1. (TCO A) Which of the following statements is CORRECT? (Points : 10)
 One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. It is generally easier to transfer one’s ownership interest in a partnership than in a corporation. One of the advantages of the corporate form of organization is that it avoids double taxation. One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., “one person, one vote.” Corporations of all types are subject to the corporate income tax. 2. (TCO G) Which of the following statements is CORRECT? (Points : 10) In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash. Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity.
 In the statement of cash flows, a decrease in accounts payable is reported as a use of cash. In the statement of cash flows, depreciation charges are reported as a use of cash. In the statement of cash flows, a decrease in inventories is reported as a use of cash.

3. (TCO G) An investor is considering starting a new business. The company would require $475,000 of assets, and it would be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have a ROE of 13.5%. How much net income must be expected to warrant starting the business? (Points: 10) $52,230 NI = (TA)ROE $54,979 = ($475,000)13.5% $57,873 = $64,125 $60,919
 $64,125 4. (TCO B) You deposit $1,000 today in a savings account that pays 3.5% interest,