Quiz 1

Question 1

Sole proprietorship

Answer 1

business owned by one person

Question 2

Sole proprietorship advantages

Answer 2

easy to establish
owner controlled
tax advantages

Question 3

Sole proprietorship disadvantages

Answer 3

unlimited liability for debts of the business

Question 4

partnership

Answer 4

business owned by 2 or more persons

Question 5

partnership advantages

Answer 5

easy to establish
shared control (more skills and resources)
tax advantages

Question 6

partnership disadvantages

Answer 6

unlimited liability for the debts of the business

Question 7

corporation

Answer 7

business organized as a separate legal entity owned by stockholders

Question 8

corporation advantages

Answer 8

easy to transfer ownership

Question 9

corporation disadvantages

Answer 9

double taxation

Question 10

external users

Answer 10

people outside of the corporation that want to know whats going on inside
- investors, creditors, govt agencies, etc.

Question 11

balance sheet

Answer 11

reports amount of assets, liabilities, and stockholder’s equity at a point in time
A = L + SE
Assets are investing activities
Liabilities and SE are financing activites

Question 12

income statement

Answer 12

summarizes revenue and expenses over a period of time

• shows how profitable during specific time
• revenue > expenses = net income
• expenses > revenue = net loss

Question 13

statement of retained earnings

Answer 13

shows how the prior income was distributed to the owners (dividends) vs. reinvested
- shows CHANGES in retained earnings during period of time

Question 14

statement of cash flows

Answer 14

shows where cash came from and how it was used during the preceding period

• inflows and outflows of cash
• separates cash into operating, investing, and financing activities

Question 15

operating activities

Answer 15

cash flows directly relate to earning income (revenue and expenses)

Question 16

investing activities

Answer 16

cash flows related to acquisition or sale of companies productive assets

Question 17

financing activites

Answer 17

cash flows directly related to the receipt of money from investors/ creditors and the payment of money to investors/ creditors

Question 18

balance sheet equation

Answer 18

assets = liabilities + stockholder’s equity

Question 19

income statement equation

Answer 19

revenue - expenses = net income

Question 20

statement of retained earnings equation

Answer 20

beginning retained earnings + net income - net loss - dividends = ending retained earnings

Question 21

statement of cash flows equation

Answer 21

+/- cash from operating
+/- cash from investing
+/- cash from financing
= net change in cash

Question 22

Elements to a public company’s annual report (10K)

Answer 22

financial statements
management discussion and analysis
notes to financial statements
auditor’s report

Question 23

financial statements

Answer 23

balance sheet, income statement, statement of retained earnings, statement of cash flow

Question 24

management discussion and analysis

Answer 24

management explains trends, significant events, etc.

Question 25

notes to financial statements

Answer 25

provide additional detail for account balances

Question 26

auditors report

Answer 26

independent 3rd party offering assurance that info is correct