Chapter 1 Flashcards
Sales Proprietorship (1 Person):
1. Ease of setup:
2. Control:
3. Resources:
4. Personal Liability:
5. Transfer Ownership:
6. Taxes:
- Easiest
- Founder
- Least
- All
- More Difficult
- Single Taxation
Partnership (2+):
1. Ease of setup:
2. Control:
3. Resources:
4. Personal Liability:
5. Transfer Ownership:
6. Taxes:
- Less easy
- Shared
- more $, skills
- shared
- more difficult
- single taxation
Corporation:
1. Ease of setup:
2. Control:
3. Resources:
4. Personal Liability:
5. Transfer Ownership:
6. Taxes:
- Most difficult
- shared among stock
- most
- none, corp. gets sued
- Easiest
- Least advantageous double-taxed
investors, borrowers
External Users
Creditors (what corporation is spending $ on?)
Investors/potential investors (How much $ does the company make?)
IRS (How much $ does the company make?)
SEC- Security & Exchange Commission (How much $ does the company make?)
Customers/Potential Employees (How stable is the company?)
Income statement
Also called Profit+Loss Statement
produce this first
rev.- exp.+ N/I
Retained Earnings
Produce this second
for the month ended
Beg R/E
+ N/I
-Dividends
=End R/E
Balance Sheet
A=L+SHE
A: Inventory, Supplies, Equipment, trademarks
Cash
SHE
Dividends
Expenses
N/I
Supplies
R/E
Advertising Exp.
Asset
Inventory
COGS
R/E beg.
Common Stock
Payroll exp.
Rev.
Liabilities
Bal. sheet
bal. sheet
R/E
I/S
I/S, R/E
B/S
R/E, bal. sheet
I/S
I/S
B/S
B/S-asset
I/S
R/E
B/S
I/S
I/S
B/S
State whether each of the following items is most closely associated with the management discussion and analysis (MD+A), the notes to the financial statements, or the auditor’s report.
1. Descriptions of significant accounting policies
2. unqualified opinion
3. Explanations of uncertainties and contingencies
4. Description of ability to fund operations and expansion
5. Description of results of operations
6. Certified public accountant (CPA)
- Descriptions of significant accounting policies: Notes
- unqualified opinion: Auditor’s report
- Explanations of uncertainties and contingencies: notes
- Description of ability to fund operations and expansion: MD&A
- Description of results of operations: MD&A
- Certified public accountant (CPA): Auditor’s report
Which of the following is an advantage of a corporation over a sole proprietorship or partnership?
a. easier to raise funds
b. a more favorable tax rate
c. greater control over decisions affecting operations
d. personal liability is limited to stockholders, not managers
d. personal liability is limited to stockholders, not managers
For what purpose would creditors use a company’s accounting information?
a. to determine whether to buy or sell stock in the company
b. to evaluate the risk of lending to the company
c. to provide input into the planning, organizing, and running of the business
d. to uncover fraudulent activity by top management
b. to evaluate the risk of lending to the company
Which of the following would NOT be found in the management discussion and analysis section of the annual report?
a. description of the significant accounting policies and methods used
b. the company’s short-term paying ability
c. management’s interpretation of the company’s financial position
d. expansion financing
. description of the significant accounting policies and methods used
A local design company has been operating as a sole proprietorship. The business is growing, and now the owner wants to incorporate it. Which of the following would be considered disadvantages of forming a corporation?
a. increased taxes
b. easier to raise funds
c. difficulty in transferring ownership
d. no personal legal liability
a. increased taxes
The auditor’s report in an annual report must be prepared by a(n)
a. accountant employed by the company
b. certified public accountant outside the company
c. certified public accountant employed by the company being audited
d. team of internal accountants
b. certified public accountant outside the company
Al’s Automotive started the year with total assets of $250,000 and total liabilities of $180,000. During the year, the business recognized $375,000 in revenues, $200,000 in expenses, and dividends of $35,000. Stockholders’ equity at the end of the year was:
a. $455,000
b. $270,000
c. $520,000
d. $210,000
d. $210,000
Electronics Galore has a year-end net income of $2.5 million and plans to reinvest $1.9 million back into the company. The remainder of the income will be distributed to:
a. stockholders
b. creditors
c. managers
d. employees
a. stockholders
Which of the following MOST accurately describes the function of the balance sheet?
a. the b/s reports the changes in assets, liabilities, and stockholder’s equity over a period of time
b. the b/s presents the revenues and expenses for a specific period of time
c. the b/s summarizes the changes in r/e for a specific period of time
d. the b/s reports the assets, liabilities, and stockholder’s equity at a specific date
d. the b/s reports the assets, liabilities, and stockholder’s equity at a specific date
