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Vocabulary Quiz Name _______________
Chapter 1
1. The process of identifying, recording, and communicating the economic
events of a business to interested users of the information.
2. Debts and obligations of a business.
3. Resources owned by a business.
4. The amount by which expenses exceed revenues.
5. A business organized as a separate legal entity having ownership
divided into transferable shares of stock.
6. The amount of net income kept in the corporation for future use, not
distributed to stockholders as dividends.
7. Assets = Liabilities + Stockholders’ Equity.
8. Payments of cash from a corporation to its stockholders.
9. The cost of assets consumed or services used in the process of
ongoing operations to generate resources.
10. A financial statement that reports the assets, liabilities, and
stockholders’ equity at a specific date.
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Solutions to Vocabulary Quiz
Chapter 1
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Multiple Choice Quiz Name _______________
Chapter 1
1. All of the following are characteristics of a sole proprietorship except:
a. a business owned by one person.
b. owner has control of the business.
c. a separate legal entity.
d. small owner-operated business.
2. All of the following are characteristics of a corporation except:
a. a separate legal entity.
b. ownership evidenced by shares of stock.
c. produce eight times more revenue than sole proprietorships and partnerships
in the United States.
d. owners have unlimited liability.
3. The term used to describe the stock representing the primary ownership interest in a
corporation is:
a. common stock.
b. retrained earnings.
c. financing activity.
d. dividends.
4. Resources owned by a business and used in carrying out its operating activities are:
a. liabilities.
b. stockholders’ equity.
c. revenues.
d. assets.
5. Acquiring assets necessary to operate the business is called a(n):
a. financing activity.
b. operating activity.
c. revenue activity.
d. investing activity.
6. Debt securities sold to investors and due to be repaid at a particular date some
years in the future are called:
a. bonds payable.
b. accounts payable.
c. wages payable.
d. notes payable.
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7. The term used to describe the total assets that Starbucks receives in exchange for
its coffee is:
a. cash.
b. revenue.
c. inventory.
d. accounts receivable.
8. The financial statement which presents a picture on a particular date of what a
business owns and owes is a(n):
a. income statement.
b. retained earnings statement.
c. balance sheet.
d. statement of cash flows.
9. Net income shown on the income statement is added to the beginning balance of
retained earnings in the:
a. income statement.
b. retained earnings statement.
c. balance sheet.
d. statement of cash flows.
10. To report the success or failure of the company’s operations during the period is the
purpose of the:
a. income statement.
b. retained earnings statement.
c. balance sheet.
d. statement of cash flows.
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Solutions to Multiple Choice Quiz
Chapter 1
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Exercise 1 – Research and Communication Activity
Chapter 1
You and your college roommate have decided to go into business together after
graduation. Your roommate contends that you have always gotten along and therefore do
not need a partnership agreement. You, however, feel somewhat uncomfortable about not
having a formal partnership agreement. Not wanting to argue, you decide to write your
roommate a memo to (1) explain why you need a formal agreement and (2) outline the
issues that need to be addressed in the agreement.
Solution:
DATE: 5/1/0X
TO: My Roommate
FROM: Marketing Student
SUBJECT: Partnership Agreement
After conducting research, speaking with a number of professionals, and
considering the venture we are about to undertake, I am even more confident that we
need a partnership agreement. Although we have remained friends during the four
years of college, a misunderstanding concerning the partnership could jeopardize
our friendship.
At a minimum, the partnership agreement should address:
• Exact name of the business
• Specific nature of the venture
• Names and addresses of partners
• Duties and responsibilities of partners
• Division of profits or losses
• Addition of new partners
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Exercise 2 – Research and Communication Activity
Chapter 1
In your textbook you will find a passage that reads, “The combined number of
proprietorships and partnerships in the United States is more than five times the number of
corporations. However, the revenue produced by corporations is eight times greater. Most
of the largest enterprises in the United States—for example Coca-Cola, ExxonMobil,
General Motors, Citigroup, and Microsoft—are corporations.
Given these facts, chances are that at some point in your life you may work for a
corporation or want to form a corporation.
1. List the advantages of the corporate form of organization.
2. Search the web or call the Secretary of State in your state to determine how you
would go about forming a corporation in your state. Outline the major steps in
forming a corporation. Provide the source of your information.
Solution:
1. Easy transfer of ownership, greater raising capital potential, and lower
personal liability.
2. In the Commonwealth of Kentucky, one or more persons may act as an
incorporator or incorporators of a corporation by delivering articles of
incorporation to the Secretary of State for filing.
The articles of incorporation of a business corporation must set
forth:
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Exercise 3 – Financial Statement and Creative Activity
Chapter 1
Assume that you own a business (small or large) in Campus Town USA. Assume further
that you are considering a project (enlarging the parking lot, redecorating the interior, etc.)
that will require you to borrow money from a local bank. The lending officer has told you
that she will need to know how much money the business is making, how much money the
business owes suppliers and other creditors, and how much cash and inventory you have
on hand.
As part of your exercise, you are required to do the following:
1. Complete the form on the next page outlining:
a. The type of business you own.
b. The amount of money you need to borrow.
c. The detail of the project that will require you to borrow money.
d. Any additional information you think would help in applying for the loan.
2. Complete the attached loan application form for your fictitious business.
Remember: You may be creative on this exercise. The numbers don’t have
to be real, just realistic.
Note: The attached form and loan application do not need to be typed.
However, forms should be neatly handwritten.
(This activity is intended for group assignment. Also, you may want to retain
students’ work. After studying later chapters and learning to analyze financial
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Exercise 3 – Financial Statement and Creative Activity (Continued)
Chapter 1
Name of Company
Type of Business
Amount Need to Borrow
Reason for Applying for the Loan
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Exercise 3 – Financial Statement and Creative Activity (Continued)
Chapter 1
LOAN APPLICATION FORM
Name of Company
Address
Phone Number
Annual Income
Revenues
Cost of goods sold
Operating expenses
Rent
Utilities
Wages
Advertising
Others
Net income (loss)
Assets
Cash
Account receivable
Inventory
Property, plant, & equipment
Other
Total assets
Liabilities
Account payable
Notes payable
Other
Total liabilities
Stockholders’ Equity
Total stockholders’ equity
Total liabilities & stockholders’ equity
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Exercise 4 – World Wide Web Accounting Research Activity
Chapter 1
The authors provide a vignette that focuses on Tootsie Roll in chapter 1 of your text book.
Learn more about Tootsie Roll by going to www.tootsie.com, then click on Financial.
Open the latest annual report and find these answers.
1. Outline Tootsie Roll’s Corporate Principles.
2. What was the total amount of Tootsie Roll’s assets in the most current year
available?
3. What was the total amount of Tootsie Roll’s liabilities in the most current year
available?
4. What is the amount of the difference between Tootsie Roll’s assets and liabilities?
What is this difference called?
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Exercise 5 – World Wide Web, International, and Social Responsibility Activity
Chapter 1
Levi-Strauss, an international company with headquarters in San Francisco, was a
forerunner in addressing ethical and social responsibility. You can find more about Levi-
Strauss’ core values by visiting its website at www.levistrauss.com.
1. Outline the four core values that are at the heart of Levi Strauss & Co.
Solutions:
Information available on website