 1

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

Accepted Answer

Operating activities are the core activities of a business that involve the day-to-day functions necessary to produce goods or services and generate revenue, ultimately aiming to make a profit.

Question 2

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.

Question 3

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

Accepted Answer

Financing activities involve transactions that affect a company's equity and debt, such as issuing shares and taking loans.

Question 4

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

Accepted Answer

Most U.S. business transactions are conducted by corporations, not proprietorships, due to their larger scale and resources.

Question 5

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

Accepted Answer

External users of accounting information are not managers; they include investors, creditors, and regulatory agencies who are outside the organization. Managers are considered internal users.

Question 6

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

Accepted Answer

Net income is calculated by subtracting expenses from revenues. Dividends are not subtracted in this calculation; they are distributions of profit after net income is determined.

Question 7

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

Accepted Answer

Investing activities involve the purchase and sale of long-term assets and investments, not the collection of funds, which is part of financing activities.

Question 8

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

Accepted Answer

A business is usually involved in three types of activities: operating, investing, and financing. Operating activities relate to the core business operations, investing activities involve the acquisition and disposal of long-term assets, and financing activities pertain to raising and repaying capital.

Question 9

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

Accepted Answer

Investors and creditors are external users who rely on accounting information to make informed decisions regarding investments and lending.

Question 10

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

Accepted Answer

Management of a business enterprise is considered an internal user of accounting information, as they use it to make informed decisions within the organization. External users include investors, creditors, and regulatory agencies.

Question 11

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

Accepted Answer

Accounting provides financial information that is useful for decision-making to both internal users (like management) and external users (such as investors, creditors, and regulatory agencies).

Question 12

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

Accepted Answer

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

Question 13

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

Accepted Answer

Proprietorships are the most common form of business in the United States, but corporations generate more revenue due to their larger size and scale.

Question 14

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

Accepted Answer

This is known as limited liability, which means that stockholders are not personally responsible for the debts and obligations of the corporation beyond their investment.

Question 15

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

Accepted Answer

External users, such as investors, creditors, and regulatory agencies, have different objectives and interests, leading to varied accounting information needs and questions.

Question 16

Payments by the business to owners are operating activities.

Accepted Answer

Payments to owners, such as dividends, are considered financing activities, not operating activities. Operating activities involve the core business operations like sales and expenses.

Question 17

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

Accepted Answer

Accounting information is not useful only to owners of business firms. It is also useful to managers, investors, creditors, government agencies, employees, and other stakeholders. This information helps them make informed decisions regarding the financial health and performance of the business.

Question 18

Corporate stockholders have no personal liability for the debts of the corporation.

Accepted Answer

Corporate stockholders have limited liability, meaning they are not personally responsible for the corporation's debts beyond their investment in the company's stock.

Question 19

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

Accepted Answer

Economic resources owned by a business are called assets, not stockholders' equity. Stockholders' equity represents the owners' claim on the assets after liabilities are deducted.

Question 20

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

Accepted Answer

Assets are resources owned by a business that are expected to provide future economic benefits, such as generating revenue or supporting operations.

Quiz 1: Introduction to Financial Statements