Bus 100 Exam 2 Review

_____ is a type of divestiture in which a firm converts a particular unit or division into a separate company and issues stock in the newly created corporation to outside investors.

A carve-out

Which of the following is an example of an institutional investor?

A mutual fund

_____ is a management tool that explicitly shows how a firm will acquire and use the resources needed to achieve its goals over a specific time period.

Budgeting

When people use the term "corporation" without specifying which type, they are generally referring to a(n) _____.

C corporation

Which of the following is a key item that is most likely covered in a franchise agreement?

Conflict resolution

C Corporation Disadvantages

Double taxation,Expensive to start,Regulations and formalities,No deduction of corporate losses

_____ indicate the cash a firm spends, or other assets it uses up, to carry out the business activities necessary to generate its revenue.

Expenses

S-Corporation Disadvantages

Formation and ongoing expenses,Tax qualification obligations, Calendar year, Stock ownership restrictions,Closer IRS scrutiny,Less flexibility in allocating income and loss,Taxable fringe benefits

_____ perform a variety of accounting functions for local, state, or federal agencies, such as the Internal Revenue Service (IRS) and the Federal Deposit Insurance Corporation (FDIC).

Government accountants

domestic corporation

In a given state, a corporation that does business in, and is organized under the law of, that state.

Which of the following statements best describes a money market mutual fund?

It pools funds from many investors and uses these funds to purchase very safe, highly liquid securities.

Franchise advantages

Less Risk, Training and Support, Brand Recognition, Access to Funding

C Corporation Advantages

Limited liability,Perpetual existence,Enhanced credibility,Unlimited growth potential, No shareholders limit,Certain tax advantages

_____ provide analysis and prepare reports and financial statements for their organization.

Management accountants

Government Accountant

Perform accounting functions for local, state, or federal government agencies

S Corporation advantages

Protected assets,Pass-through taxation,Tax-favorable characterization of income,Straightforward transfer of ownership,Cash method of accounting,Heightened credibility,

Public Accountant

Provide services such as tax preparation, external auditing, and management consulting to clients on a fee basis

_____ measures the income earned per dollar invested by the stockholders of a firm.

Return-on-equity

budgetary slack

The amount by which a manager intentionally underestimates budgeted revenues or overestimates budgeted expenses in order to make it easier to achieve budgetary goals.

Which of the following is a leverage ratio?

The debt ratio

Which of the following is a disadvantage of franchising for a franchisee?

The negative halo effect

In the context of accounting, which of the following best defines cost?

The value of what is given up in exchange for something else

Management Accountant

Work within a company and provide analysis, prepare reports and financial statements, and assist managers

balance sheet

a financial statement that reports the financial position of a firm by identifying and reporting the value of the firm's assets, liabilities, and owners' equity

money market mutual fund

a mutual fund that pools funds from many investors and uses these funds to purchase very safe, highly liquid securities

limited partnership

a partnership that includes at least one general partner who actively manages the company and accepts unlimited liability and one limited partner who gives up the right to actively manage the company in exchange for limited liability

Covenant

a restriction lenders impose on borrowers as a condition of providing long-term debt financing

Distributorship

a type of franchising agreement in which the franchisor makes a product and licenses the franchisee to sell it

partnership agreement

a written agreement among all owners detailing the rules and procedures that guide ownership and operations

Partnership Advantages

ability to pool financial resources, share responsibility and capitalize on complementary skills, ease of formation, possible tax advantages

In the context of balance sheets, assets such as machinery, building, and equipment have a limited useful life, so accountants subtract _____ from the original value of these assets, to reflect the fact that these assets are being used up over time.

accumulated depreciation

Current Liabilities

amounts due to be paid to creditors within twelve months

budget

an estimate of income and expenditure for a set period of time.

mutual fund

an institutional investor that raises funds by selling shares to investors and uses the accumulated funds to buy a portfolio of many different securities

The three kinds of basic financial statements that are prepared in financial accounting are:

balance sheet, income statement, and statement of cash flows.

3 basic financial statements

balance sheet, income statement, statement of cash flows

A _____ can help a firm evaluate how much internal financing (funds generated by earnings) will be available for a planning period.

budgeted income statement

current assets

cash and other assets that are expected to be converted to cash within a year

Liabilities

claims that outsiders have against a firm's assets; current liabilities and long-term liabilities

financial ratio analysis

computing ratios that compare values of key accounts listed on a firm's financial statements; purpose is toe value a firms current strengths and weaknesses

The basic rules governing how a corporation is organized and how it conducts its business are known as _____.

corporate bylaws

A _____ is a form of business ownership in which the business is considered a legal entity that is separate and distinct from its owners.

corporation

Franchise Disadvantages

costs, lack of control, negative halo effect, growth challenges, restriction on sales, poor execution

A _____ is a requirement a lender imposes on the borrower as a condition of the loan.

covenant

A firm's _____ include cash and other assets expected to be converted into cash in the following year.

current assets

In the context of liquidity ratios, a firm's _____ are the debts that must be repaid in the following year.

current liabilities

Balance sheets usually organize liabilities into two broad categories, which are:

current liabilities and long-term liabilities.

When a company takes out a bank loan, or issues and sells corporate bonds, it is relying on _____.

debt financing

A _____ is a type of franchising arrangement in which the franchisor makes a product and licenses the franchisee to sell it.

distributorship

average collection period

dividing amounts receivable by average daily credit sales; to determine how quickly consumers pay back their credit

Return on Equity

dividing net income(profit) by owners equity; measures the income earned per dollar invested by stockholders

When a business that is incorporated in one state does business in other states, it is called a(n) _____ in the state where it is incorporated.

domestic corporation

Financial managers use _____ to assess the financial strengths and weaknesses of their firm.

financial ratio analysis

liquidity ratio

financial ratios that measure the ability of a firm to obtain the cash it needs to pay its short-term debt obligations as they come due

target firm

firm being purchased in the acquisition

corporate bonds

formal IOUs; have due dates of then or more years after issuing, they are sellable; certification of debt

Financial capital refers to the:

funds a firm uses to acquire its assets and finance its operations.

debt financing

funds provided by lenders (creditors)

equity financing

funds provided by the owners of a company

The _____ summarizes the financial results of a firm's operations over a given period of time.

income statement

A _____ is a partnership arrangement that includes at least one general partner and at least one limited partner.

limited partnership

leverage ratios

ratios that measure the extent to which a firm relies on debt financing in its capital structure;debt-to asset ratio;

assets

resources owned by a business; intangible assets- brand recognition, copyrights, trademarks, etc

expesnse

resources that are used up as a result of business operations

Carve-out divestiture

setting up a separate business from an operation (sell stock to outside investors)

The _____ of a company is a simple statement that shows how the accumulated revenues that have been reinvested in the company have changed from one accounting period to the next.

statement of retained earnings

Statement of Retained Earnings

statement that shows how retained earnings have changed from one accounting period to the next

corporate bylaws

the basic rules governing how a corporation is organized and how it conducts its business

risk

the degree of uncertainty regarding the outcome of a decision

net income

the difference between the revenue a firm earns and the expenses it incurs in a given time period

statement of cash flows

the financial statement that identifies a firms sources and uses of cash in a given accounting period

income statement

the financial statement that reports the revenues, expenses, and net income that resulted from a firm's operations over an accounting period

financial capital

the funds a firm uses to acquire its assets and finance its operations

Accumulated Depreciation

the total amount of depreciation expense that has been recorded since the purchase of a plant asset

cost

the value of what is given up in exchange for something

top-down budgeting

top management prepares the budget with little or no input from middle and supervisory managers

Partnership Disadvantages

unlimited liability, potential disagreement, lack of continuity, difficulty in withdrawing from partnership