ACCT 2000 Lowe-Ardoin Exam 1 Actual Prep | Complete Financial Accounting Test Bank

ACCT 2000 LOWE-ARDOIN EXAM 1 ACTUAL –
COMPLETE -QUESTION TEST BANK



SECTION 1: BUSINESS ORGANIZATIONS



1. Which of the following is an advantage of corporations relative to partnerships
and sole proprietorships?
A) Increased difficulty of raising funds
B) Harder to transfer ownership
C) Reduced legal liability for investors
D) Most common form of organization

*C) Reduced legal liability for investors *

Rationale: Corporations provide limited liability protection, meaning owners are not
personally responsible for business debts. This is the biggest advantage of the corporate
form of business organization .




2. Which forms of business organization are considered to be separate accounting
entities?
A) Sole proprietorships and partnerships only
B) Partnerships and corporations only
C) Only corporations
D) Sole proprietorships, corporations, and partnerships

*D) Sole proprietorships, corporations, and partnerships *

Rationale: All three forms of business organization—sole proprietorships, partnerships, and
corporations—are considered separate accounting entities for financial reporting
purposes .

,3. Which form of business organization generally receives favorable tax treatment
relative to a corporation?
A) Sole proprietorship
B) Partnership
C) Both A and B
D) Corporation

*C) Both A and B *

Rationale: Sole proprietorships and partnerships are taxed only once at the owner level,
while corporations face double taxation—once at the corporate level and again when
dividends are distributed to stockholders .




4. In which forms of business organization are the owners personally liable for all
debts of the business?
A) Sole proprietorships and corporations
B) Sole proprietorships and partnerships
C) Partnerships and corporations
D) All of the above

*B) Sole proprietorships and partnerships *

Rationale: In both sole proprietorships and partnerships, owners have unlimited personal
liability for business debts. Corporations provide limited liability protection to their
owners .




5. Ease of transferring ownership is a characteristic of which form of business
organization?
A) Sole proprietorship
B) Partnership
C) Corporation
D) All of the above

,*C) Corporation *

Rationale: Ownership in a corporation is easily transferred through the buying and selling
of shares of stock. This is a key advantage of the corporate form over sole proprietorships
and partnerships .




6. Which of the following best describes a sole proprietorship?
A) Owned by one person, simple to establish, owner controlled, tax advantages,
personal liability
B) Owned by 2 or more people, shared control, tax advantages, personal liability
C) Easy to transfer ownership, easy to raise capital, no personal liability, double taxation
D) Owned by stockholders, limited liability, double taxation

*A) Owned by one person, simple to establish, owner controlled, tax advantages,
personal liability *

Rationale: A sole proprietorship is a business owned by one individual. It is simple to
establish, gives the owner complete control, offers tax advantages (single taxation), but the
owner has unlimited personal liability for business debts .




7. Which of the following best describes a partnership?
A) Owned by one person, simple to establish, owner controlled, personal liability
B) Owned by 2 or more people, simple to establish, shared control, broader skills and
resources, tax advantages, personal liability
C) Easy to transfer ownership, easy to raise capital, no personal liability, double taxation
D) Owned by stockholders, limited liability

*B) Owned by 2 or more people, simple to establish, shared control, broader skills
and resources, tax advantages, personal liability *

Rationale: A partnership is formed by two or more individuals. It is simple to establish,
allows shared control and broader skills/resources, offers tax advantages, but partners
have personal liability for business debts .

, 8. Which of the following best describes a corporation?
A) Owned by one person, simple to establish, owner controlled, tax advantages
B) Owned by 2 or more people, shared control, broader skills, personal liability
C) Easy to transfer ownership, easy to raise capital, no personal liability, double taxation
D) Owned by partners, personal liability

*C) Easy to transfer ownership, easy to raise capital, no personal liability, double
taxation *

Rationale: A corporation is a separate legal entity. It offers easy transfer of ownership
through stock, ease in raising capital, limited liability protection, but faces double
taxation .




SECTION 2: ACCOUNTING FUNDAMENTALS



9. Accounting is the information system that ____________, ___________, and
________________ the economic events of an organization to interested users.
A) Ignores, destroys, confuses
B) Identifies, records, communicates
C) Creates, modifies, hides
D) Analyzes, discards, obfuscates

*B) Identifies, records, communicates *

Rationale: The definition of accounting is the information system that identifies, records,
and communicates the economic events of an organization to interested users .




10. Which of the following is NOT one of the three types of business activities?
A) Financing
B) Investing
C) Operating
D) Marketing