5 Written Questions

1. •simple to establish
   •owner controlled
   •tax advantages that are more favorable than a corporation
2. An individual accounting record of increases and decreases in specific asset, liability, stockholders' equity, revenue or expense items.
3. presents information about cash inflows and outflows from
   1. Operating activities
   2. Investing activities
   3. Financing activities
4. •owners personally liable for all business debts
   • transfer of ownership may be difficult
5. A financial statement that provides financial information about the cash receipts and cash payments of a business for a specific period of time.

5 Matching Questions

1. Working Capital computed as
2. Working capital measures
3. Sarbanes-Oxley Act (SOX)
4. Current assets
5. accounts types with debit normal balance

1. a Current Assets minus Current Liabilities
   
   expressed in Proportion 1.44:1
2. b Cash and other resources that companies expects to convert to cash or use up within one year or the operating cycle, whichever is longer.
3. c short-term ability to pay obligatons
   
   positive working capital - indicates likelihood that it will pay liabilities
   
   negative working capital - indicates that a company might not be able to pay creditors and may be forced into bankruptcy
4. d asset
   dividends
   expense
5. e Regulations passed by Congress in 2002 to try to reduce unethical corporate behavior.

5 Multiple Choice Questions

1. A business owned by one person.
   1. Partnership
   2. Cost principle
   3. Corporation
   4. Sole proprietorship
2. The constraint of determining whether an item is large enough to likely influence the decision of an investor or creditor.
   1. Conservatism
   2. Comparability
   3. Materiality
   4. Credit
3. current assets divided by current liabilities.
   
   expressed in Proportion 1.44:1
   1. Current ratio computed as
   2. General journal
   3. Free cash flow computed as
   4. Current assets
4. A system that records the dual effect of each transaction in appropriate accounts.
   1. Current assets
   2. Expense entry effects
   3. Double-entry system
   4. Expenses
5. •unfavorable tax treatment resulting in higher taxes paid by stockholders
   1. Advantages of Sole proprietorship
   2. Advantages of partnership
   3. Corporation
   4. Disadvantages of corporation

5 True/False Questions

1. Advantages of corporation → •unfavorable tax treatment resulting in higher taxes paid by stockholders

   True        False

2. Financing activities → Cash is often obtained from outside sources to start or expand a business.

   True        False

3. Notes to the financial statements → Notes that clarify information presented in the financial statements, as well as expand upon it where additional detail is needed.

   True        False

4. Consistency → The ability of a company to pay interest as it comes due and to repay the balance of debt at its maturity.

   True        False

5. Expenses → Payments of cash from a corporation to its stockholders.

   True        False