ACG 2021 Paterson FSU Ch.1 Quiz

If total liabilities decreased by $15,000 and total stockholders' equity increased by $5,000 during a period of time, then total assets must have changed by what amount and direction during that same period?

$10,000 decrease The accounting equation: Assets = Liabilities + Stockholders' Equity If liabilities decreased by $15,000 and stockholders' equity increased by $5,000 then the right side of the accounting equation decreased by $10,000. Therefore, assets must have decreased by $10,000 to keep the accounting equation in balance [i.e., ($15,000) + $5,000 = ($10,000)].

The financial records for Harold Corporation included the following information: Accounts receivable, $60,000 Accounts payable, $5,000 Cash, $30,000 Common stock, $5,000 Dividends, $20,000 Insurance expense, $10,000 Salaries and wages expense, $40,000 Sales revenue, $150,000 Based on this information, how much was its net income?

$100,000 Net income equals the revenues earned during the year minus the expenses incurred during the year. Use the balances of the revenue and expense accounts to measure revenues and expenses. *Net income = Revenue - expenses* Net income = $150,000 - 40,000 - 10,000 = $100,000

Hill Corporation began the year with retained earnings of $460,000. During the year, the company issued $840,000 of common stock, recorded expenses of $2,000,000, and paid dividends of $50,000. If Hill's ending retained earnings was $760,000, what was the company's revenue for the year?

$2,350,000 Beginning retained earnings + Net income - Dividends = Ending retained earnings Replace net income with revenue - expenses Beginning retained earnings + Revenue - Expenses - Dividends = Ending retained earnings Re-arranging this equation to solve for revenues: Revenue = Ending retained earnings - Beginning retained earnings + Expenses + Dividends Revenue = 760,000 - 460,000 + 2,000,000 + 50,000 Revenue = 2,350,000

Chris's Maid Service began the year with total liabilities of $120,000 and stockholders' equity of $40,000. During the year the company earned $120,000 in net income and paid $15,000 in dividends. Total liabilities at the end of the year were $225,000. How much are total assets at the end of the year?

$370,000 First, determine the ending balance of stockholders' equity. Ending stockholders' equity = beginning stockholders' equity + net income - dividends. Ending stockholders' equity = $40,000 + 120,000 - 15,000 = $145,000. Second, determine total liabilities. Assets = Liabilities + Stockholders' equity Assets = $225,000 + 145,000 Assets = $370,000

Chris's Maid Service began the year with total liabilities of $120,000 and stockholders' equity of $40,000. During the year the company earned $120,000 in net income and paid $15,000 in dividends. Total liabilities at the end of the year were $225,000. How much are total assets at the end of the year?

$370,000 First, determine the ending balance of stockholders' equity. Ending stockholders' equity = beginning stockholders' equity + net income - dividends. Ending stockholders' equity = $40,000 + 120,000 - 15,000 = $145,000. Second, determine total liabilities. Assets = Liabilities + Stockholders' equity Assets = $225,000 + 145,000 Assets = $370,000 * A = L + E *

During the year, Langston Company recorded revenues of $800,000, recorded expenses of $620,000, issued an additional $90,000 of common stock, and paid dividends of $60,000. Its ending retained earnings is 500,000. What was the company beginning retained earnings?

$380,000 Ending retained earnings = Beginning retained earnings + Net income - Dividends Replace net income with revenue - expenses Ending retained earnings = Beginning retained earnings + Revenue - Expenses - Dividends Re-arranging to solve for beginning retained earnings: Beginning retained earnings = Ending retained earnings - Revenue + Expenses + Dividends Beginning retained earnings = 500,000 - 800,000 + 620,000 + 60,000 Beginning retained earnings = 380,000

During the year, Finney Company recorded revenues of $370,000, recorded expenses of $320,000, issued an additional $10,000 of common stock, and paid dividends of $40,000. Its ending retained earnings is 400,000. What was the company beginning retained earnings?

$390,000 Ending retained earnings = Beginning retained earnings + Net income - Dividends Replace net income with revenue - expenses Ending retained earnings = Beginning retained earnings + Revenue - Expenses - Dividends Re-arranging to solve for beginning retained earnings: Beginning retained earnings = Ending retained earnings - Revenue + Expenses + Dividends Beginning retained earnings = 400,000 - 370,000 + 320,000 + 40,000 Beginning retained earnings = 390,000

At the end of the year, Stoneland Corporation has assets of $6,500 and liabilities of $2,000. How much is the company's equity at the end of the year?

$4,500 *Assets = Liabilities + Equity --> A = L + E* Using the accounting equation, equity can be computed by subtracting liabilities from assets. Equity = $6,500 - 2,000 = $4,500.

Jeremiah Company recorded the following cash transactions for the year: Collected $80,000 from lenders Collected $260,000 from customers Paid $130,000 for salaries. Paid $10,000 in dividends. Paid $90,000 of goods and services Paid $20,000 to purchase office equipment. What was the company's net cash provided by operating activities for the year?

$40,000 This company's net cash provided by operating activities include (i) cash collected from customers, (ii) salaries paid for salaries, and (iii) cash paid for goods and services Net cash flow provided by operating activities = $260,000 - 130,000 - 90,000 = $40,000 Note: Not all cash collections and/or cash payments are operating activities. Some are investing activity cash flows (e.g., paying for property, plant, and equipment, etc.) and others are financing activity cash flows (e.g., paying dividends to shareholders, collecting cash from lenders [e.g., borrowing from banks], etc.).

If total liabilities decreased by $50,000 and stockholders equity increased by $10,000 during a period of time, then total assets must change by what amount and direction during that same period?

$40,000 decrease The accounting equation is: Assets = Liabilities + Equity. The accounting equation must stay in balance (i.e., assets must equal the sum of liabilities plus stockholders' equity). If one side increases by $1 then the other side must increase by $1. If liabilities decreased by $50,000 and stockholders' equity increased by $10,000 then the net decrease for liabilities and stockholders' equity is $40,000. Assets must have decreased by $40,000.

At the end of the year, Stoneland Corporation has liabilities of $2,000 and equity of $3,000. How much are the company's assets at the end of the year?

$5,000 *Assets = Liabilities + Equity* Assets = $2,000 + 3,000 = $5,000

The financial records for Harold Corporation included the following information: Accounts receivable, $60,000 Accounts payable, $25,000 Cash, $15,000 Common stock, $5,000 Dividends, $10,000 Insurance expense, $10,000 Sales revenue, $90,000 Salaries and wages expense, $25,000 Based on this information, how much was its net income?

$55,000 Net income equals the revenues earned during the year minus the expenses incurred during the year. Use the balances of the revenue and expense accounts to measure revenues and expenses. Net income = Revenue - expenses Net income = $90,000 - 25,000 - 10,000 = $55,000

Pinson Company began the year with retained earnings of $570,000. During the year, the company issued $50,000 of additional common stock, recorded revenues of $600,000, recorded expenses of $380,000, and paid dividends of $140,000. What was Pinson's retained earnings at the end of the year?

$650,000 Ending retained earnings = Beginning retained earnings + Net income - Dividends Replace net income with revenue - expenses *Ending retained earnings = Beginning retained earnings + Revenue - Expenses - Dividends* Ending retained earnings = 570,000 + 600,000 - 380,000 - 140,000 Revenue = 650,000

Jackson Company recorded the following cash transactions for the year: Paid $150,000 for salaries. Paid $45,000 to purchase inventory. Paid $10,000 in dividends. Collected $275,000 from customers. What is the company's net cash from operating activities for the year?

$80,000 Business activities include financing activities, investing activities, and operating activities. After a company obtains financing from owners and creditors and after the company has invested in property, plant, and equipment, the company is ready for day-to-day operating activities. Examples of operating activities include buying and selling inventory, paying employees' wages, and other activities (e.g., paying for marketing). This company's net cash from its operating activities equals cash collected from customers minus payments for employee salaries (i.e., 275,000 - 150,000 - 45,000 = 80,000). Paying a dividend is a financing activity.

Marvin Services Corporation had the following accounts and balances: Accounts payable $ 4,000 Accounts receivable 8,000 Cash 9,000 Common stock 16,000 Equipment 45,000 Retained earnings Not given Supplies 2,000 Unearned service revenue 4,000 What is the balance of the company's retained earnings account?

??? (its either all are equally important or ...) $40,000 *Assets = Accounts receivable + cash + equipment + supplies* = 8,000 + 9,000 + 45,000 + 2,000 = 64,000 *Liabilities = accounts payable + unearned revenue* = 4,000 + 4,000 = 8,000 *Assets = liabilities + stockholders' equity* *Stockholders' equity = assets - liabilities* = 64,000 - 8,000 = 56,000 *Stockholder's equity = common stock + retained earnings* Common stock = 56,000 - 16,000 = 40,000

Which of the following is not one of the three primary business activities listed on the statement of cash flows? A. Journalizing activities B. All of these are activities listed on the statement of cash flows C. Financing activities D. Operating activities E. Investing activities

A. Journalizing activities Companies engage in three types of cash flow activities: (i) operating activities, (ii) investing activities, and (iii) financing activities.

Jackson Company recorded the following cash transactions for the year: Paid $150,000 for salaries. Paid $45,000 to purchase inventory. Borrowed $10,000 from a bank. Collected $265,000 from customers. What is the company's net cash from operating activities for the year? A. $265,000 B. $70,000 C. $115,000 D. $80,000 E. $125,000

B. $70,000 Business activities include financing activities, investing activities, and operating activities. After a company obtains financing from owners and creditors and after the company has invested in property, plant, and equipment, the company is ready for day-to-day operating activities. Examples of operating activities include buying and selling inventory, paying employees' wages, and other activities (e.g., paying for marketing). This company's net cash from its operating activities equals cash collected from customers minus payments for employee salaries (i.e., 265,000 - 150,000 - 45,000 = 70,000). Paying a dividend is a financing activity.

Which of the following statements is true? A. Net income appears on both the income statement and the statement of cash flows. B. Amounts paid out as dividends are not expenses. C. All of these D. Amounts received from issuing stock are reported on the income statement. E. Amounts received from issuing stock are revenues.

B. Amount paid out as dividends are not expenses. The income statement includes revenues, expenses, and net income. Revenue minus expenses equals net income. Examples of revenues include service revenue and interest revenue. Examples of expenses include salaries and wages expense and interest expense. Dividends paid by a company are neither a revenue nor an expense of the company paying dividends.

Which statement about users of accounting information is correct? A. Regulatory authorities are considered internal users. B. Creditors are considered external users. C. Labor unions are considered internal users. D. Management is considered an external user. E. Taxing authorities are considered internal users.

B. Creditors are considered external users Users of a company's accounting information include internal users and external users. Examples of internal users include the company's employees (e.g., management, human resource personnel, marketing personnel, and finance personnel). Examples of external users include the company's investors (i.e., owners), creditors, taxing authorities, customers, labor unions, and regulatory authorities.

Which of the following is required as a result of the Sarbanes-Oxley Act (SOX) passed into law in 2002? A. Companies that go bankrupt must repay shareholders for lost investments. B. The independence of outsides auditors increased. C. None of these D. Corporate income tax rates increased. E. All shareholders now have an oversight role of the company's financial activities.

B. The independence of outsides auditors increased. SOX was created by Congress and signed into law by the President to reduce unethical corporate behavior and to decrease the likelihood of future corporate scandals. The following summarizes the effects of SOX. Top management must certify the financial statements for their company. SOX also increased the independence of outside auditors who review the accuracy of corporate financial statements, and it increased the oversight role of boards of directors.

A company buying shares of stock in another company is an example of A. an operating activity. B. an investing activity. C. None of these D. an posting activity. E. a financing activity.

B. an investing activity Companies engage in three types of cash flow activities: (i) operating activities, (ii) investing activities, and (iii) financing activities. Examples of operating activities include paying cash to buy inventory (and materials to be converted into inventory) and collecting cash from customers. It also includes paying employees' salaries and wages, paying suppliers (e.g., for inventory purchased) and certain other transactions (e.g., paying interest to creditors and collecting interest from debtors). Examples of investing activities include buying and selling property, plant, & equipment and buying and selling stocks and bonds of other companies. Examples of financing activities include borrowing money and issuing or selling shares of stock in exchange for cash, and paying dividends.

Which of the following would appear on a balance sheet? A. net cash flows from financing activities B. unearned revenue C. net income D. interest expense E. dividends

B. unearned revenue The balance sheet reports all of a company's assets (e.g., cash, accounts receivable, prepaid rent, equipment, etc.), liabilities (e.g., accounts payable, notes payable, unearned revenues, etc.) ,and equities (common stock, retained earnings, etc.).

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

C. Dividends The income statement reports all of a company's revenues and expenses. It also net income which is revenues minus expenses. Dividends are neither a revenue nor an expense. Dividends are shown on the retained earnings statement. Dividends paid are also reported on the statement of cash flows as a financing outflow.

Which of the following best defines accounting? A. The action or business of promoting and selling products or services, including market research and advertising. B. The organization and coordination of the activities of a business in order to achieve defined objectives. C. The information system that identifies, measures, and communicates economic information to permit informed judgements and decisions by the users of the information. D. The management of large amounts of money, especially by governments or large companies. E. The processing system and regulatory rules for determining the fair market value of a business organization.

C. The information system that identifies, measures, and communicates economic information to permit informed judgements and decisions by the users of the information. Accounting is the information system that identifies, measures, and communicates economic information to permit informed judgements and decisions by the users of the information.

Which of the following best defines assets A. the amount of resources owned by a company minus the claims on those resources. B. the cash owned by the company. C. resources belonging to a company that have a future benefit to the company. D. the cash in the company s bank accounts. E. owners' investment in the business.

C. resources belonging to a company that have a future benefit to the company. Assets are the resources owned by a company. They are property. Examples include cash, accounts receivable, equipment, etc.

Which of these is a business organized as a separate legal entity where owners are not personally liable for any of the organization's debts? A. Partnerships B. Corporations C. Sole proprietorships and partnerships, but not corporations D. Sole proprietorships E. Sole proprietorships, partnerships, and corporations

Corporations have one or more owners called stockholders. Stockholders are considered to be separate from the corporation; stockholders are not personally liable for the corporation's debts. Proprietorships and partnerships are not considered to be separate from their owners; their owners are personally liable for the company's debts.

Which of the following is not a liability? A. notes payable B. accounts payable C. interest payable D. cost of goods sold E. all of these are liabilities

D. cost of goods sold Debts and obligations are amounts owed. These are referred to as liabilities. For example, when a company buys supplier on account it has not yet paid for the supplies. Rather, the company owes the supplier. Such a liability would be call an account payable. When a company borrows money and it issues a note as evidence of the loan it has a note payable representing the liability or the amount owed. As times passes, notes result in interest, such as interest payable. Cost of goods sold is an expense rather than a liability.

Amounts earned on the sale of products or services to customers is known as A. assets. B. liabilities. C. expenses. D. revenue. E. equity.

D. revenue Revenues are amounts earned on the sale of products or services to customers. Common examples of revenues include sales revenue, service revenue, and interest revenue. Expenses are the cost of assets consumed or services used in the process of generating revenues. Common examples of expenses include wage expense, depreciation expense, interest expense, marketing expense, etc. Expenses are incurred by business when they generate (or attempt to generate) revenues.

Which of the following is true with regards to dividends?

Dividends represent a portion of corporate profits that are paid to the shareholders. Dividends are payments from corporations to their shareholders (i.e., stockholders) from the profits or earnings of the corporation. Dividends represent a portion of corporate profits that are paid to the shareholders. Dividends are not expenses. Expenses are incurred. Dividends are not incurred; they are voluntary payments to the shareholders. Companies that pay dividends to their shareholders report the dividends paid on the statement of changes in retained earnings and the statement of cash flows. If a company prepares a statement of changes in stockholders' equity rather than a statement of changes in retained earnings, it reports dividends on the statement of changes in stockholders' equity.

Which of the following is also referred to as debt? A. Revenues B. Assets C. Expenses D. Stockholders' equity E. Lliabilities

E. Liabilities Liabilities are the amounts owed, such as the amounts that a company owes to its creditors. Example include accounts payable, notes payable, and unearned revenues. .

Which of the following is an internal user of accounting data? A. The company employees' labor unions B. Taxing authorities (e.g., Internal Revenue Service) C. The company's stockholders D. The company's customers E. The company's finance personnel

E. The company's finance personnel Users of a company's accounting information include internal users and external users. Examples of internal users include the company's employees (e.g., management, human resource personnel, marketing personnel, and finance personnel). Examples of external users include the company's investors (i.e., owners), creditors, taxing authorities, customers, labor unions, and regulatory authorities.

Retained earnings is A. equal to revenues minus expenses. B. equal to cash. C. an asset account. D. equal to stockholders' equity. E. equal to the amount of net income minus dividends paid since the company began operations.

E. equal to the amount of net income minus dividends paid since the company began operations. Stockholders' equity includes contributed capital (e.g., common stock) and retained earnings. Retained earnings is an equity account. It is generated from the company's net income since the company began operations minus dividends paid since it began operations. Beginning retained earnings plus net income minus dividends equals ending retained earnings.

In what order should a financial statement be prepared?

First, the income statement. Second, the retained earnings statement. Third, the balance sheet. The income statement reports the revenues and expenses of a corporation for a period of time, such as a year. The income statement must be prepared before preparing the retained earnings statement because net income is needed to prepare the retained earnings statement. The retained earnings statement computes the retained earnings balance at the end of the year. The retained earnings statement must be prepared before the balance sheet because the balance sheet needs the ending retained earnings.

Which of the following questions tends to be important to external users of a company's accounting information?

How does the company's profitability compare to its competitors? Users of a company's accounting information include internal users and external users. Examples of internal users include the company's employees (e.g., management, human resource personnel, marketing personnel, and finance personnel). Examples of external users include the company's investors (i.e., owners), creditors, taxing authorities, customers, labor unions, and regulatory authorities. Several questions are important to external users, but the questions tend to emphasize the company's overall profitability and ability to pay debts as they come due.

Which of the following is considered to be an internal user of accounting data for a given business?

Management

If the retained earnings account increases from the beginning of the year to the end of the year, then which of the following must be true?

Net income is greater than dividends. Stockholders' equity includes contributed capital (e.g., common stock) and retained earnings. Retained earnings is an equity account. It is generated from the company's net income since the company began operations minus dividends paid since it began operations. Beginning retained earnings plus net income minus dividends equals ending retained earnings.

Which of the following statements is true regarding the Sarbanes-Oxley Act (SOX)?

SOX increased the penalties for financial fraud. Penalties may include fines and imprisonment. SOX was created by Congress and signed into law by the President to reduce unethical corporate behavior and to decrease the likelihood of future corporate scandals. The following summarizes the effects of SOX. Top management must certify the financial statements for their company. SOX also increased the independence of outside auditors who review the accuracy of corporate financial statements, it increased the oversight role of boards of directors, and it increased the penalties for fraudulent certifications of financial statements.

Which of the following best describes stockholders' equity?

Stockholders' equity are the claims of owners. Stockholders' equity represents claims of owners. Assets are the resources owned by the firm and liabilities are the claims of creditors against the firm's assets.

Which of the following is true with regard to the auditor's report that is included in the annual report given to shareholders?

The auditor's report states the auditor's opinion as to the fairness of the financial position and results of operations and their conformance with accounting rules.

Which of the following is required as a result of the Sarbanes-Oxley Act (SOX) passed into law in 2002?

The independence of outsides auditors increased. SOX was created by Congress and signed into law by the President to reduce unethical corporate behavior and to decrease the likelihood of future corporate scandals. The following summarizes the effects of SOX. Top management must certify the financial statements for their company. SOX also increased the independence of outside auditors who review the accuracy of corporate financial statements, and it increased the oversight role of boards of directors.

Which of the following is the most appropriate definition of accounting information?

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

A company borrowing money from a bank is an example of

a financing activity

The payment of dividends is an example of

a financing activity The payment of dividends is an example of a financing activity. Financing activities include cash inflows from selling (i.e., issuing stock to owners) and borrowing from creditors, and cash outflows for financing activities paying cash to stockholders to repurchase stock, paying dividends to stockholders, and paying creditors the amounts borrowed.

An annual report includes all of the following except

a listing of all the stockholders The annual report does not include a listing of all of the stockholders. This information changes daily when stock is trading on public exchanges.

The cost of assets consumed or services used is also known as

an expense Expenses are the cost of assets consumed or services used in the process of generating revenues. Common examples of expenses include wage expense, depreciation expense, interest expense, marketing expense, etc. These are incurred by business when they generate (or attempt to generate) revenues.

The annual report provided to shareholders includes an auditor's report. The auditor's report includes an opinion about the fairness of the financial statements. The party expressing that opinion is

an independent auditor who is a Certified Public Accountant.

When the auditor is satisfied that the financial statements provide a fair representation of the company's financial position and results of operation in accordance with generally accepted accounting principles, the auditor will express

an unqualified opinion The segment of the annual report that presents an opinion regarding the fairness of the presentation of the financial position and results of operations is in the auditor's opinion. The party expressing that opinion is an independent auditor who is a Certified Public Accountant. If the auditor is satisfied that the financial statements provide a fair representation of the company's financial position and results of operations in accordance with generally accepted accounting principles, then the auditor expresses an unqualified opinion.

In the annual report, where would a financial statement reader find out if the company's financial statements give a fair depiction of its financial position and operating results?

auditor's report The segment of the annual report that presents an opinion regarding the fairness of the presentation of the financial position and results of operations is in the auditor's opinion.

Which of the following financial statements is concerned with the company at a point in time?

balance sheet The balance sheet reports a company's assets, liabilities, and equities at a specific point in time such as of the end of a year. In contrast, the other financial statements (e.g., income statement, etc.) report certain financial results for a period of time such as a year.

The ending balance of the Retained Earnings account appears on

both the retained earnings statement and the balance sheet. (it does not appear on the income statement)

Which of the following is an asset?

cash Assets are the resources owned by a company. They are property. Examples include cash, accounts receivable, equipment, etc.

Stockholders' equity is comprised of

common stock and retained earnings. Stockholders' equity is the owners' claims on the corporation's assets. There are two sources of stockholders' equity: (i) paid-in capital, such as common stock, (ii) retained earnings. Paid-in capital represents amounts owners paid to the corporation in exchange for their ownership interests in the corporation. Retained earnings if the accumulated net income of the company since it began operations minus dividends it paid to its stockholders since it began operations.

Which of the following is an expense?

cost of goods sold Accounts are classified into categories including assets, liabilities, equities, revenues, expenses, and dividends. Expenses are the cost of assets consumed or services used. Expenses occur when companies generate (or attempt to generate) revenues. Common examples of expenses include wage expenses, interest expenses, marketing expenses, etc. Most expenses have the word "expense" in their title, but cost of goods sold is an exception. Cost of goods sold is an expense that tracks the cost of inventory sold to customers.

Which of the following would not appear on an income statement?

dividends The income statement reports all of a company's revenues and expenses. It also net income which is revenues minus expenses. Dividends are neither a revenue nor an expense. Dividends are shown on the retained earnings statement. Dividends paid are also reported on the statement of cash flows as a financing outflow.

A business organized as a corporation

does not require that stockholders be personally liable for the debts of the business. Owners of sole proprietorships are called proprietors. A sole proprietor has a sole owner (i.e., it has one owner). Partnerships have two or more co-owners. Corporations have one or more owners called stockholders. Corporations incur tax at the business level and stockholder level (i.e., double taxation) while proprietorships and partnerships do not incur business level taxes (i.e., single taxation) indicating that sole proprietorships and partnerships are tax-advantaged relative to corporations. Corporations can raise capital (i.e., investments) from any number of owners giving them an advantage in terms of fund-raising relative to sole proprietorships and partnership. Owners of corporations are not personally liable for the corporation's debts (i.e., stock-holders have limited liability), but proprietors and partners are generally personally liable for their proprietorships' and partnerships' debts (i.e., unlimited liability).

Issuing shares of stock in exchange for cash is an example of a(n)

financing activity

To show how successfully your business performed during a period of time, you would report its revenues and expenses in the

income statement The income statement summarizes all of the revenues and expenses for a given period of time, such as a year. Net income equals revenues minus expenses. Net income results when revenues exceed expenses. A net loss results when expenses exceed revenues.

Publicly traded U.S. companies must provide shareholders with an annual report. Which of the following is not part of the annual report provided to shareholders?

income tax return Publicly traded companies must provide shareholders with an annual report. The annual report includes the financial statements and certain other items, including a management discussion and analysis, notes to the financial statements, and an independent auditor's report.

A business organized as a corporation

is tax disadvantaged compared to sole proprietorships and partnerships Owners of sole proprietorships are called proprietors. A sole proprietor has a sole owner (i.e., it has one owner). Partnerships have two or more co-owners. Corporations have one or more owners called stockholders. Corporations incur tax at the business level and stockholder level (i.e., double taxation) while proprietorships and partnerships do not incur business level taxes (i.e., single taxation) indicating that sole proprietorships and partnerships are tax-advantaged relative to corporations. Corporations can raise capital (i.e., investments) from any number of owners giving them an advantage in terms of fund-raising relative to sole proprietorships and partnership. Owners of corporations are not personally liable for the corporation's debts (i.e., stock-holders have limited liability), but proprietors and partners are generally personally liable for their proprietorships' and partnerships' debts (i.e., unlimited liability).

The sole proprietorship form of business organization

must have only one owner

Which of the following is not considered to be an internal user of accounting data for a company?

owners of the company

The retained earnings statement

reports the amounts and causes of changes in retained earnings for a specific period of time such as a year. The balance sheet reports the assets, liabilities, and stockholders' equity at a specific date. The income statement reports revenues minus expenses (i.e., net income), and the retained earnings statement summarizes the changes in retained earnings for a specific period of time.

The retained earnings statement would not show

revenues and expenses for the year The statement of changes in retained earnings shows the company's beginning retained earnings, net income, dividends, and ending retained earnings. While it shows net income, it does not show the details used to compute net income. The statement of changes in retained earnings does not show revenues or expenses.

Which of the following is comprised of two parts: (1) common stock and (2) retained earnings?

stockholder's equity Stockholders' equity is comprised of two parts: (1) common stock and (2) retained earnings. Common stock arises when a company issues new shares of its stock. Retained earnings is the net income retained in the corporation rather than paid to shareholders as dividends.

What section of a cash flows statement shows the amount of cash collected from customers during the most recent accounting period?

the operating section The cash flows statement has three sections: (i) operating, (ii) investing, and (iii) financing. Cash collected from a customer is an operating activity.

Which financial statement is divided into three sections including operating activities, investing activities, and financing activities?

the statement of cash flows The statement of changes in cash flows has three sections, including (i) operating activities, (ii) investing activities, and (iii) financing activities. Cash inflows and cash outflows are sorted into these three activities and reported separately.