Question

1. The primary objective of financial accounting is: 

A. To serve the decision-making needs of internal users. 

B. To provide financial statements to help external users analyze an organizations 

C. To monitor and control company activities. 

D. To provide information on both the costs and benefits of looking after products and benefits of looking after products and services. 

2. A CPA owns a large home and she has divided the second floor into two separate units: one her personal residence and the other rented out to local college students as an apartment. On floor, she has her own CPA firm where she meets with and provides accounting services to ens services to clients. If she wishes to keep separate records for each of these three activities, the accounting principle or assumption to which she is adhering is? 

A. Going-concern assumption. B. Monetary unit assumption. C on C. Cost principle. D. Business entity assumption. 

3. The three basic business entities include sole proprietorship. partnership, and corporation. Which of these entities is considered a legal entity and is also subject to federal income taxation at the entity level? 

A. Sole proprietorship. B. Partnership. ) C. Corporation. D. All three entities satisfy both requirements. 

4. The Equity term of the basic accounting equation can be further broken down into several other terms. Assume that the entity is a sole proprietorship. Which of the following statements is correct? 

A. Investments by the owner will increase equity; and revenues will decrease equity. 

B. Investments by the owner will decrease equity; and revenues will increase equity. 

C. Increases in expenses will decrease equity; and owner withdrawals will decrease equity. 

D. Revenues will increase equity, and owner withdrawals will increase equity. 

Answer 1

First 4 questions are being answered here.

1. Option (B) is correct

The primary objective of financial accounting is to provide financial statements to help external users and analyze an organization's activities.

2. Option (D) is correct

CPA is adhering to Business entity assumption. As per business entity assumption, business is treated as separate entity from its owners.

3. Option (C) is correct

A corporation is considered as a legal entity and is subject to federal income taxation at the entity level. A member shareholder is not personally liable for the debts of the corporation.

4. Option (C) is correct

Increase in expenses will decrease equity as increase in expenses will result in decreasing net income and when net income decreases, it will reduce equity.

Answer 2

ANSWERS :

1. Option B .

(Financial statements are basically very useful to the external users and stakeholders) .

2. Option D.

(Business entity is separate from the use as a residence and renting out)

3. Option C.

(Only Corporates are considered as a legal business entity)

4. Option C.

(Increase in expenses result in lower profit and thereby decrease in equity of partenership. Withdrawals by partners means decreasing equity or their investments)