CHAPTER 1: AN INTRODUCTION TO THE ROLE OF

Raiborn • CORE CONCEPTS OF ACCOUNTING

TEST BANK

CHAPTER 1: AN INTRODUCTION TO THE ROLE OF

ACCOUNTING IN THE BUSINESS WORLD

Multiple Choice: Choose the best answer to each of the following.

1.A business attempts to earn a profit by a.selling goods or services for more than they are worth.b.performing services at cost.c.selling goods or services for more than they cost to buy, make, or perform.d.distributing cash to stockholders and investors.e.selling goods or services that satisfy the needs of investors and creditors.

2.Businesses are typically categorized as a.industrial, service, and not-for-profit companies.b.service, manufacturing, and limited liability companies.c.for-profit and not-for-profit.d.manufacturing, merchandising, and service companies.e.wholesalers, retailers, and manufacturers.

3.A _______ acts as a middleman and resells goods to others.a.limited liability company b.service company c.Sub S corporation d.partnership e.wholesaler 4.Which of the following are the most common forms of business organization in the U.S.in terms of Total number of organizations Sales and profits a.sole proprietorships corporations b.partnershipscorporations c.sole proprietorships partnerships d.Sub S corporations corporations e.LLCs corporations.Core Concepts of Accounting 2e Cecily A. Raiborn (Test Bank All Chapters, 100% Original Verified, A+ Grade) Answers At The End Of Each Chapter 1 / 4

TEST BANK • CHAPTER 1  2

Raiborn • CORE CONCEPTS OF ACCOUNTING 5.The owners of a corporation are called a.proprietors.b.partners.c.debtors.d.stockholders.e.institutional investors.

6.The profits of ___ are taxed to the owners as individuals; the business organization itself pays no taxes.a.sole proprietorships and corporations b.sole proprietorships and partnerships c.partnerships and corporations d.Sub S corporations and corporations e.LLCs and corporations 7.Each owner of the Swift Bakery pays taxes on her/her share of the firm’s net income and may be held personally liable for the firm’s debts. The Swift Family Bakery is a a.sole proprietorship b.partnership c.corporation d.LLC e.either a or b.

8.Owners of each type of the following organizations have what type of liability for debts of that organization?Proprietorship Partnership Corporation a.limited liability limited liability limited liability b.unlimited liabilitylimited liability limited liability c.limited liability unlimited liability unlimited liability d.unlimited liabilityunlimited liability unlimited liability e.unlimited liabilityunlimited liability limited liability 9.Limited liability means that owners are limited in their responsibility for organizational debts to their a.personal assets.b.personal net worth.c.current organizational investment.d.original organizational investment minus the income taxes paid on the dividends they have received.e.current organizational investment plus the dividends they have received from the organization. 2 / 4

TEST BANK • CHAPTER 1  3

Raiborn • CORE CONCEPTS OF ACCOUNTING

• Joe and Mia are 50:50 partners in the J&M Shop. The Shop has experienced financial

difficulty over the past three years. After liquidating all its assets, the Shop still owes $15,000 to creditors. Joe has $20,000 of net worth and Mia has $5,000 of net worth.Creditors can collect

• $10,000 from Joe and $5,000 from Mia.
• $15,000 from Joe and $5,000 from Mia.
• $15,000 from Joe and $0 from Mia.
• $0 from Joe and $0 from Mia (since the partnership has no assets).
• either a or c.

• Laurie Boone is forming a new business that will protect her from unlimited liability. She

does not want to claim her personal and business information together on the same tax return. The best form of business organization for Boone’s purposes is a

• sole proprietorship.
• partnership.
• corporation.
• LLC
• either c or d

• Which of the following statements about corporations is true?
• Individual owners of a corporation are called directors.
• A corporation may have any number of owners, as long as that number is consistent

with the laws of the state of incorporation.

• A corporation has few of the same rights and duties as an individual.
• In the event of a lawsuit, an individual owner of a corporation may be held liable for

more than his or her current investment.

• One owner of a corporation could be forced to pay all the corporation’s debts if the

other owners were unable to pay their “fair” share.

• The primary function of accounting is to provide
• quantitative information about the transactions of a business so that investors can

determine future profitability.

• financial information about a business so determine the proper amount of taxes to be

paid by a business.

• financial information about a business so that users can make economic decisions.
• qualitative and quantitative information about a business so that users can predict

future stock prices.

• information about the assets of a business so that users know the worth of a business

enterprise.

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TEST BANK • CHAPTER 1  4

Raiborn • CORE CONCEPTS OF ACCOUNTING

• An internal user of accounting information is
• one of the company’s investors.
• a stock market analyst who is selling the company’s securities.
• the Internal Revenue Service agent auditing the company’s tax return.
• the company’s purchasing agent.
• both a and d.

• Which of the following is not an internal use of accounting information?
• An internal auditor analyzes current and prior year balance sheet activity for any

unusual trends or variances.

• The sales manager of a major department chain uses sales revenue information to

calculate sales commissions.

• A Chief Financial Officer uses an income statement to identify opportunities to

reduce total operating expenses.

• The Securities and Exchange Commission reviews an organization’s financial

statements for fraudulent activity.

• The marketing department of an internet retailer uses sales revenue information,

aggregated by state, to develop new marketing strategies.

• The accounting information used by internal decision makers
• is quantitative and is not reported on external financial statements.
• is monetary and is reported on external financial statements.
• may be monetary or nonmonetary and is reported on financial statements using

generally accepted accounting principles.

• may be monetary or nonmonetary, may be in a variety of formats, and may or may

not be reported on financial statements.

• may be in a variety of formats, is not reported on financial statements, and is

presented in a standardized format.

• An external user of accounting information is
• the loan officer at the company’s bank.
• an internal auditor of the company.
• a manager at one of the company’s branch locations.
• a company’s payroll manager.
• both a and c.
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