Question 1

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

Accepted Answer

False

Question 2

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

Accepted Answer

Accounting is a means of communication of financial information which is used by internal users or management, such as employees, managers, and owners, as well as external users, such as investors, lenders, and regulatory agencies.

Question 3

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

Accepted Answer

Accounting information is not only important for the owners of business firms but for a variety of stakeholders such as investors, creditors, regulatory bodies, and government agencies. They all need accounting information to make informed decisions about the financial health and performance of the company.

Question 4

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

Accepted Answer

Assets are resources that are owned by a business and are expected to provide future economic benefits to the business. Examples of assets include cash, accounts receivable, inventory, property, plant, and equipment.

Question 5

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

Accepted Answer

Financing activities for corporations can include borrowing money through loans or issuing bonds, as well as selling shares of their stock through stock offerings or initial public offerings (IPOs).

Question 6

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

Accepted Answer

External users of accounting information are individuals or entities outside of the company, such as investors, creditors, customers, and government agencies. Managers are considered internal users.

Question 7

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

Accepted Answer

Investing activities involve the purchase, sale, or disposal of long-term assets such as property, plant, and equipment or investments. It does not involve collecting funds to support the business. That falls under financing activities.

Question 8

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

Accepted Answer

Corporate stockholders may face higher taxes due to double taxation on dividends, but they have limited liability, meaning they are not personally liable for the corporation's debts.

Question 9

Payments 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 10

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

Accepted Answer

Operating activities are the primary activities of a business that involve the production and sale of goods or services to generate revenue and earn a profit. These activities include purchasing raw materials, manufacturing products, marketing and selling them, and collecting payments from customers.

Question 11

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

Accepted Answer

This statement describes the concept of limited liability, where stockholders are not personally responsible for the debts or other obligations of the corporation beyond the amount of their investment.

Question 12

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

Accepted Answer

The answer of The majority of U.S. business is transacted...

Question 13

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. A partnership is owned by two or more individuals who share the profits and losses of the business.

Question 14

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

Accepted Answer

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

Question 15

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

Accepted Answer

Management of a business enterprise is considered an internal user of information, as they are directly involved in the operations and decision-making processes of the company.

Question 16

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

Accepted Answer

According to the US Census Bureau, corporations generate the most revenue among the three forms of business enterprise (proprietorships, partnerships, and corporations). Proprietorships and partnerships generate less revenue on average than corporations.

Question 17

The economic resources that are 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 18

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

Accepted Answer

Net income is calculated by subtracting total expenses from revenues. Dividends are not subtracted in this calculation as they are distributions of profit, not an expense.

Question 19

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

Accepted Answer

Investors and creditors are two main external users of accounting information who require financial information to make decisions about investing in or lending to a company.

Question 20

The 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 information needs and questions.

Quiz 1: Introduction to Financial Statements