Chapter 1

Question 1

Sole proprietorship

Answer 1

Owned by one person
Tax advantages
Simple to set ip
Higher liability

Question 2

Partnership

Answer 2

Two or more people associated as partners
Tax advantages often formed to increase economic resources
Partners bring unique skills and resources
Shared controls
Tax advantages
Still pretty high liability

Question 3

Corporation

Answer 3

Organized as a separate legal entity
Owned by stockholders who receive share to indicate ownership
Buying stock is often more attractive because shares of stock are easy to sell
Can become a stockholder by investing relatively small amounts of $
Therefore easier to raise funds
Higher taxes
No personal legal liability

Question 4

Hybrids

Answer 4

LLC or Sub Chapters

Combine tax advantages w/ limited liabilities

Question 5

Purpose of financial info

Answer 5

To provide inputs for decision making

Question 6

Accounting

Answer 6

The info system that identifies records and communicates the economic events of an org to interested users

Question 7

Internal users

Answer 7

Managers who plan, organize, and run a business

Question 8

External users

Answer 8

Investors use accounting info to make decisions to buy, hold, or sell stock
Creditors use acct info to evaluate the risks of selling on credit or lending money
Others:
Tax authorities
Customers
Labor unions
Regulatory agencies

Question 9

Financing activities

Answer 9

Creditors
Liabilities
Common stock
Dividends
Selling your stock

Question 10

Creditors

Answer 10

Persons or entities to whom a corp owes money

Question 11

Liabilities

Answer 11

Amounts owed to creditors in the form of debt and other obligations

Question 12

Common stock

Answer 12

Term used to describe the total amount paid by stockholders for the shares they purchase

Question 13

Dividends

Answer 13

Payments to stockholders (regular)

Question 14

Investing activities

Answer 14

Purchase of resources needed to operate

Asssets

Question 15

Assets

Answer 15

Resources owned by a business
Cash
Fixed assets: property, plant, equipment

Question 16

Operating activities

Answer 16

Revenues and expenses

Question 17

Revenues

Answer 17

Amounts earned on sold products

Question 18

Revenue

Answer 18

The increase in assets or decrease in liabilities resulting for the sale of goods

Question 19

Account receivable

Answer 19

Right to recieve money in the future

Question 20

Interest expense

Answer 20

Amounts of interest paid on various debts

Question 21

Accounts payable

Answer 21

Obligations to pay for goods purchased on credit from suppliers

Question 22

Income statement

Answer 22

Used to show how successfully your business performed in a given period of time

Question 23

Retained earnings statement

Answer 23

Shows how much of previous income was distributed to stockholders as dividends and how much was retained in the business to allow for future growth

Question 24

Balance sheets

Answer 24

Present a picture at a point in time of what your business owns and owes

Question 25

Statement of cash flows

Answer 25

Shows where your business obtained cash during a period of time and how that cash was used

Question 26

order of financial statements

Answer 26

1) income statement
2) retained earnings statement
3) balance sheet
4) statement of cash flows

Question 27

what does each statement get from the other

Answer 27

1) net income from income statement goes on retained earnings statement
2) retained earnings from RE statement goes on balance sheet
3) cash on balance sheet goes as cash at the end of the period on statement of cash flows

Question 28

what does the management discussion portion of the annual report include?

Answer 28

1) ability to pay near term obligations
2) ability to fund operations and expansion
3) its results of operations
4) several subjective estimates/opinions are involved`

Question 29

what do the notes to financial statements include?

Answer 29

1) clarify the fin. statements/provide additional detail

2) descriptions of accting policies and methods utilized to prepare statements

Question 30

what is included in the independent auditor’s report?

Answer 30

1) states auditor’s opinion as to the fairness of the presentation of the financial positions/conformance with GAAP
2) unqualified opinion-satisfied that the statements provide fair representation of th ecos financial position and results of operations are in accordance w/ GAAP