ACG 2021- Chapter 1 Test Questions and Correct Answers
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Course
ACG 2021
Institution
ACG 2021
What are the forms of business organization? Sole Proprietorship Partnership Corporation
Sole Proprietorship A business owned by a single individual
Advantages of a Sole Proprietorship Easy to start- almost no paperwork required Total control- you are the boss Taxes- get taxed once
Disadvantages...
ACG 2021- Chapter 1 Test Questions and
Correct Answers
What are the forms of business organization? ✅Sole Proprietorship
Partnership
Corporation
Sole Proprietorship ✅A business owned by a single individual
Advantages of a Sole Proprietorship ✅Easy to start- almost no paperwork required
Total control- you are the boss
Taxes- get taxed once
Disadvantages of a Sole Proprietorship ✅Personal liability- if you do something wrong,
government can take assets (car, house, etc.)
Harder to transfer ownership- hard to sell business
No continuous life- if you die, business dies
Hard to raise money- might be able to get money from parents
Partnership ✅A business owned by two or more individuals
Advantages of a Partnership ✅Easy to start- same as sole proprietorship
More control- share control with partners
Taxes- same as sole proprietorship
Added skills from partners- two heads are better than one
Disadvantages of a Sole Proprietorship ✅Personal liability- same as sole
proprietorship
Harder to transfer ownership- same as sole proprietorship
No continuous life- same as sole proprietorship
Hard to raise money
Corporation ✅An incorporated business entry that has filed articles of incorporation
(paperwork) in a state of domicile; a business owned by shareholders
Advantages of a Corporations ✅Easy to transfer money- sell my stock on Etrade,
Ameritrade, etc
Easy to raise money- Uber will issue stock to raise money
No personal liability- if Chipotle serves ecoli, government can't take assets (car, house,
etc.)
Continuous life- when Steve Jobs died, Apple still continued
, Disadvantages of a Corporation ✅Tough to start- takes over a year to file paperwork
Double taxation- corporate taxes and individual taxes
No control- shareholders will own Uber when they become corporation
More government regulations- SEC is watching
Double Taxation ✅1. Corporation gets taxed on its profits from running operations. For
example, Ford pays 20% on their profit for the year
2. Owners (shareholders) get taxed again when they claim those profits in the form of
dividends or capital gains. For example, a shareholder will have to pay taxes on the
dividends from Ford or the money the shareholder earned from selling the stock.
Which of the following is NOT a characteristic of a corporation?
A. double taxation
B. single owner
C. difficult to start
D. easy to raise money ✅B. single owner
What is the definition of financial accounting? ✅Accounting is the information system
that shows the economic events of a corporation. This system identifies, records, and
communicates all info to interested parties such as stockholders
Who are the users of financial information? ✅Internal users
External users
Internal Users ✅In managerial accounting
People within the company... marketing department, management department, finance
department, etc.
External Users ✅In financial accounting
People outside the company... shareholders, customers, creditors, taxing authorities,
labor unions, regulatory authorities, economic planners
Creditor ✅Any entity that lends you money
For us, the best example is a bank
Which of the following is an internal user of accounting data?
A. Chief Executive Officer
B. Shareholders
C. Banks
D. Customers ✅A. Chief Executive Officer
What is the purpose of financial accounting? ✅To provide information to decision
makers, (investors) in a common language. This information is contained in the four
financial statements.
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