1. Which of the following is true about a sole proprietorship?
Income from a sole proprietorship is distributed to the owner in the form of a dividend.
A sole proprietorship is a company owned by two or more individuals.
The income from a sole proprietorship is taxed on the owner’s personal income tax return.
The owner’s liability is limited to the amounts invested in the business.
2. Corporations are ________.
for-profit businesses only
exempt from legal liability
owned by shareholders
manufacturers and not service organizations
3. Disadvantages of the corporate form of business organization include ________.
separation of ownership and management
limited liability for shareholders
double taxation
two or more of these
4. A manufacturing business ________.
provides services to its customers
buys goods for resale
makes the products it sells
will lend money to customers
5. Team Shirts, Inc. pays $5,000 cash for T-shirts from a supplier. This transaction ________.
causes an increase in total assets
is a financing activity
is an investing activity
is an operating activity
6. Revenues include ________.
the amount received from borrowing
the amount earned from providing goods to customers
the amount earned from providing services to customers
two or more of these
7. Team Shirts, Inc. pays $600 for insurance. This transaction ________.
causes total liabilities to increase and retained earnings to decrease
is an operating activity
is an investing activity
causes total assets to increase and total liabilities to increase
8. The statement of cash flows ________.
shows the changes that took place in the amount of shareholders’ equity during a period
is a list of all the cash collected and cash paid during a period
is a summary of all of the revenues minus all of the expenses for an accounting period
describes the financial situation of a company at a specific point in time
9. Wok N Roll, Inc. shows $300,000 of assets and $60,000 of shareholders’ equity on its balance sheet. Liabilities must equal ________.
$360,000
$240,000
$300,000
$60,000
10. Team Shirts, Inc. repays a $2,000 loan. This transaction ________.
causes total liabilities to decrease
causes total assets to increase
causes total shareholders’ equity to increase
is an investing activity
11. On March 1, Team Shirts had a beginning balance in retained earnings of $1,200. During March, Team Shirts paid $200 in dividends and had net income of $2,000. The March 31 balance in retained earnings was ________.
$3,400
$3,200
$1,200
$3,000
12. Dividends are ________.
the same as expenses
owners’ contributions to the firm
a reduction in retained earnings
another term for each partner’s share of partnership income
13. Comparative balance sheets ________.
include gross profit and operating income
report revenues for both the current and previous years
report financial ratios for the current year which are compared to the prior year’s
include balances of two consecutive years
14. Financial services companies ________.
deal in services related to money
lend money to consumers to pay for cars and houses
sell insurance to their customers
All of these are correct.
15. The owners of a corporation are called ________.
partners
shareholders
stockholders
two or more of these
16. Which of the following is true about a corporation?
Each individual shareholder has individual legal responsibility for the corporation’s actions.
Managers of corporations can be held responsible for the actions of the corporation.
Corporations are exempt from taxes; however, the shareholders are required to pay taxes on dividends received.
Corporations must have a minimum of two or more shareholders.
17. The stock market is ________.
where the IRS is located
located in New York City
the general term used to refer to all stock exchanges
where businesses become incorporated
18. A business form in which the partners are not personally liable for the malpractice of any of the other partners is called a ________.
partnership
modified sole proprietorship
limited liability partnership
corporation
19. Dell Inc.’s distribution of earnings to owners is called dividends. Dell must be a ________.
sole proprietorship
corporation
sole proprietorship or partnership
partnership
20. For which organization are the personal assets of the owners at risk?
partnership
sole proprietorship and partnership
corporation
sole proprietorship
