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Multiple Choice 1. D A company is organised in accordance with the laws of the country. It is a separate legal entity and the ownership is divided into shares (answer D). A sole proprietorship (answer A) is an unincorporated business owned by one individual. A service business (answer B) provides services to its customers. It can be organised as a sole proprietorship, partnership, or company. A partnership (answer C) is an unincorporated business owned by two or more individuals. 2. A The resources owned by a business are called assets (answer A). Amounts owing by the business to its creditors are called liabilities (answer B); and the amounts owing to the owner is called owner's equity (answer D). The relationship between assets, liabilities, and owners equity is expressed as (lie accounting equation (answer C). 3. A The balance sheet is a listing of the assets, liabilities, and owners equity of a business at a specific date (answer A). The profit and loss statement (answer B) is a summary of the revenue and expenses of a business for a specific period of time. The statement of owners equity (answer C) summarises the changes in owner's equity for a sole proprietorship or partnership during a specific period of- time. The statement of cash flows (answer D) summarises the cash receipts and cash payments for a specific period of time. 4. C The accounting equation is: Assets = Liabilities + Owner's Equity Therefore, if assets increased by $20,000 and liabilities increased by $12,000, owners equity must have increased by $8,000 (answer C), .as indicated in the following computation: Assets = Liabilities + Owners Equity + $20,000 = + $12,000 + Owners Equity + $20,000 - $12,000 = Owners Equity + $8,000 = Owners Equity 5. B Net profit is the difference of revenue over expenses, or $7,500 (answer B). If expenses exceed revenue, the difference is a net loss. Withdrawals by the owner are the opposite of the owners investing in the business and do not affect the amount of net profit or net loss.