Part A-Accounting Principles (15 points)
Indicate whether the sentence or statement is true or
false.
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1.
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Only
businesses that earn a profit will have the economic resources to continue to operate.
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2.
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All
types of businesses sell a product.
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3.
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In a
free enterprise system, businesses compete for customers.
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4.
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One
advantage of owning your own business is that any financial gain for operating the business is
yours.
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5.
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For
accounting purposes, a business is an entity separate from its owners.
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6.
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A
business owner must always get permission to operate from the state government.
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7.
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Basic
accounting rules and procedures differ from business to business.
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8.
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The
corporation is the easiest form of business to organize.
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9.
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All
businesses set up their accounting systems in the same manner.
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10.
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Corporations often start out as sole proprietorships or partnerships.
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11.
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A
business is earning a profit if the selling price of its product covers the cost of the raw materials
needed to make the product.
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12.
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The
life of a business is divided into specific periods for reporting purposes.
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13.
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A
partnership can be owned by more than two individuals.
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14.
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GAAP
is a way to communicate financial information in a form understood by those interested in the
operations and financial condition of the business.
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15.
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Service businesses are not intended to operate at a profit.
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Part B-Accounting Information-(11 points)
Identify the letter of the choice that best completes the statement
or answers the question.
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16.
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The
amount of money earned after the costs of operating a business are paid is a. | revenue | c. | profit | b. | income | d. | capital | | | | |
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17.
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To
survive, a business must a. | make a product consumers want and report profits to the
IRS | c. | earn a profit
and have someone willing to take the risk to run it | b. | earn a profit
and invest excess profits | d. | have adequate
start-up capital and prepare periodic reports | | | | |
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18.
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In a
business, it is the entrepreneur who a. | provides the labor needed to operate the
business | c. | supplies the
capital needed to establish the business | b. | is willing to take the risks to establish and organize the
venture | d. | manages the
financial aspects of the business | | | | |
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19.
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The
type of business that provides a product or service, makes sales to customers, and incurs expenses
is a. | a service
business | c. | a manufacturing
business | b. | a merchandising business | d. | all of the above | | | | |
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20.
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Which
of the following would not be cosidered a service business? a. | General
Motors | c. | Delta Air
Lines | b. | North American Van Lines | d. | Alamo Rent a Car | | | | |
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21.
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An
example of an accounting assumption is a. | all businesses prepare reports for governmental
review | c. | a business has
the ability to operate indefinitely | b. | business transactions are regularly adjusted for
inflation | d. | all businesses
must pay taxes to the government in a timely fashion | | | | |
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22.
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The
most common form of business organization is the a. | sole proprietorship | c. | corporation | b. | partnership | d. | not-for-profit
organization | | | | |
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23.
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Accounting is often called the “language of business”
because a. | it is easy to
understand | c. | all business
owners have a good understanding of accounting principles | b. | it is
fundamental to the communication of financial information | d. | accountants in many companies share financial
information | | | | |
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24.
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The
most common time period covered by an accounting report is one a. | quarter | c. | month | b. | year | d. | week | | | | |
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25.
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An
example of an internal user of accounting information is a. | the Internal
Revenue Service | c. | the president of
a bank that has loaned money to the business | b. | a large
stockholder | d. | the manager in
charge of a specific product line | | | | |
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26.
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The
assumption that requires accounting reports to be prepared for a specific period of time
is a. | unit of
measure | c. | business
entity | b. | going concern | d. | accounting period | | | | |
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Part C-Thinking Critically (4 points)
Read the paragraph below and then write your answers to the
questions that follow.
You and your
friend Lou Novatna both love animals. Your family breeds poodles, and Lou studied to be a
veterinary assistant. Last year, the two of you started a dog grooming business that you call
Pampered Pooches. You also offer dog walking, dog “play groups,” and some
boarding. You and Lou worked hard and shared the responsibilities of the business. At the
end of the first year, Pampered Pooches has earnings of $27,500. The costs to operate the
business were $19,440.
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27.
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What
type of business is Pampered Pooches?
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28.
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If
you and Lou are both owners, what form of organization is your business?
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29.
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Did
you need permission from the state to open your business?
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30.
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Did
Pampered Pooches earn a profit last year? If so, what was the amount? If not, what was
the amount of the loss?
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Part D-Accounting Vocabulary (20 points)
Indentify the letter of choice that best completes the
statement or answers the question.
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a. | accounting
period | k. | GAAP | b. | accounting system | l. | going concern | c. | business
entity | m. | loss | d. | capital | n. | management accounting | e. | charter | o. | manufacturing
business | f. | corporation | p. | merchandising business | g. | entrepreneur | q. | partnership | h. | free enterprise system | r. | profit | i. | financial
accounting | s. | service
business | j. | financial reports | t. | sole proprietorship | | | | |
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31.
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A(n)
_________ is an individual who transforms ideas for products or services into real-world
businesses.
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32.
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________ summarizes information about the financial status of a
business.
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33.
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Following the _________ accounting assumption, the accountant prepares reports as
though the business will operate indefinitely.
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34.
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The
________ is the period of time covered by an accounting report.
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35.
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The
________ is designed to collect, document, and report on the financial transactions affecting the
business.
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36.
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_________ is money invested in a business by its owner(s) or the money provided by
banks or investors.
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37.
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A(n)
________ is the legal document giving a business the right to operate as a corporation.
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38.
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Under
the ________ accounting assumption, a business owner must keep the financial records for the business
seperate from personal records.
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39.
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A(n)
_______ is a business organization that must get permission from the state to operate.
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40.
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A
business that produces items to sell to individuals and other businesses is known as a(n)
_________.
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41.
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If a
business spends more money to operate than it earns from the sale of goods or services, it is
operating at a(n) __________.
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42.
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In
a(n) _________,people are free to produce the goods and services they choose.
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43.
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A
business with a single owner is a(n) ________.
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44.
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_________ are the rules accountants follow when recording and reporting accounting
information.
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45.
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A
business is operating at a(n) ________ if it earns more money than it spends.
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46.
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_________ is concerned with preparing reports for external users such as investors or
creditors.
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47.
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A(n)
______ buys finished goods and sells them to individuals or other businesses.
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48.
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________ is concerned with preparing information for internal users.
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49.
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A
business that two or more people agree to own together is a(n) _______.
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50.
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A
business that provides a needed service for a fee is called a(n) _______.
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