Chapter 1—The Role of Accounting in Business
True/False
No. / Obj. / Difficulty / No. / Obj. / Difficulty / No. / Obj. / Difficulty1 / 1-1 / Easy / 8 / 1-1 / Easy / 15 / 1-1 / Easy
2 / 1-1 / Easy / 9 / 1-1 / Easy / 16 / 1-2 / Easy
3 / 1-1 / Easy / 10 / 1-1 / Easy / 17 / 1-2 / Easy
4 / 1-1 / Easy / 11 / 1-1 / Easy / 18 / 1-2 / Easy
5 / 1-1 / Easy / 12 / 1-1 / Easy / 19 / 1-2 / Easy
6 / 1-1 / Easy / 13 / 1-1 / Easy / 20 / 1-4 / Easy
7 / 1-1 / Easy / 14 / 1-1 / Easy / 21 / 1-5 / Easy
Multiple Choice
No. / Obj. / Difficulty / No. / Obj. / Difficulty / No. / Obj. / Difficulty1 / 1-1 / Easy / 20 / 1-2 / Easy / 39 / 1-4 / Moderate
2 / 1-1 / Easy / 21 / 1-2 / Easy / 40 / 1-4 / Easy
3 / 1-1 / Easy / 22 / 1-2 / Easy / 41 / 1-4 / Difficult
4 / 1-1 / Easy / 23 / 1-2 / Easy / 42 / 1-4 / Easy
5 / 1-1 / Easy / 24 / 1-2 / Easy / 43 / 1-4 / Moderate
6 / 1-1 / Easy / 25 / 1-2 / Easy / 44 / 1-4 / Easy
7 / 1-1 / Moderate / 26 / 1-2 / Easy / 45 / 1-4 / Difficult
8 / 1-1 / Easy / 27 / 1-2 / Easy / 46 / 1-4 / Easy
9 / 1-1 / Easy / 28 / 1-2 / Easy / 47 / 1-4 / Easy
10 / 1-1 / Easy / 29 / 1-2 / Easy / 48 / 1-4 / Easy
11 / 1-1 / Easy / 30 / 1-2 / Easy / 49 / 1-4 / Difficult
12 / 1-1 / Easy / 31 / 1-2 / Easy / 50 / 1-4 / Difficult
13 / 1-1 / Easy / 32 / 1-2 / Easy / 51 / 1-5 / Easy
14 / 1-1 / Easy / 33 / 1-3 / Easy / 52 / 1-5 / Easy
15 / 1-1 / Easy / 34 / 1-3 / Easy / 53 / 1-5 / Easy
16 / 1-1 / Moderate / 35 / 1-3 / Easy / 54 / 1-5 / Easy
17 / 1-1 / Easy / 36 / 1-4 / Easy / 55 / 1-5 / Easy
18 / 1-1 / Easy / 37 / 1-4 / Easy / 56 / 1-5 / Easy
19 / 1-1 / Easy / 38 / 1-4 / Moderate / 57 / 1-5 / Easy
Problems
No. / Obj. / Difficulty / No. / Obj. / Difficulty1 / 1-1 / Easy / 10 / 1-4 / Difficult
2 / 1-1 / Moderate / 11 / 1-4 / Moderate
3 / 1-1 / Moderate / 12 / 1-4 / Difficult
4 / 1-1 / Easy / 13 / 1-4 / Difficult
5 / 1-1 / Easy / 14 / 1-4 / Difficult
6 / 1-3 / Easy / 15 / 1-5 / Moderate
7 / 1-4 / Easy / 16 / 1-5 / Difficult
8 / 1-4 / Difficult / 17 / 1-5 / Difficult
9 / 1-4 / Difficult
TRUE/FALSE
1.The objective of most businesses is to maximize profits.
ANS:TPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
2.A limited liability corporation combines attributes of a partnership and a corporation.
ANS:TPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Business
3.A partnership is owned by two or more individuals.
ANS:TPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
4.Manufacturing businesses change basic inputs into products that are sold to individual customers.
ANS:TPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
5.Merchandising businesses produce products rather than provide services to customers.
ANS:FPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
6.A corporation is a business that is legally separate and distinct from its owners.
ANS:TPTS:1DIF:EasyOBJ:1-1
NAT:AACSB Analytic | AICPA BB-Industry
7.The popularity of the sole proprietorship is due to the ease and low cost of organizing.
ANS:TPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Analytic | AICPA BB-Industry
8.Large corporations such as ExxonMobil and Walmart are organized as limited liability corporations.
ANS:FPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
9.Over 90% of the total dollars of business receipts are received by proprietorships.
ANS:FPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
10.Merchandising businesses must be corporations.
ANS:FPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
11.Accounting is thought to be the "language of business" because business information is communicated to stakeholders.
ANS:TPTS:1DIF:EasyOBJ:1-1
NAT:AACSB Analytic | AICPA FN-Measurement
12.Stockholders in a corporation are internal stakeholders.
ANS:FPTS:1DIF:EasyOBJ:1-1
NAT:AACSB Analytic | AICPA FN-Resource Management
13.Porsche is an example of a business that uses a premium-price emphasis to attract customers.
ANS:TPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Analytic | AICPA BB-Industry
14.Companies using a low-cost emphasis provide products and services that compete on features other than price.
ANS:FPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Analytic | AICPA BB-Industry
15.A business stakeholder has an interest in the economic performance of a business.
ANS:TPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
16.Creditors have preference to assets behind stockholders if a business fails.
ANS:FPTS:0DIF:EasyOBJ:1-2
NAT:AACSB Reflective Thinking | AICPA BB-Industry
17.A liability is a legal obligation to repay the amount borrowed according to the terms of the borrowing agreement.
ANS:TPTS:0DIF:EasyOBJ:1-2
NAT:AACSB Reflective Thinking | AICPA BB-Resource Management
18.The basic type of stock issued to owners is called common stock.
ANS:TPTS:0DIF:EasyOBJ:1-2
NAT:AACSB Reflective Thinking | AICPA BB-Resource Management
19.Assets are acquired through investing activities when resources are purchased.
ANS:TPTS:0DIF:EasyOBJ:1-2
NAT:AACSB Reflective Thinking | AICPA BB-Resource Management
20.The Stockholders’ Equity of a company should equal the total of its Total Assets and Total Liabilities.
ANS:FPTS:0DIF:EasyOBJ:1-4
NAT:AACSB Reflective Thinking | AICPA FN-Measurement
21.The Balance Sheet represents the accounting equation.
ANS:TPTS:1DIF:EasyOBJ:1-5
NAT:AACSB Analytic | AICPA FN-Measurement
MULTIPLE CHOICE
1.What is the primary objective of most businesses?
a. / To maximize profitsb. / To pay dividends to stockholders
c. / To provide a benefit to society
d. / To manufacture a quality product
ANS:APTS:0DIF:EasyOBJ:1-1
NAT:AACSB Analytic | AICPA BB-Industry
2.Which of the following would NOT be an example of a merchandising business?
a. / Ford Motor Companyb. / Safeway
c. / Barnes & Noble
d. / Starbucks
ANS:APTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
3.Which of the items below is NOTa business organization form?
a. / Venture entrepreneurshipb. / Proprietorship
c. / Partnership
d. / Corporation
ANS:APTS:1DIF:EasyOBJ:1-1
NAT:AACSB Analytic | AICPA BB-Industry
4.More that 70% of businesses are organized as what type of business?
a. / Not-for-profitb. / Corporation
c. / Partnership
d. / Sole proprietorship
ANS:DPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
5.Which of the following is TRUE in regards to a limited liability company?
a. / It is organized as a corporation.b. / It can elect to be taxed as a partnership.
c. / It provides tax and liability advantages to the owners.
d. / All are correct.
ANS:DPTS:1DIF:EasyOBJ:1-1
NAT:AACSB Analytic | AICPA BB-Industry
6.Under a premium-price emphasis, a business designs products that possess ______for which customers are willing to pay a premium price.
a. / unique attributesb. / high costs
c. / competitive efficiencies
d. / longer warranties
ANS:APTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
7.Which of the following isNOT a characteristic of a cdorporation?
a. / Corporations are organized as a separate legal taxable entity.b. / Ownership is divided into shares of stock.
c. / Corporations experience an ease in obtaining large amounts of resources by issuing stock.
d. / A corporation’s resources are limited to its individual owners’ resources.
e. / Corporations make up 20% of all businesses.
ANS:DPTS:1DIF:ModerateOBJ:1-1
NAT:AACSB Analytic | AICPA BB-Industry
8.An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock is a
a. / proprietorship.b. / corporation.
c. / partnership.
d. / governmental unit.
ANS:BPTS:1DIF:EasyOBJ:1-1
NAT:AACSB Analytic | AICPA BB-Industry
9.A low-cost emphasis strives to provide
a. / no-frills, standardized products and services.b. / products and services that provide unique market needs.
c. / products and services that provide prestige and image for customers.
d. / products and services that compete on features other than price.
ANS:APTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
10.Which of the following businesses use a premium-price emphasis?
a. / Value City Furnitureb. / Abercrombie & Fitch
c. / Wal-Mart Supercenters
d. / Southwest Airlines
ANS:BPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Analytic | AICPA BB-Industry
11.Motel 6 is an example of a business using which of the following?
a. / Low-cost emphasisb. / Combination emphasis
c. / Differentiation strategy
d. / Premium-price emphasis
ANS:APTS:0DIF:EasyOBJ:1-1
NAT:AACSB Analytic | AICPA BB-Industry
12.Which of the following are business stakeholders?
a. / Stockholdersb. / Suppliers
c. / Customers
d. / All of these
ANS:DPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
13.The following are examples of internal stakeholders EXCEPT:
a. / managers.b. / creditors.
c. / employees.
d. / All of these are internal stakeholders.
ANS:BPTS:1DIF:EasyOBJ:1-1
NAT:AACSB Analytic | AICPA BB-Industry
14.Which of the following is NOT an example of a capital market stakeholder?
a. / Banksb. / Owners
c. / Suppliers
d. / Stockholders
ANS:CPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
15.Due to various fraudulent business practices and accounting coverups in the early 2000s, Congress enacted the Sarbanes-Oxley Act of 2002. The act was responsible for establishing a new oversight board for public accountants called the
a. / Generally Accepted Accounting Practices for Public Accountants Board.b. / Public Company Accounting Oversight Board.
c. / Congressional Accounting Oversight Board.
d. / None are correct.
ANS:BPTS:1DIF:EasyOBJ:1-1
NAT:AACSB Ethics | AICPA BB-Legal
16.Capital market stakeholders have an interest in the company because
a. / they provide incentives for the company to market their products.b. / they are part of the Marketing Department that is responsible for promoting the products or services to increase the business profits.
c. / they help market their products to customers or find vendors to supply needed inputs.
d. / they provide major financing for the business.
ANS:DPTS:1DIF:ModerateOBJ:1-1
NAT:AACSB Analytic | AICPA BB-Industry
17.Who has first preference to assets in case a business fails?
a. / Stockholdersb. / Long-term creditors
c. / Customers
d. / Employees
ANS:BPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
18.Governments have an interest in the economic performance of business because of
a. / tax collections.b. / community involvement from the business.
c. / business incentives.
d. / all of these.
ANS:APTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
19.Managers are evaluated primarily on the business's
a. / tax collections.b. / growth.
c. / economic performance.
d. / all of these.
ANS:CPTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
20.Financing activities involve obtaining ______to operate a business.
a. / productsb. / customers
c. / business incentives
d. / funds
ANS:DPTS:0DIF:EasyOBJ:1-2
NAT:AACSB Reflective Thinking | AICPA BB-Resource Management
21.When a business borrows money, it incurs a(n)
a. / tax.b. / liability.
c. / receivable.
d. / addtional equity.
ANS:BPTS:0DIF:EasyOBJ:1-2
NAT:AACSB Reflective Thinking | AICPA BB-Resource Management
22.When a product is sold, this cost is often called
a. / cost of goods sold.b. / revenue.
c. / products.
d. / retained earnings.
ANS:APTS:0DIF:EasyOBJ:1-2
NAT:AACSB Reflective Thinking | AICPA FN-Measurement
23.A note payable requires payment of the amount borrowed plus
a. / interest.b. / cash.
c. / accounts payable.
d. / investments.
ANS:APTS:0DIF:EasyOBJ:1-2
NAT:AACSB Reflective Thinking | AICPA BB-Resource Management
24.Shares of ownership are evidenced by issuing
a. / bonds payable.b. / commercial paper.
c. / shares of stock.
d. / notes payable.
ANS:CPTS:0DIF:EasyOBJ:1-2
NAT:AACSB Reflective Thinking | AICPA BB-Resource Management
25.The resources a business owns are called
a. / assets.b. / liabilities.
c. / earnings.
d. / stockholders' equity.
ANS:APTS:0DIF:EasyOBJ:1-2
NAT:AACSB Reflective Thinking | AICPA BB-Resource Management
26.The purchase of factory equipment would be an example of which type of business activity?
a. / Financingb. / Investing
c. / Operating
d. / All of these
ANS:BPTS:0DIF:EasyOBJ:1-2
NAT:AACSB Reflective Thinking | AICPA FN-Measurement
27.Which of the following is an example of an intangible asset?
a. / Patentb. / Cash
c. / Land
d. / Equipment
ANS:APTS:0DIF:EasyOBJ:1-2
NAT:AACSB Reflective Thinking | AICPA BB-Resource Management
28.Rights to payments from customers are
a. / liabilities.b. / prepaid expenses.
c. / accounts receivable.
d. / accounts payable.
ANS:CPTS:0DIF:EasyOBJ:1-2
NAT:AACSB Reflective Thinking | AICPA BB-Resource Management
29.Which of the following is considered an asset until consumed?
a. / Accounts payableb. / Prepaid expense
c. / Accounts receivable
d. / Stockholders' equity
ANS:BPTS:0DIF:EasyOBJ:1-2
NAT:AACSB Reflective Thinking | AICPA BB-Resource Management
30.______is the increase in assets from selling products and services.
a. / Revenueb. / Liabilities
c. / Products
d. / Stockholders’ Equity
ANS:APTS:0DIF:EasyOBJ:1-2
NAT:AACSB Reflective Thinking | AICPA BB-Resource Management
31.Cash collected from sales during the normal course of business would be an example of which type of business activity?
a. / Operatingb. / Investing
c. / Financing
d. / None of these
ANS:APTS:0DIF:EasyOBJ:1-2
NAT:AACSB Analytic | AICPA FN-Reporting
32.Costs incurred in operating a business are also known as
a. / revenues.b. / expenses.
c. / liabilities.
d. / dividends.
ANS:BPTS:0DIF:EasyOBJ:1-2
NAT:AACSB Reflective Thinking | AICPA FN-Measurement
33.The role of accounting in business is best defined as
a. / an information system that provides reports to stakeholders about the economic activities and condition of a business.b. / a method of forecasting the future profitability of a company.
c. / the policies, procedures, and strategies used in a business.
d. / transaction analysis.
ANS:APTS:0DIF:EasyOBJ:1-3
NAT:AACSB Reflective Thinking | AICPA BB-Industry
34.Debts owed by a business are referred to as
a. / accounts receivable.b. / equities.
c. / stockholders’ equity.
d. / liabilities.
ANS:DPTS:1DIF:EasyOBJ:1-3
NAT:AACSB Analytic | AICPA FN-Measurement
35.Reporting the financial condition of a business at a point in time and the changes in the financial condition of a business over a period of time are the two major objectives of
a. / tax accounting.b. / union contracts.
c. / managerial accounting.
d. / financial accounting.
ANS:DPTS:0DIF:EasyOBJ:1-3
NAT:AACSB Analytic | AICPA FN-Reporting
36.Which statement is normally prepared first?
a. / Income statementb. / Balance sheet
c. / Statement of cash flows
d. / Retained earnings statement
ANS:APTS:0DIF:EasyOBJ:1-4
NAT:AACSB Analytic | AICPA FN-Reporting
37.A summary of revenue and expenses for a specific period of time is a(n)
a. / income statement.b. / balance sheet.
c. / statement of cash flows.
d. / retained earnings statement.
ANS:APTS:0DIF:EasyOBJ:1-4
NAT:AACSB Analytic | AICPA FN-Reporting
38.Gilbert, Inc. had the following account balances at September 30, 2010. What is Gilbert’s net income for the month of September?
Accounts Payable / $ 5,000Capital Stock / 10,000
Cash / 14,300
Equipment / 15,400
Fees Earned / 54,400
Miscellaneous Expense / 18,200
Rent Expense / 4,150
Retained Earnings / 6,550
Wages Expense / 13,900
a. / $32,450
b. / $27,450
c. / $6,550
d. / $18,150
ANS:DPTS:0DIF:ModerateOBJ:1-4
NAT:AACSB Analytic | AICPA FN-Reporting
39.Browning, Inc. had revenues of $234,000, expenses of $175,000, and dividends of $30,000 during 2010. Which of the following statements is correct?
a. / Net income for 2010 totaled $29,000.b. / Net income for 2010 totaled $59,000.
c. / Total retained earnings increased by $59,000 during 2010.
d. / Total retained earnings decreased by $30,000 during 2010.
ANS:BPTS:0DIF:ModerateOBJ:1-4
NAT:AACSB Analytic | AICPA FN-Reporting
40.A summary of changes in the earnings retained in the corporation for a specific period of time is a(n)
a. / income statement.b. / balance sheet.
c. / statement of cash flows.
d. / retained earnings statement.
ANS:DPTS:0DIF:EasyOBJ:1-4
NAT:AACSB Analytic | AICPA FN-Reporting
41.Heedy Company had the following account balances in 2010 and 2011, respectively. Assuming dividends of $20,000 were paid in 2011, how much was net income?
2011 / 2010Capital Stock / $ 42,000 / $ 40,000
Retained Earnings / x / 210,000
Total Stockholders’ Equity / $ 314,000 / $ 250,000
a. / $62,000
b. / $82,000
c. / $272,000
d. / $252,000
ANS:BPTS:0DIF:DifficultOBJ:1-4
NAT:AACSB Analytic | AICPA FN-Reporting
42.A list of assets, liabilities, and owners' equity as of a specific date is a(n)
a. / income statement.b. / balance sheet.
c. / statement of cash flows.
d. / retained earnings statement.
ANS:BPTS:0DIF:EasyOBJ:1-4
NAT:AACSB Analytic | AICPA FN-Reporting
43.Given the following list of accounts, calculate Total Assets:
Accounts Receivable / $ 5,000Capital Stock / 20,000
Cash / 19,300
Equipment / 15,400
Fees Earned / 44,400
Miscellaneous Expense / 18,200
Rent Expense / 4,150
Retained Earnings / 6,550
Wages Expense / 13,900
a. / $84,100
b. / $59,700
c. / $46,250
d. / $39,700
ANS:DPTS:0DIF:ModerateOBJ:1-4
NAT:AACSB Analytic | AICPA FN-Reporting
44.Which of the following is an appropriate representation of the accounting equation?
a. / Assets + liabilities = stockholders’ equityb. / Assets = liabilities + stockholders’ equity
c. / Assets = liabilities
d. / Assets = liabilities + retained earnings
ANS:BPTS:0DIF:EasyOBJ:1-4
NAT:AACSB Reflective Thinking | AICPA FN-Reporting
45.Use the following information to determine Total Stockholders’ Equity:
Total Assets / $ 50,000Total Liabilities / $ 15,000
Total Stockholders’ Equity / x
Total Retained Earnings / $ 13,000
a. / $52,000
b. / $50,000
c. / $35,000
d. / $22,000
ANS:CPTS:0DIF:DifficultOBJ:1-4
NAT:AACSB Analytic | AICPA FN-Reporting
46.A summary of the cash receipts and cash payments for a specific period of time is a(n)
a. / income statement.b. / balance sheet.
c. / statement of cash flows.
d. / retained earnings statement.
ANS:CPTS:0DIF:EasyOBJ:1-4
NAT:AACSB Analytic | AICPA FN-Reporting
47.The portion of a corporation's net income retained in the business is called
a. / income statement.b. / balance sheet.
c. / statement of cash flows.
d. / retained earnings.
ANS:DPTS:0DIF:EasyOBJ:1-4
NAT:AACSB Analytic | AICPA FN-Reporting
48.The debt created by a business when it makes a purchase on account is referred to as an
a. / account payable.b. / account receivable.
c. / asset.
d. / expense payable.
ANS:APTS:1DIF:EasyOBJ:1-4
NAT:AACSB Analytic | AICPA FN-Measurement
49.If there was no beginning retained earnings, net income of $20,000, and ending retained earnings of $6,000, how much were dividends?
a. / $10,000b. / $4,000
c. / $6,000
d. / $14,000
ANS:DPTS:0DIF:DifficultOBJ:1-4
NAT:AACSB Analytic | AICPA FN-Reporting
50.During 2010, Smith Corporation had an increase in total assets of $70,000 and an increase in total liabilities of $90,000. Assuming that capital stock increased by $5,000 and no dividends were paid, calculate Smith’s net income or net loss for 2010.
a. / Net loss of $15,000b. / Net loss of $20,000
c. / Net loss of $25,000
d. / Net income of $15,000
ANS:CPTS:0DIF:DifficultOBJ:1-4
NAT:AACSB Analytic | AICPA FN-Reporting
51.The "rules" of accounting are called
a. / income tax regulations.b. / SEC regulations.
c. / Internet rules.
d. / Generally Accepted Accounting Principles.
ANS:DPTS:0DIF:EasyOBJ:1-5
NAT:AACSB Reflective Thinking | AICPA BB-Legal
52.Which principle determines the amount initially entered into the records for purchases?
a. / Cost principleb. / Going concern concept
c. / Business entity concept
d. / Objectivity concept
ANS:APTS:0DIF:EasyOBJ:1-5
NAT:AACSB Reflective Thinking | AICPA FN-Measurement
53.Recording revenue when a sale is made most directly relates to which concept?
a. / Going concern conceptb. / Periodicity concept
c. / Matching concept
d. / Adequate disclosure concept
ANS:CPTS:0DIF:EasyOBJ:1-5
NAT:AACSB Reflective Thinking | AICPA FN-Reporting
54.Expressing financial data as if a business will continue operating for an indefinite period time refers to which concept?
a. / Business entity conceptb. / Going concern concept
c. / Objectivity concept
d. / Adequate disclosure concept
ANS:BPTS:0DIF:EasyOBJ:1-5
NAT:AACSB Reflective Thinking | AICPA FN-Reporting
55.The financial statement that presents a summary of the revenues and expenses of a business for a specific period of time, such as a month or year, is called a(n)
a. / prior period statement.b. / statement of retained earnings.
c. / income statement.
d. / balance sheet.
ANS:CPTS:1DIF:EasyOBJ:1-5
NAT:AACSB Analytic | AICPA FN-Measurement
56.Including all relevant data a reader needs to understand the financial condition and performance of a business refers to which concept?
a. / Adequate disclosure conceptb. / Going concern concept
c. / Objectivity concept
d. / Business entity concept
ANS:APTS:0DIF:EasyOBJ:1-5
NAT:AACSB Reflective Thinking | AICPA FN-Reporting
57.Cash investments made by the stockholders of the business are reported on the statement of cash flows in the
a. / financing activities section.b. / investing activities section.
c. / operating activities section.
d. / supplemental statement.
ANS:APTS:1DIF:EasyOBJ:1-5
NAT:AACSB Analytic | AICPA FN-Measurement
PROBLEM
1.Name the three different types of businesses that operate for profit and their respective characteristics.
ANS:
(1) / Manufacturing: These businesses change basic inputs into products to sell to individual customers.(2) / Merchandising: These businesses sell products to individual customers, but do not make the products. The products are purchased from other businesses and resold to customers.
(3) / Service: These businesses do not make or sell products. They provide services for fees.
PTS:0DIF:EasyOBJ:1-1
NAT:AACSB Reflective Thinking | AICPA BB-Industry
2.Name and describe the three forms of businesses and their advantages and disadvantages (if any).
ANS:
(1) / Proprietorship: owned by one individualAdvantages: ease and low cost of organizing
Disadvantages: The financial resources available to this type of business are limited to the owners' resources and to borrowing.
(2) / Corporation: organized under state or federal statutes as a separate legal entity. Ownership is divided into shares of stock.
Advantages: ability to obtain large amounts of resources by issuing stock
(3) / Partnership: owned by two or more individuals
Disadvantages: may outgrow its ability to finance operations
PTS:0DIF:ModerateOBJ:1-1