ACC 201 practice questions

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.

A sole proprietorship is not a separate legal entity from its owner like a corporation. B.

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

Advertising is a type of operating activities. C.

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.

Assets and liabilites are on the balance sheet, not the income statement. D.

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

Assets are the resources owned by the business. C.

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.

Audited financial statements have been required by public companies for a number of years. SOX made it so top management must certify the financial statements for their company. D.

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

Corporations are separate accounting entities, but there is a better answer. -all they mother fukers are. D.

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

Cost of goods sold is an expense of the period. B.

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.

D.

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

Dividends paid are shown on the retained earnings statement and the statement of cash flows because it relates to ownership rather than operations. D.

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.

Many items are important to internal users of accounting data. The requirement for valid information is not limited to product price, product profitability, or availability of cash. D.

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

Owners are personally liable for all debts of the business in both sole proprietorships and partnerships. B.

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.

Regulatory authorities are considered external users. D.

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

Service revenue is reported on the income statement, not on the retained earnings statement. C.

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

Since interest expense is the cost of obtaining operating capital it is properly classified as an expense under operating activities. True.

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.

Since paying salaries is usually part of the everyday operations of the company, it is part of operating activities. A.

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

Since stockholders are not normally officers, directors, or managers of the company, they are considered external users of accounting information. B.

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

Since the CFO is within the organization and has access to information not released to the public, he or she is an internal user of accounting data. D.

Corporations generally receive more favorable tax treatment than sole proprietorships and corporations. A. True B. False

Sole proprietorships and partnerships generally receive more favorable tax treatment than corporations. B.

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

Stockholders of corporation are not personally liable for debts of the business. C.

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

The accounting information system identifies, records, and communicates the economic events of an organization to interested users. A.

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

The payment of dividends is an example of a financing activity because it is a return on investment to the stockholders. B.

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

The stock ownership of corporations enables easey transfer of ownership through sale, gift, or trading of the stock. C.

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

Investing activities include the acquisition and disposal of assets such as machines used by the organization. A.

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

Issuing shares of common stock is an a financing activity. A.