ENT TEST 2
Two related entities that can help the new business owner force potential legal liabilities are:
- A board of advisors - A board of directors
A copyright can be claimed on creative material generated. Identify the examples of such materials.
- Advertising Copy - Books and Magazines
A(n) ______ is simply money designed to help the new business begin operations with no expectation of repayment.
Grant
Which of the following are considered sources of debt for starting a new business?
- Banks - Suppliers - Credit Cards
One disadvantage of the Subchapter S Corporation is the limitation on the number of shareholders, which is currently set at a maximum of ______ shareholders.
100
Banks have traditionally been a major source of funds for:
Established firms
True or False: A C Corporation treats fringe benefits that are paid out as income for its employees.
False
True or False: Credit cards are a form of equity investment.
False
Subchapter S and Subchapter C Corporations take their names from Subchapters in the ______ Code
Internal Revenue
What is the initial value at which the firm's shares are offered?
Par Value
Which account should be used when there is an expense too small to write a check for or when a check is simply inappropriate?
Petty Cash Register
Why are banks often quite restrictive in their lending to start-up firms?
The risk is perceived to be too high
Which of the following are true regarding the accounts payable?
- All invoices received would be recorded - The record should include date paid, amount paid, and check number tracking number - A record of payment toward each invoice should be included
An inventory record will include:
- The quality of the item - The description of the item - A unit and total cost - An item number
Which form of funding is used by a business to conserve cash and maintain the latest versions of whatever equipment is available?
Asset Lease
A ______ is an agreement between two parties to perform certain activities for some consideration.
Contract
______ is a major source of non equity financing and can come from banks, credit cards, or suppliers.
Debt
A corporation pays a tax on its profits; then those after tax profits are paid as dividends to the owners, who then have to pay personal income taxes on the dividend income. This situation is referred to as ______.
Double Taxation
A limited liability corporation (LLC) and a Subchapter S Corporation are similar in that they both ______.
Have the limited liability feature
A more complex business from that has two or more people sharing unlimited liability in a new business venture is called a general ______
partnership
Which of the following are excellent sources of information regarding regulatory requirements?
- Chamber of Commerce - Local Department of Economic Development - Small Business Assistance Centers - Small business Administration
What are the two broad categories of proprietorships?
- General - Limited
Which of the following typically issue grants?
- Government - Private Foundations
Match the types of accounting systems used by businesses... 1. a cash-based accounting system 2. an accrual-based accounting system
1. Only the smallest business use this stem 2. Subchapter C corporations, partnerships, or trusts use this system
Which funding tool involves the leasing of equipment from manufacturers or a third-party reseller?
Asset Lease
A ______ is like a master system for tracking the activity of the business.
Chart of Accounts
What report creates a listing of all checks that have been written and all that have cleared through the bank?
Check Register
What is the generic term used to describe any type of non equity funding tied to the business?
Debt
When someone provides funding in return for some ownership in the new business, it is referred to as a(n) ______.
Equity Investment
Which of the following funding options traditionally involves selling a percentage of the business to an outside party?
Equity Investment
Besides banks, finance companies, and the founders, another source of nonequity loans comes from:
Friends and Family
Besides sole proprietorship, which of the following business forms requires the business debt to flow directly to the owner(s)?
General Partnership
Which form of business involves two or more individuals sharing unlimited liability in a business venture?
General Partnership
A separate accounts ______ record should be maintained for each creditor.
Payable
______ insurance obtained by an entrepreneurial business primarily covers the building, fixtures, and inventory in all of the buildings in which the business has a function.
Property
Which of the following forms of incorporation is required to pay income tax, which results in double taxation?
Subchapter C Corporations
______ credit is a form of non equity funding for physical assets as well as the actual supplies purchased.
Supplier
Besides banks, finance companies, and friends and family, another source of nonequity loans comes from:
The founders
True or False: If a corporation suffers substantial losses, the founder(s) will lose only his or her investment in the business.
True
Which of the following is NOT a common form of debt for a new business?
Venture Capital
Which of the following is NOT a source of non equity capitol to start a business?
Venture Capital
The critical issues of personal liability and the desire to limit exposure to the original equity investment led to the development of corporations. A corporation addresses both drawbacks by ______
considering the business and the individual separate entities
For tax purposes, all businesses must have a(n) ______
employer identification number
A Subchapter C corporation has a ______ that is equal to the par value times the number of shares distributed.
floor value
The the long run, the cost of capital for non equity funding is generally ______ that of equity investment.
less than
Identify the true statements about a C corporation.
- It provides protection for the owners beyond their equity investment - It does not have any limits on shareholder participation
What are the typical requirements for a new business to obtain a city to county business license?
- It should pay a set fee, which is usually less than $100 - It should agree to report basic information about its performance on a set schedule
Which of the following are types of corporations developed by the U.S. legal system?
- LLC - Subchapter S - Subchapter C
Which of the following are benefits of a Subchapter S Corporation?
- Limited liability for the owners - Legitimacy in the market as a more established form of business - Consolidation of business and personal income for tax benefits - Relatively easy to form compared with Subchapter C
A business with employees will be required to calculate and deduct various payroll taxes for:
- Local Authorities - State authorities - Federal Authorities
Which of the following business forms are required to hold annual board meetings and file reports to local, state, and federal authorities?
- Subchapter S Corporations - Subchapter C Corporations
Which of the following are common forms of debt for a new business?
- Supplier Credit - Loans - Credit Cards
Which of the following items should be included on the payroll record?
- Taxes - Base pay and overtime pay rate - Benefit deductions - Number of hours worked
Great funding typically comes from:
- the government - a nonprofit agency
In the United States, a ______ is considered to apply to anything that is one's own original work, whether that original work itself is filed with the U.S. government or not.
Copyright
Suppliers will generally provide ______ on both physical assets and the actual suppliers purchased.
Credit
Any form of capital infusion that must be paid back with interest is called ______.
Debt
Which of the following elements is NOT required when forming a Subchapter C or Subchapter S Corporation?
Details of the social responsibility policy
True or False: The founder should avoid personally lending money to the new business because it is an unsecured investment.
False
One means to limit liability concerns is through the effective application of ______.
Insurance.
An advantage of the Subchapter ______ Corporation is that it allows the owners to report their income or losses on their personal income tax returns, thus avoiding double taxation.
S
A ______ is legal protection of the intellectual property that is associated with a specific business.
Trademark
True or False: According to the contract law, the term length of lease contracts involving new businesses must be more than two years.
False
Which of the following is NOT one of the three basic types of legal business organization?
Franchise
The three key issues involved with starting a business include the funding of the firm, the creation of an accounting system, and ______.
The flow of information in the new business
Inventory should be taken at scheduled times during the year and an exact match should be completed between:
- starting inventory - units sold - ending inventory
True or False: A Partnership will be governed by either the Uniform Partnership Act or the Revised Uniform Partnership Act if the partnership agreement is not developed and signed.
True
True or False: It is advisable for an entrepreneur to employ formal written contracts whenever there is an agreement with another party.
True
True or False: When considering funding, a firm needs to evaluate not only the amount provided but also the sources of that funding.
True
True or False: The greater the insurance coverage obtained by a new business, the lower the cost.
False
Which type of legal business organization is the simplest form to establish?
Sole Proprietorship
A(n) ______ investment is funds received by a business in exchange for a percentage ownership of the business.
equity (or stock)
Which type of legal business organization is characterized by the fact that the person who owns the business and the business itself are treated as the same entity?
sole proprietorship
Which of the following are trademarked by most large companies?
- Company symbols - Company name - Company tag lines
Which of the following are true with regard to managing the flow of data in the context of businesses?
- Data are tied to the strategic needs of the business - data are obtained in a timely manner
Identify the true statements about equity investment.
- Equity investment involves selling a percentage of the business to an outside party - In the case of dissolution, each investor is entitled to the percentage of the break-up value equal to their investment percentage.
Which of the following elements are required hen forming a Subchapter C or Subchapter S?
- General nature of the business - Names, addresses, and titles of all founders - Location of corporate headquarters
Which of the following are sources of non-equity capital to start a business?
- Grants - Debt
Which of the following are common examples of licenses and permits?
- OSHA food-handling permits - Business Licenses - Occupancy permits
A chart of accounts is simply a listing of each type of activity and each type of asset with the company, rank the categories of accounts from first to last associated with charts of accounts.
1. Income Category 2. Expense Category 3. Asset Category
In which of the following business forms do the business debts flow directly to the owner(s)?
- General Partnership - Sole Proprietorship
Which of the following must be formally addressed by both Subchapter C and Subchapter S Corporations?
- Holding annual board meetings - Reporting standards to local, state, and federal authorities - Authorization of more shares of stock
True or False: There is no need to treat a loan from family as a contractual agreement.
False
The effective application of ______ is one means to limit liability concerns of the new venture.
Insurance
Unlike a Subchapter C Corporation, a limited liability corporation (LLC) ______.
allows for the flexible treatment of profits from the organization
The new business should employ all ______ funding mechanisms available before seeking ______ funding.
non equity; equity
General and limited are two broad categories of ______
partnership (or partnerships)
Which of the following are true about loans as a source of funding for new businesses?
- They are secured by assets of a personal guarantee - They are often repaid monthly from cash flow
A(n) ______ involves a contractual agreement whereby the business receives some amount of money that must be repaid over a specified period of time at a specified interest rate.
Loan
Which type of funding involves a contractual agreement whereby the business receives some amount of money that must be repaid over a specified period of time at a specified interest rate?
Loan
Which accounting record tracks time for hourly workers and attendance for salaries employees?
Payroll
Which account operates much like a bank savings using a register to track the amount in the box?
Petty Cash Register
Which of the following are disadvantages associated with Subchapter S Corporations?
- Expense, complex formation compared with sole proprietorships - Limitation on the number of shareholders - May require a layer to process paperwork
Which of the following are true about the Uniform Partnership Act and the Revised Uniform Partnership Act?
- They are an effective means to handle the basics of partnership - Their provisions do not cover issues like noncompete agreements
Identify the characteristics of credit cards as a form of non equity investment.
- They are generally tied to a much higher interest rate than that of a bank loan - They typically have a set upper limit
Identify the questions that should be considered by a new business owner before entering into a lease contract?
- Who has to carry the liability insurance and at what level? - Who wold be responsible for making improvements to the facility? - Can the business owner renew the lease after the term expires? - Who is responsible for maintenance and other facilities issues?
Match the types of accounting systems a new businessperson uses (in left column) with their features (in the right column). 1. A cash-based accounting system 2. An accrual-based accounting system
1. it recognized expenses as they are paid and recognizes revenue as it is generated 2. It is the more typical form of accounting used, with expenses and revenues recorded when they actually occur, regardless of when the cash is recieved
What are special funds that are neither equity or debt funds that are designed to aid businesses in specific areas?
Grants
What method of inventory control seeks to minimize excess capital investment in inventory by having it present only shortly before it is used?
Just-in-time inventory
It is important to record and balance the company account on at least a ______ basis.
Monthly
A board of ______ is required of corporations, but a board of ______ is optional regardless of the legal form.
directors; advisors