FINANCIAL ACCOUNTING TOOLS FOR BUSINESS DECISION
MAKING 10TH EDITION EXAM WITH SOLUTION
sole proprietorship - CORRECT ANSWER✅✅✅a business owned by one person
Pros of a sole proprietorship - CORRECT ANSWER✅✅✅•It is simple to set up
• It gives you control over the business, and
• More favorable tax treatment than corporations
Cons of forming a sole proprietorship - CORRECT ANSWER✅✅✅The proprietor is
personally liable for all debts and legal obligations of the business
Partnership - CORRECT ANSWER✅✅✅A business owned by two or more persons
associated as partners.
Reason for setting up a partnership - CORRECT ANSWER✅✅✅One individual does not
have enough economic resources to initiate or expand the business.
Pros of forming a partnership - CORRECT ANSWER✅✅✅• Partners sometimes bring
unique skills or resources to the partnership
• More favorable tax treatment than corporations
Cons of forming a partnership - CORRECT ANSWER✅✅✅Partners are personally liable
for all debts and legal obligations of the business
Corporation - CORRECT ANSWER✅✅✅A business organized as a separate legal entity
owned by stockholders
Pros of forming a corporation - CORRECT ANSWER✅✅✅• Shares of stock are easy to sell
(transfer ownership)
• Individuals can become stock holders by investing relatively small amounts of money
, • It is easier for corporations to raise funds
• Corporate stockholders have no personal legal liability
Cons of forming a corporation - CORRECT ANSWER✅✅✅• Corporate stockholders
generally pay higher taxes
What is the purpose of financial information? - CORRECT ANSWER✅✅✅To provide
inputs for decision-making.
What is accounting? - CORRECT ANSWER✅✅✅The information system that identifies,
records and communicates the economic events of an organization to interested users.
Who are the users of financial information? - CORRECT ANSWER✅✅✅They can be
divided broadly into two groups: internal users and external users.
Who are internal users? - CORRECT ANSWER✅✅✅Managers who plan, organize and run
a business.
What information does accounting provide to its internal users? - CORRECT
ANSWER✅✅✅Accounting provides internal reports, such as financial comparisons of
operating alternatives, projections of income from new sales campaigns, and forecasts of cash
needs for the next year.
Who are the external users? - CORRECT ANSWER✅✅✅• Investors
• Creditors
• Taxing authorities
• Customers
• Labour unions
• Regulatory agencies
MAKING 10TH EDITION EXAM WITH SOLUTION
sole proprietorship - CORRECT ANSWER✅✅✅a business owned by one person
Pros of a sole proprietorship - CORRECT ANSWER✅✅✅•It is simple to set up
• It gives you control over the business, and
• More favorable tax treatment than corporations
Cons of forming a sole proprietorship - CORRECT ANSWER✅✅✅The proprietor is
personally liable for all debts and legal obligations of the business
Partnership - CORRECT ANSWER✅✅✅A business owned by two or more persons
associated as partners.
Reason for setting up a partnership - CORRECT ANSWER✅✅✅One individual does not
have enough economic resources to initiate or expand the business.
Pros of forming a partnership - CORRECT ANSWER✅✅✅• Partners sometimes bring
unique skills or resources to the partnership
• More favorable tax treatment than corporations
Cons of forming a partnership - CORRECT ANSWER✅✅✅Partners are personally liable
for all debts and legal obligations of the business
Corporation - CORRECT ANSWER✅✅✅A business organized as a separate legal entity
owned by stockholders
Pros of forming a corporation - CORRECT ANSWER✅✅✅• Shares of stock are easy to sell
(transfer ownership)
• Individuals can become stock holders by investing relatively small amounts of money
, • It is easier for corporations to raise funds
• Corporate stockholders have no personal legal liability
Cons of forming a corporation - CORRECT ANSWER✅✅✅• Corporate stockholders
generally pay higher taxes
What is the purpose of financial information? - CORRECT ANSWER✅✅✅To provide
inputs for decision-making.
What is accounting? - CORRECT ANSWER✅✅✅The information system that identifies,
records and communicates the economic events of an organization to interested users.
Who are the users of financial information? - CORRECT ANSWER✅✅✅They can be
divided broadly into two groups: internal users and external users.
Who are internal users? - CORRECT ANSWER✅✅✅Managers who plan, organize and run
a business.
What information does accounting provide to its internal users? - CORRECT
ANSWER✅✅✅Accounting provides internal reports, such as financial comparisons of
operating alternatives, projections of income from new sales campaigns, and forecasts of cash
needs for the next year.
Who are the external users? - CORRECT ANSWER✅✅✅• Investors
• Creditors
• Taxing authorities
• Customers
• Labour unions
• Regulatory agencies
