2026/2027
Florida International University (FIU)
ACG 2021 Accounting Examination Review
2026/2027 – Complete Study Notes, Exam
Preparation Workbook, and Practice
Assessment Guide
Question 1:
A single individual owns and operates a business without forming a separate legal
entity. What type of business structure is being described?
A. Partnership
B. Corporation
C. Sole proprietorship
D. Cooperative
Correct Answer: C. Sole proprietorship
Rationale: A sole proprietorship is a business owned and controlled by one individual,
with no legal distinction between the owner and the business. This means the owner
receives all profits but also bears unlimited personal liability. Partnerships involve
two or more owners, while corporations are separate legal entities. Cooperatives are
member-owned organizations, typically focused on shared benefits rather than
individual profit control.
Question 2:
Which of the following is a key disadvantage of a sole proprietorship?
A. Double taxation
B. Unlimited personal liability
C. Limited government regulation
D. Easy access to capital markets
Correct Answer: B. Unlimited personal liability
Rationale: In a sole proprietorship, the owner is personally responsible for all business
debts, meaning personal assets such as homes or vehicles may be used to settle
liabilities. Double taxation applies to corporations, not sole proprietorships. While
sole proprietorships have limited regulation and easy setup, they struggle with capital
acquisition rather than benefiting from it.
,2026/2027
Question 3:
A business owned by two or more individuals who share profits and responsibilities is
known as a:
A. Corporation
B. Sole proprietorship
C. Partnership
D. Franchise
Correct Answer: C. Partnership
Rationale: A partnership is formed when two or more individuals agree to own and
operate a business together, sharing profits, losses, and management duties.
Corporations are separate legal entities, while sole proprietorships have only one
owner. Franchises are licensing agreements rather than ownership structures.
Question 4:
A corporation is primarily owned by:
A. Managers
B. Employees
C. Shareholders
D. Creditors
Correct Answer: C. Shareholders
Rationale: Shareholders own a corporation by holding stock, which represents
ownership shares in the company. Managers run daily operations but do not
necessarily own the business. Creditors lend money but do not have ownership rights.
Employees work for the company but do not hold ownership unless they are
shareholders.
Question 5:
Which characteristic is an advantage of corporations?
A. Limited regulation
B. No taxation
C. Easy transfer of ownership
D. Unlimited personal liability
Correct Answer: C. Easy transfer of ownership
Rationale: Corporations allow ownership transfer through buying and selling shares,
making them highly flexible. They are heavily regulated and subject to taxation.
,2026/2027
Shareholders enjoy limited liability, meaning they are not personally responsible for
corporate debts beyond their investment.
Question 6:
Which of the following is a disadvantage of corporations?
A. Easy capital formation
B. Continuous existence
C. Double taxation
D. Limited liability
Correct Answer: C. Double taxation
Rationale: Corporations face double taxation because profits are taxed at the corporate
level and again when distributed to shareholders as dividends. The other options are
advantages: corporations have continuity, limited liability, and strong capital-raising
ability.
Question 7:
A dividend is best defined as:
A. A company loan
B. A tax deduction
C. Cash payment to shareholders
D. Business expense
Correct Answer: C. Cash payment to shareholders
Rationale: Dividends are distributions of profits paid to shareholders. They are not
expenses or loans. Instead, they represent a return on investment for ownership in the
company.
Question 8:
Which of the following best describes financial accounting?
A. Internal decision-making system
B. System for recording, summarizing, and reporting financial data
C. Tax preparation system only
D. Employee performance tracking system
Correct Answer: B. System for recording, summarizing, and reporting financial data
, 2026/2027
Rationale: Financial accounting provides structured financial information to external
users such as investors and creditors. It differs from managerial accounting, which is
used internally for decision-making.
Question 9:
Which users rely on financial accounting information?
A. Company employees only
B. External users such as investors and creditors
C. Only managers
D. Government only
Correct Answer: B. External users such as investors and creditors
Rationale: Financial accounting is designed for external stakeholders like investors,
lenders, and regulators. Internal users rely on managerial accounting instead.
Question 10:
The Sarbanes-Oxley Act (SOX) was introduced primarily to:
A. Reduce taxes
B. Improve employee wages
C. Prevent financial fraud
D. Increase stock prices
Correct Answer: C. Prevent financial fraud
Rationale: SOX was created to enhance corporate transparency and reduce fraudulent
financial reporting after major corporate scandals. It requires executives to certify
financial statements.
Question 11:
Which financial statement shows a company’s financial position at a specific point in
time?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Retained Earnings Statement
Correct Answer: C. Balance Sheet
Rationale: The balance sheet presents assets, liabilities, and equity at a specific date.
Other statements reflect performance over a period of time.
Florida International University (FIU)
ACG 2021 Accounting Examination Review
2026/2027 – Complete Study Notes, Exam
Preparation Workbook, and Practice
Assessment Guide
Question 1:
A single individual owns and operates a business without forming a separate legal
entity. What type of business structure is being described?
A. Partnership
B. Corporation
C. Sole proprietorship
D. Cooperative
Correct Answer: C. Sole proprietorship
Rationale: A sole proprietorship is a business owned and controlled by one individual,
with no legal distinction between the owner and the business. This means the owner
receives all profits but also bears unlimited personal liability. Partnerships involve
two or more owners, while corporations are separate legal entities. Cooperatives are
member-owned organizations, typically focused on shared benefits rather than
individual profit control.
Question 2:
Which of the following is a key disadvantage of a sole proprietorship?
A. Double taxation
B. Unlimited personal liability
C. Limited government regulation
D. Easy access to capital markets
Correct Answer: B. Unlimited personal liability
Rationale: In a sole proprietorship, the owner is personally responsible for all business
debts, meaning personal assets such as homes or vehicles may be used to settle
liabilities. Double taxation applies to corporations, not sole proprietorships. While
sole proprietorships have limited regulation and easy setup, they struggle with capital
acquisition rather than benefiting from it.
,2026/2027
Question 3:
A business owned by two or more individuals who share profits and responsibilities is
known as a:
A. Corporation
B. Sole proprietorship
C. Partnership
D. Franchise
Correct Answer: C. Partnership
Rationale: A partnership is formed when two or more individuals agree to own and
operate a business together, sharing profits, losses, and management duties.
Corporations are separate legal entities, while sole proprietorships have only one
owner. Franchises are licensing agreements rather than ownership structures.
Question 4:
A corporation is primarily owned by:
A. Managers
B. Employees
C. Shareholders
D. Creditors
Correct Answer: C. Shareholders
Rationale: Shareholders own a corporation by holding stock, which represents
ownership shares in the company. Managers run daily operations but do not
necessarily own the business. Creditors lend money but do not have ownership rights.
Employees work for the company but do not hold ownership unless they are
shareholders.
Question 5:
Which characteristic is an advantage of corporations?
A. Limited regulation
B. No taxation
C. Easy transfer of ownership
D. Unlimited personal liability
Correct Answer: C. Easy transfer of ownership
Rationale: Corporations allow ownership transfer through buying and selling shares,
making them highly flexible. They are heavily regulated and subject to taxation.
,2026/2027
Shareholders enjoy limited liability, meaning they are not personally responsible for
corporate debts beyond their investment.
Question 6:
Which of the following is a disadvantage of corporations?
A. Easy capital formation
B. Continuous existence
C. Double taxation
D. Limited liability
Correct Answer: C. Double taxation
Rationale: Corporations face double taxation because profits are taxed at the corporate
level and again when distributed to shareholders as dividends. The other options are
advantages: corporations have continuity, limited liability, and strong capital-raising
ability.
Question 7:
A dividend is best defined as:
A. A company loan
B. A tax deduction
C. Cash payment to shareholders
D. Business expense
Correct Answer: C. Cash payment to shareholders
Rationale: Dividends are distributions of profits paid to shareholders. They are not
expenses or loans. Instead, they represent a return on investment for ownership in the
company.
Question 8:
Which of the following best describes financial accounting?
A. Internal decision-making system
B. System for recording, summarizing, and reporting financial data
C. Tax preparation system only
D. Employee performance tracking system
Correct Answer: B. System for recording, summarizing, and reporting financial data
, 2026/2027
Rationale: Financial accounting provides structured financial information to external
users such as investors and creditors. It differs from managerial accounting, which is
used internally for decision-making.
Question 9:
Which users rely on financial accounting information?
A. Company employees only
B. External users such as investors and creditors
C. Only managers
D. Government only
Correct Answer: B. External users such as investors and creditors
Rationale: Financial accounting is designed for external stakeholders like investors,
lenders, and regulators. Internal users rely on managerial accounting instead.
Question 10:
The Sarbanes-Oxley Act (SOX) was introduced primarily to:
A. Reduce taxes
B. Improve employee wages
C. Prevent financial fraud
D. Increase stock prices
Correct Answer: C. Prevent financial fraud
Rationale: SOX was created to enhance corporate transparency and reduce fraudulent
financial reporting after major corporate scandals. It requires executives to certify
financial statements.
Question 11:
Which financial statement shows a company’s financial position at a specific point in
time?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Retained Earnings Statement
Correct Answer: C. Balance Sheet
Rationale: The balance sheet presents assets, liabilities, and equity at a specific date.
Other statements reflect performance over a period of time.
