Accounting: Chapter 1 Practice Test

T/F: Corporations generally receive more favorable tax treatment than sole proprietorships and corporations.

Which is not one of the three forms of business organization? A. Sole proprietorship B. Creditorship C. Partnership D. Corporation

Which is an advantage of corporations relative to partnerships and sole proprietorships? A. Increased difficulty of raising funds B. Harder to transfer ownership C. Reduced legal liability for investors D. Most common form of organization

Easy transfer of ownership is a characteristic of which form of business organization? A. Sole proprietorship B. Partnership C. Corporation D. All of the answer choices are correct

In which forms of business organization are the owners personally liable for all the debts of the business? A. Sole proprietorships and corporations B. Sole proprietorships and partnerships C. Partnership and corporation D. All of the answer choices are correct

The sole proprietorship form of business organization A. must have at least two owners in most states. B. generally receives favorable tax treatment relative to a corporation. C. combines the records of the business with the personal records of the owner. D. is classified as a separate legal entity.

Which forms of business organization are considered to be separate accounting entities? A. Sole proprietorships and partnerships only B. Partnerships and corporations only C. Only corporations D. Sole proprietorships, corporations, and partnerships

Internal users of accounting information include a company's stockholders. A. True B. False

To which of the following questions will internal users want answers? A. What selling price for our product will maximize the company's net income? B. Which product line is most profitable? C. Is cash sufficient to pay dividends to stockholders? D. All of the answer choices are correct.

Which of the following is not an external user of accounting data? A. Labor unions B. Customers C. Economic planners D. Chief Financial Officer

Which statement about users of accounting information is incorrect? A. Management is considered an internal user. B. Taxing authorities are considered external users. C. Present creditors are considered external users. D. Regulatory authorities are considered internal users

Which of the following did not result from the Sarbanes-Oxley Act? A. Top management must now certify the accuracy of financial information. B. Penalties for fraudulent activity increased. C. Auditors cannot provide non-audit services to the same client. D. Tax rates on corporations increased.

Which of the following is the most appropriate definition of accounting information? A. The information system that identifies, records, and communicates the economic events of an organization to interested users B. A means of collecting information C. The interconnected network of subsystems necessary to operate a business D. Electronic collection and organization of vast amounts of financial information

Which of the following is required as a result of SOX? A. Public companies must present audited financial statements. B. Companies that go bankrupt must repay shareholders for loss investments. C. All shareholders now have an oversight role of the company's financial activities. D. Top management must certify the financial statements for their company.

Interest expense is classified under operating activities on the statement of cash flows. A. True B. False

Paying interest expense and receiving interest revenue are examples of A. Operating activities. B. Financing activities. C. Investing activities. D. Delivery activities.

The payment of dividends is an example of a(n) A. Operating activity. B. Financing activity. C. Investing activity. D. Delivery activity.

Which of the following is not one of the three primary business activites? A. Financing B. Operating C. Advertising D. Investing

Which of the following is an example of a financing activity? A. Issuing shares of common stock B. Selling goods on account C. Buying delivery equipment D. Buying inventory

Resources owned by a business are referred to as A. stockholders' equity. B. liabilities. C. assets. D. revenues.

In terms of the principal types of business activities, paying salaries expense is an example of A. operating activities. B. financing activities. C. investing activities. D. advertising activities.

What kind of classification is cost of goods sold? A. Asset B. Expense C. Liability D. Revenue

Which of the following would not appear on the income statement? A. Service revenue B. Interest expense C. Net income D. Dividends paid

Which of the following would not appear on the retained earnings statement? A. Beginning retained earnings balance B. Dividends C. Service revenue D. Net income

Net income will result during a time period when A. assets exceed liabilities. B. assets exceed revenues. C. expenses exceed revenues. D. revenues exceed expenses.