Business 100 Chapters 7-9

_____ is a guaranteed line of credit in which a bank makes a binding commitment to provide a business with funds up to a specified credit limit at any time during the term of the agreement.

A revolving credit agreement

Which of the following is a threat that a small business is most likely to face?

High risk of failure

Which of the following statements is true of starting a business from scratch?

It is hard to get credit from both lenders and suppliers

Mohit is very passionate about music and opens a recording studio of his own. However, he does not know much about running a business and within a short period, starts running into losses. Therefore, he shuts down the business. Which of the following threats is highlighted in the given scenario?

Lack of knowledge

Which of the following statements is true of funding options for small businesses?

Only a tiny fraction of new businesses receive any venture capital money

Felix lost his job at an investment firm because of downsizing during a period of recession. To keep himself financially stable, he opened a food truck that became a huge success. Which of the following advantages of entrepreneurship initially motivated Felix to start the food truck?

Survival

Identify a true statement about current assets.

They are resources that a firm expects to convert into cash within a year.

Timothy wanted to start a coffeehouse. However, he could not buy a space to start his business because of lack of funds. Which of the following threats is highlighted in the given scenario?

Too little money

Common stock is a key owners' equity account for corporations.

True

According to the Global Entrepreneurship Monitor (GEM), the most effective way to evaluate entrepreneurship levels is by phase. A country's total early-phase entrepreneurship rate includes the:

percentage of adults who have been running their own business from three months to 3.5 years.

Financial managers emphasize the goal of maximizing the market price of stock because:

they have a fiduciary duty

David needs to acquire financial capital to purchase a printing press for his business. David can either acquire the financial capital for the press by borrowing money from a bank or by purchasing the press on credit from his supplier.

true

Which of the following is a powerful contribution made by small businesses to the U.S. economy?

vitalizing inner cities

Garry, a financial manager at AtoZ technologies, wants to know when his firm will need to arrange for short-term financing and when the firm is likely to have surplus cash available to pay off loans or to invest in short-term liquid assets. These concerns suggest that Garry would want to develop a _____.

Cash budget

Through the establishment of a set of generally accepted accounting principles (GAAP), the Financial Accounting Standards Board (FASB) aims to ensure that financial statements are:

Comparable

Jenna left her job as an analyst in a reputed company to start her own event management company at a time when event management was not in vogue. She was bold enough to take this step despite knowing the amount of risk involved. Which entrepreneurial characteristic is highlighted in the given scenario?

Confidence

_____ is the process of funding ventures by raising money from a large number of investors via the Internet.

Crowdfunding

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

Current assets

The Securities and Exchange Commission (SEC) bans publicly traded corporations from making comparative financial statements.

False

The income statement is also known as the statement of financial position.

False

The members of the Financial Accounting Standards Board (FASB) can be reappointed to serve two additional terms after the completion of their first term.

False

To give the company's stockholders, creditors, and other external stakeholders an accurate idea of the company's overall performance, Rowensport Corporation, a multinational company, releases statements that contain details of the company's profits and losses over the past five years. In this scenario, the company is most likely involved in _____.

Financial accounting

Suresh quits his nine-to-five job at a multinational company and starts his own event management company. In his new company, he does not practice a nine-to-five work regime. Instead, he organizes meetings with clients by making appointments that favor his schedule. Which of the following advantages of entrepreneurship is highlighted in the given scenario?

Flexibility

_____ 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

Betty's job entails detecting problems such as embezzlement, waste, mismanagement, and employee theft at her organization. In this case, Betty is a(n) _____.

Internal auditor

In the context of balance sheets, which of the following is a difference between liabilities and owners' equity?

Liabilities indicate the claims outsiders have against the firm's assets, whereas owners' equity refers to the claims the owners have against their firm's assets.

Kitsure, a cosmetics company, was able to sell 20 percent more than its estimated sales in a year. The company was able to acquire its investment along with a higher turnover for its shareholders. Which of the following financial ratios provides the measure of Kitsure's earnings?

Profitability ratios

Lorraine works for an accounting firm that performs external audits, provides consulting services, and does the tax preparation for other businesses and individuals. Given this information, Lorraine is most likely a _____.

Public accountant

Commercial paper, which is sometimes issued for as little as two days, can be issued for up to 270 days.

True

John and Elizabeth evaluate three telecommunication companies to determine the best company to invest in. A horizontal analysis will enable them to make comparisons of financial statements of the three companies over the past several years and help in the determination of the increase in their profits.

True

Public accountants provide services such as tax preparation, external auditing, or management consulting to clients on a fee basis.

True

Nestor wants to open a new event management company. Deveon, a multinational company, agrees to fund his business on the condition that Deveon be given 50% ownership in the company. In the given scenario, Deveon is most likely a(n) _____.

Venture Capital firm

In the context of small business opportunities, which of the following statements is true of market niches?

They tend to be quite attractive to small firms

Harold, a financial accountant at an automobile company, is asked to calculate the net income of the company for a given period. He deducts the cost of goods sold from the revenue earned during that period. Before deducting the company's operating expenses from the gross profit, he deducts the rent and the insurance premium paid by the company during that period. In the given scenario, Harold deducted the company's _____ from the company's operating expenses.

Administrative expenses

Bon Suede, a shoe manufacturing company, produces ten thousand units of shoes of a distinct design. In 2015, the company was able to sell all the units within six months of manufacture, prompting the company to produce an additional ten thousand units. Which of the following financial ratios has most likely been analyzed in the given scenario?

Asset management ratios

_____ consists of short-term (and usually unsecured) promissory notes issued by large corporations.

Commercial paper

A(n) _____ makes a profit by purchasing the receivables of a firm at a discount and collecting the full amount from the firm's customers.

Factor

Rel Eston, a network service provider, sells off its accounts receivable to a financing company in order to gain early access to funds that would help accelerate company's growth trajectory in the market in the following year. Which of the following short-term financing options is being used by Rel Eston in the given scenario?

Factoring

In order for CPA firms to perform audits with integrity, they must be tied to the firms they audit.

False

Return-on-equity indicates how much net income a firm earned per share of common stock outstanding.

False

Tobin starts a catering company of his own and earns a substantial profit in the first year itself. His total earnings are more than what he used to earn as a salaried person. Which of the following advantages of entrepreneurship is highlighted in the given scenario?

Greater financial success

Richard is a wealthy and successful businessman who is well known for financing many successful start-ups. He has earned a sizable amount of profit by providing capital to start-ups in return for a share of their profits. In the given scenario, which of the following statements is true of Richard?

He is an angel investor

Yennex Inc., a textile company, planned to sell its stock products in two months' time. The company was able to sell those products within a month's time. Therefore, it was able to sell double the estimated amount in a year. Given the scenario, which of the following ratio analyses is most likely to have been analyzed by Yennex Inc. to achieve this success?

Profitability ratios

Which of the following is a source of long-term funds for a firm?

Retained earnings

In the context of the income statement of an organization, accountants use accrual-basis accounting when recognizing _____.

Revenues

Congress passed the _____ that banned business relationships that might create conflicts of interest between certified public accounting (CPA) firms and the companies they audit.

Sarbanes-Oxley Act of 2002

Melissa runs a small restaurant that specializes in serving continental cuisine. Every Sunday, she visits the farmers' market to buy the ingredients for her dishes. She handpicks each item to maintain the quality of her food. Which entrepreneurial characteristic is highlighted in the given scenario?

Self-Reliance

MVJ Corp., a market research firm, borrowed $2 million from Trimitium Bank. While negotiating with the bank, the firm signs a promissory note, which specifies that the firm must pay the borrowed amount in 90 days with interest. However, the bank also requires the firm's inventories and receivables to be pledged as collateral to back the loan. Which of the following short-term financing options is being offered by Trimitium Bank in the given scenario?

Short-term bank loans

_____ forecasts the types and amounts of assets a firm will need to implement its future plans and help financial managers determine the amount of additional financing the firm must arrange in order to acquire those assets.

The budgeted balance sheet

Which of the following is an example of an intangible asset?

The goodwill showed by a food manufacturing company by helping its competitor at a time of crisis

Duk Yu, a beverage company, buys its raw materials from Nessange, a fruits and vegetables exporting company, without making any payment at the time of purchase. Instead, Nessange allows Duk Yu to pay the total purchase amount within a period of six months. Which of the following short-term financing options is being used by Duk Yu in the given scenario?

Trade credit

_____ is a spontaneous financing granted by sellers when they deliver goods and services to customers without requiring immediate payment.

Trade credit

Certificate of deposit is an interest-earning deposit that requires the funds to remain deposited for a fixed term.

True

Small firms tend to be effective innovators for a number of reasons. Most importantly, their very reason for being often ties to:

a Brand new idea

Unlike a line of credit, in a revolving credit agreement:

a bank makes a binding commitment to provide a business with funds up to a specified credit limit at any time during the term of the agreement.

A high inventory turnover ratio is good because it indicates that:

a firm can continue its daily operations with a small amount of inventory on hand

The sense of urgency regarding entrepreneurship tends to fall when fear of failure is low. This most likely happens in countries where:

a person is given financial support if he or she gets fired.

Logan, an independent auditor, is assigned to perform an audit for a software company. After the audit, he notices some serious lapses and discrepancies in the numbers mentioned in the firm's financial statements. In this scenario, Logan is most likely to offer a(n) _____ opinion in his audit report.

adverse

In the context of opportunities and threats, overhead costs for small businesses:

are often lower than big companies.

In the context of balance sheets, resources owned by a firm are known as _____.

assets

Gotwing Inc., a multinational company, issues promissory notes to big corporations. As the company has strong credit ratings, it easily finds buyers without having to offer a substantial discount for its debt. Which of the following short-term financing options is being used by Gotwing Inc. in the given scenario?

commercial paper

Small business start-ups are likely to find that getting commercial loans are:

difficult because lenders are reluctant to give loans to firms that do not have a track record.

In the context of statement of cash flows, cash flows from operating activities show the amount of cash that flowed into the company from:

dividends

In the context of the statement of retained earnings, any change in retained earnings is found by subtracting:

dividends paid to shareholders from net income

Rahul owns a guitar store that is famous for customizing guitars. From choosing the wood for the body to the type of pickups, everything can be selected by the customer. This feature attracts beginners and professionals alike to Rahul's store. The specific nature of the business makes it unique and results in fewer competitors. This allows Rahul to choose the prices for his services. The opportunity of _____ is highlighted in the given scenario.

exploiting market niches

James employs an apprentice in his guitar store who gets firsthand knowledge of craftsmanship and the process involved in becoming a professional luthier. This allows James to have a reliable hand who can assist him in his work without requiring him to hire a professional luthier. It also enables him to use his financial resources on procuring high-quality materials to make the guitars. The opportunity of _____ is highlighted in the given scenario.

having lower overhead costs

In the context of balance sheets, patents, trademarks, and copyrights are examples of _____.

intangible assets

The _____ is an asset management ratio that measures how quickly a firm sells its stock to generate revenue.

inventory turnover ratio

Initiatium, a software development firm, utilized $2 million to create a new software. Half of the total budget was acquired from loans from different sponsors while the rest was funded by the firm. The debt ratio amounts to 0.5. The given scenario illustrates the analysis of _____.

leverage ratios

Trumbeak Inc., an electronics company, needs to pay its debt to Breston Bank the following year. Trumbeak Inc. sells half of its shares to other companies and is able to acquire the cash it needs to pay its debt. In this scenario, Trumbeak Inc.'s ability to sell its shares to other companies in order to pay its debt to Breston Bank is measured by calculating _____.

liquidity ratios

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

Hopins, a medium-sized firm, has total assets whose value is equivalent to the sum of the funds provided by its owners and the loans taken by the firm from several financial institutions to purchase those assets. In this context, it can be said that:

the balance sheet of Hopins satisfies the accounting equation

When buying a franchise, _____.

the initial purchase price can be steep

In the context of the statistics provided by the U.S. Small Business Administration (SBA), _____.

the opening of new businesses has accounted for over 40% of net new jobs in the U.S. economy over the past two decades

Herbert uses prominent social media websites to promote his newly opened restaurant. He constantly posts promotional offers and provides coupons that customers can redeem to avail discounts when they dine in the restaurant. The opportunity of _____ is highlighted in the given scenario.

using technology