1. which of the following is true about a sole proprietorship?

1.  Which of the following is true about a sole proprietorship? 

 Income from a sole proprietorship is distributed to the owner in the form of a dividend.

 A sole proprietorship is a company owned by two or more individuals.

 The income from a sole proprietorship is taxed on the owner’s personal income tax return.

 The owner’s liability is limited to the amounts invested in the business.


2. Corporations are ________. 

 for-profit businesses only

 exempt from legal liability

 owned by shareholders

 manufacturers and not service organizations


3. Disadvantages of the corporate form of business organization include ________. 

 separation of ownership and management

 limited liability for shareholders

 double taxation

 two or more of these


4. A manufacturing business ________. 

 provides services to its customers

 buys goods for resale

 makes the products it sells

 will lend money to customers


5. Team Shirts, Inc. pays $5,000 cash for T-shirts from a supplier. This transaction ________. 

 causes an increase in total assets

 is a financing activity

 is an investing activity

 is an operating activity


6. Revenues include ________.  

 the amount received from borrowing

 the amount earned from providing goods to customers

 the amount earned from providing services to customers

 two or more of these


7. Team Shirts, Inc. pays $600 for insurance. This transaction ________.  

 causes total liabilities to increase and retained earnings to decrease

 is an operating activity

 is an investing activity

 causes total assets to increase and total liabilities to increase


8. The statement of cash flows ________.  

 shows the changes that took place in the amount of shareholders’ equity during a period

 is a list of all the cash collected and cash paid during a period

 is a summary of all of the revenues minus all of the expenses for an accounting period

 describes the financial situation of a company at a specific point in time


9. Wok N Roll, Inc. shows $300,000 of assets and $60,000 of shareholders’ equity on its balance sheet. Liabilities must equal ________.   






10. Team Shirts, Inc. repays a $2,000 loan. This transaction ________. 

 causes total liabilities to decrease

 causes total assets to increase

 causes total shareholders’ equity to increase

 is an investing activity


11.  On March 1, Team Shirts had a beginning balance in retained earnings of $1,200. During March, Team Shirts paid $200 in dividends and had net income of $2,000. The March 31 balance in retained earnings was ________. 






12. Dividends are ________. 

 the same as expenses

 owners’ contributions to the firm

 a reduction in retained earnings

 another term for each partner’s share of partnership income


13. Comparative balance sheets ________. 

 include gross profit and operating income

 report revenues for both the current and previous years

 report financial ratios for the current year which are compared to the prior year’s

 include balances of two consecutive years


14. Financial services companies ________. 

 deal in services related to money

 lend money to consumers to pay for cars and houses

 sell insurance to their customers

 All of these are correct.


15. The owners of a corporation are called ________.  




 two or more of these


16. Which of the following is true about a corporation? 

 Each individual shareholder has individual legal responsibility for the corporation’s actions.

 Managers of corporations can be held responsible for the actions of the corporation.

 Corporations are exempt from taxes; however, the shareholders are required to pay taxes on dividends received.

 Corporations must have a minimum of two or more shareholders.


17. The stock market is ________. 

 where the IRS is located

 located in New York City

 the general term used to refer to all stock exchanges

 where businesses become incorporated


18. A business form in which the partners are not personally liable for the malpractice of any of the other partners is called a ________. 


 modified sole proprietorship

 limited liability partnership



19. Dell Inc.’s distribution of earnings to owners is called dividends. Dell must be a ________. 

 sole proprietorship


 sole proprietorship or partnership



20. For which organization are the personal assets of the owners at risk?  


 sole proprietorship and partnership


 sole proprietorship



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