Copyright 2011 Pearson Education, Inc.

1 Copyright © 2011 Pearson Education, Inc.

Financial Accounting: A Business Process Approach, 3e (Reimers)

Chapter 1 Business: What's It All About?

Learning Objective 1-1

1.1-1) The ownership structure of a business includes the following forms ________.

• individual, group, and corporate
• sole proprietorship, partnership, and corporation
• service, manufacturing, and financial
• debtors, creditors, and owners

Answer: B

Diff: 1

Objective: LO 1-1

1.1-2) Which of the following is true about a sole proprietorship?

• A sole proprietorship is a company owned by two or more individuals.
• The owner's liability is limited to the amounts invested in the business.
• Income from a sole proprietorship is distributed to the owner in the form of a dividend.
• The income from a sole proprietorship is taxed on the owner's personal income tax return.

Answer: D

Diff: 2

Objective: LO 1-1

1.1-3) A partnership agreement ________.

• exempts partners from unlimited liability
• establishes the partnership as a separate legal entity
• details how much work partners will do and how they will split up the profits
• defines how many shares of stock the partnership may sell to investors

Answer: C

Diff: 3

Objective: LO 1-1

1.1-4) The two types of merchandising businesses include ________.

• wholesale and retail
• service and financial
• manufacturing and retail
• service and wholesale

Answer: A

Diff: 2

Objective: LO 1-1

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1.1-5) The inputs of a firm include ________.

• revenues
• liabilities
• inventory and supplies
• All of these are correct.

Answer: C

Diff: 1

Objective: LO 1-1

1.1-6) A corporation ________.

• is a legal entity separate from the owners
• is a manufacturer and not a service organization
• may cause unlimited liability for its shareholders
• provides goods or services for the sole purpose of helping people

Answer: A

Diff: 1

Objective: LO 1-1

1.1-7) Corporations are ________.

• for-profit businesses only
• manufacturers and not service organizations
• owned by shareholders
• exempt from legal liability

Answer: C

Diff: 1

Objective: LO 1-1

1.1-8) Advantages of the corporate form of business organization include ________.

• double taxation
• limited liability for shareholders
• separation of ownership and management
• Two or more of these are correct.

Answer: B

Diff: 3

Objective: LO 1-1

1.1-9) Disadvantages of the corporate form of business organization include ________.

• double taxation
• limited liability for shareholders
• separation of ownership and management
• two or more of these

Answer: D

Diff: 3

Objective: LO 1-1

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1.1-10) Which of the following is legally a separate entity from its owner(s)?

• sole proprietorship
• partnership
• corporation
• Two of these are correct.

Answer: C

Diff: 1

Objective: LO 1-1

1.1-11) The outputs of a firm are its ________.

• capital contributions
• services provided to customers
• delivery of products to customers
• Two or more of these are correct.

Answer: D

Diff: 1

Objective: LO 1-1

1.1-12) A service company ________.

• is a wholesale business
• manufactures goods
• is a retail business
• None of these are correct.

Answer: D

Diff: 1

Objective: LO 1-1

1.1-13) The four types of business are ________.

• service, wholesale, retail, and financial
• for profit, nonprofit, wholesale, and retail
• service, merchandising, manufacturing, and financial services
• financial, manufacturing, service, and wholesale

Answer: C

Diff: 3

Objective: LO 1-1

1.1-14) A manufacturing business ________.

• will lend money to customers
• buys goods for resale
• provides services to its customers
• makes the products it sells

Answer: D

Diff: 1

Objective: LO 1-1

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1.1-15) Financial services companies ________.

• deal in services related to money
• sell insurance to their customers
• lend money to consumers to pay for cars and houses
• All of these are correct.

Answer: D

Diff: 1

Objective: LO 1-1

1.1-16) A business in the form of a sole proprietorship ________.

• is separate and distinct from its owner
• is a separate legal entity
• files its own tax return
• is a company with a single owner

Answer: D

Diff: 1

Objective: LO 1-1

1.1-17) A partnership ________.

• is a business owned by two or more individuals
• has owners who are legally liable for everything the company does
• may be organized under a partnership agreement
• is all of these

Answer: D

Diff: 2

Objective: LO 1-1

1.1-18) The owners of a corporation are called ________.

• shareholders
• partners
• stockholders
• two or more of these

Answer: D

Diff: 1

Objective: LO 1-1

1.1-19) Which of the following is true about a corporation?

• Corporations must have a minimum of two or more shareholders.
• Each individual shareholder has individual legal responsibility for the corporation's actions.
• Corporations are exempt from taxes; however, the shareholders are required to pay taxes on

dividends received.

• Managers of corporations can be held responsible for the actions of the corporation.

Answer: D

Diff: 3

Objective: LO 1-1