ACCT 2000 LOWE-ARDOIN EXAM 1 ACTUAL –
COMPLETE -QUESTION TEST BANK 2026
1. What are the three types of business activities?
A) Financing, Investing, Marketing
B) Financing, Investing, Operating
C) Investing, Operating, Marketing
D) Financing, Operating, Marketing
*B) Financing, Investing, Operating *
Rationale: The three types of business activities are financing (raising money), investing
(purchasing resources needed to operate), and operating (day-to-day activities of the
business) .
2. What is financing in the context of business activities?
A) Day-to-day operations of the business
B) Purchasing resources needed to operate
C) Raising money or capital
D) Selling products to customers
*C) Raising money or capital *
Rationale: Financing involves raising money or capital to fund business operations, either
through borrowing from creditors or issuing stock to investors .
3. What is investing in the context of business activities?
A) Raising money or capital
B) Purchasing resources needed to operate
C) Day-to-day operations of the business
D) Paying dividends to stockholders
*B) Purchasing resources needed to operate *
,Rationale: Investing involves acquiring resources (assets) needed to operate the business,
such as computers, equipment, and delivery trucks .
4. 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 .
5. 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 .
6. 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 .
7. 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 .
8. The sole proprietorship form of business organization:
A) Must have at least 2 owners in most states
B) Generally receives favorable tax treatment relative to a corporation
C) Combines the records of the business with the personal records of the owner
D) Is classified as a separate legal entity
*B) Generally receives favorable tax treatment relative to a corporation *
Rationale: Sole proprietorships are taxed only once at the owner level, while corporations
face double taxation. This is a tax advantage of the sole proprietorship form .
, 9. Which of the following did NOT result from the Sarbanes-Oxley Act?
A) Top management must now certify the accuracy of financial information
B) Penalties for fraudulent activity increased
C) Increased independence of the outside auditors
D) Tax rates on corporations increased
*D) Tax rates on corporations increased *
Rationale: The Sarbanes-Oxley Act (SOX) did not change corporate tax rates. It focused on
corporate governance, financial reporting accuracy, auditor independence, and penalties
for fraud .
10. What is the payment of dividends an example of?
A) Operating activity
B) Financing activity
C) Investing activity
D) Delivery activity
*B) Financing activity *
Rationale: Dividend payments to stockholders are classified as financing activities on the
statement of cash flows .
11. What kind of classification is cost of goods sold?
A) Asset
B) Expense
C) Liability
D) Revenue
*B) Expense *
Rationale: Cost of goods sold is classified as an expense on the income statement .
COMPLETE -QUESTION TEST BANK 2026
1. What are the three types of business activities?
A) Financing, Investing, Marketing
B) Financing, Investing, Operating
C) Investing, Operating, Marketing
D) Financing, Operating, Marketing
*B) Financing, Investing, Operating *
Rationale: The three types of business activities are financing (raising money), investing
(purchasing resources needed to operate), and operating (day-to-day activities of the
business) .
2. What is financing in the context of business activities?
A) Day-to-day operations of the business
B) Purchasing resources needed to operate
C) Raising money or capital
D) Selling products to customers
*C) Raising money or capital *
Rationale: Financing involves raising money or capital to fund business operations, either
through borrowing from creditors or issuing stock to investors .
3. What is investing in the context of business activities?
A) Raising money or capital
B) Purchasing resources needed to operate
C) Day-to-day operations of the business
D) Paying dividends to stockholders
*B) Purchasing resources needed to operate *
,Rationale: Investing involves acquiring resources (assets) needed to operate the business,
such as computers, equipment, and delivery trucks .
4. 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 .
5. 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 .
6. 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 .
7. 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 .
8. The sole proprietorship form of business organization:
A) Must have at least 2 owners in most states
B) Generally receives favorable tax treatment relative to a corporation
C) Combines the records of the business with the personal records of the owner
D) Is classified as a separate legal entity
*B) Generally receives favorable tax treatment relative to a corporation *
Rationale: Sole proprietorships are taxed only once at the owner level, while corporations
face double taxation. This is a tax advantage of the sole proprietorship form .
, 9. Which of the following did NOT result from the Sarbanes-Oxley Act?
A) Top management must now certify the accuracy of financial information
B) Penalties for fraudulent activity increased
C) Increased independence of the outside auditors
D) Tax rates on corporations increased
*D) Tax rates on corporations increased *
Rationale: The Sarbanes-Oxley Act (SOX) did not change corporate tax rates. It focused on
corporate governance, financial reporting accuracy, auditor independence, and penalties
for fraud .
10. What is the payment of dividends an example of?
A) Operating activity
B) Financing activity
C) Investing activity
D) Delivery activity
*B) Financing activity *
Rationale: Dividend payments to stockholders are classified as financing activities on the
statement of cash flows .
11. What kind of classification is cost of goods sold?
A) Asset
B) Expense
C) Liability
D) Revenue
*B) Expense *
Rationale: Cost of goods sold is classified as an expense on the income statement .
