UHD Entrepreneurship Final Exam Review (Chapters 15-18)

Chapter 15

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Chapter 16

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Chapter 17

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Chapter 18

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The periodic inventory method is the most expensive method of maintaining records.

False. The periodic inventory method is a relatively inexpensive method of maintaining records.

Which of the following is true of offering direct credit to customers?

It increases sales for the business.

_____ is the ratio measure of how well a firm does in using its inputs to create outputs.

Productivity.

Which of the following is a protected class established by the EEOC in 1964?

Sex.

Which of these is an advantage of sole proprietorship?

Unique tax advantages. The major advantages of the sole proprietorship are that it is extremely easy to set up. There are no forms to file; you just start doing business. In a sole proprietorship, the owner and the firm are one and the same. Major disadvantages include that if an employee has an accident while at work, the business is liable for the damages—and the owner is personally responsible too. This means the sole proprietor's home, stocks, savings, and even personal property could be taken to pay damages.

Small businesses use the periodic inventory method because it:

meets the requirements of local and federal taxing agencies.

The purchase of inventory—typical with Internet-based businesses—only after a sale is made is called a _____.

micro inventory. Micro inventory is the purchase of inventory only after a sale is made; very typical with Internet firms.

The practice of acquiring inventory only in response to a completed sale is called a(n) _____.

pull-through system.

The ratio of profits to owner investment in a business is referred to as _____.

return on equity.

A business formed by an individual who is responsible for all debts and claims against the business is called a:

sole proprietorship.

Except for _____, business forms are types of separate, legal entities.

sole proprietorships.

A 20-year patent covering a process, machine, article of manufacture, composition of matter, or any new or useful improvement of an existing one is known as _____.

utility patent.

Tammy has just opened a donut shop called The Rabbit Hole. Given that The Rabbit Hole is in its start-up phase, which of these would be Tammy's immediate financial management need?

Conserving what little money the business has.

_____ is the source of the largest amount of employee theft.

Employee collusion. Although separation of duties will keep any single employee from stealing, nothing will keep two or more employees who decide to cooperate from stealing company property. Employee collusion is the source of the largest amount of employee theft.

Copyrights, trademarks, and patents provide automatic full protection to small business owners.

False.

Employee collusion has never been found to be a source of employee theft.

False.

Assigning a high value to inventory results in increased sales margin and reported profit, but at the price of paying increased income taxes.

False. Assigning a high value to inventory results in decreased sales margin and reported profit. Less reported profit means less will be paid in income taxes. This will make a business worth less to investors, lenders, and potential buyers.

Community development organizations are private businesses that are authorized to make SBA insured loans to start-ups and small businesses.

False. Community development organizations are organizations authorized by the SBA to make insured loans to small businesses that are expected to increase economic activity within a specific geographic area.

Current practice is for small businesses to only provide direct credit to customers.

False. Current practice is for small businesses to provide credit only by accepting bank-issued credit cards.

In a professional corporation, the shareholders are responsible for debts of the corporation.

False. In case of a professional corporation, the shareholders are not responsible for debts of the corporation. If the corporation fails, shareholders can lose, at most, the value of their investment in the corporation.

A company's goodwill is its best collateral.

False. Intangible assets, other than patents, copyrights, and trademarks, are not good collateral. For example, goodwill, the value of a business that exceeds the sum of the value of all individual assets, cannot be sold separately from the business.

Disposal value is based on determining the price of either a new asset or a used asset for which there is an organized market.

False. Replacement value is based on determining the price of either a new asset or a used asset for which there is an organized market.

Small businesses are not eligible to obtain government subsidies.

False. Small businesses can obtain their share of government subsidies through direct contracting and grants. Opportunities exist for small businesses to obtain government funding for recycling of waste materials, for research and development of products for health, security, and defense, and for providing services directly to government entities.

In small businesses, providing credit to customers decreases the need to borrow cash.

False. Small businesses generally exist in a state of constant cash shortages. Providing credit causes delays in receiving cash which in turn leads to borrowing to reduce cash shortages.

The ADA Technical Assistance Program provides inspection and affirmation services to help small businesses.

False. The Technical Assistance Program provides specific advice for businesses concerning how to comply with the pertinent requirements. The program provides an information hot line, printed materials, and a speakers bureau. It does not provide any inspection or affirmation services.

Short-term assets are also known as operating assets.

False. The long-term assets in a business are the operating or capital assets.

The more debt that is included in the capital mix, the higher is the weighted average cost.

False. The more debt that is included in the capital mix, the lower the weighted average cost will be. The firm value is inversely related to cost of capital at any level of operations.

The advantage of legal protection methods for intellectual property is that there are multiple government agencies in each area that will assist a small business owner in maintaining their legal rights.

False. The problem with legal protection methods for intellectual property is that there is no governmental agency that will assist you, as the owner of a small business, in maintaining your legal rights.

Which of the following is one of the ways in which attorneys charge?

Hourly fees. A basis for legal charges in which the rate is based on a price per hour is known as hourly fees. Often lawyers will charge for fractions of an hour.

Which of the following is true of limited partnerships?

None of the owners, except the general partner, is fully liable.

Jacob has started a graphic design company called Interon Graphics. As Interon Graphics moves into the growth phase, which of following would be Jacob's dominant financial management need?

Obtaining increasing amounts of cash inflow.

_____ refers to family or friends letting you add your purchases with theirs in order to get lower prices.

Piggybacking.

Which of the following is true with regard to pricing of legal services?

Pricing of legal services is based on supply and demand.

Which of the following should be undertaken in order to reduce a business's exposure to the risk of violating tax regulations?

Reconcile the cash register tape to the cash register contents every day.

_____ is provided by state and local governments, primarily to encourage specific activities that are expected to improve the blighted areas or provide additional employment.

Tax abatement.

_____ are laws and regulations that specify the requirements of taxation.

Tax codes.

Equifax is one of the four primary CRAs in the United States.

True.

An organization authorized by the SBA to make insured loans to small businesses that are expected to increase economic activity within a specific geographic area is referred to as a(n) _____.

community development organization.

During the start-up phase of a business, the emphasis is on:

conserving what little cash the business has.

The two basic categories of information available to small business owners are:

free and paid. There are two basic categories of information available to small business owners: free and paid. Falling between free and paid are the do-it-yourself products.

A(n) _____ is a type of contract by which a new party agrees to perform a duty that one of the original parties to a contract was already legally obligated to perform.

subcontract

A _____ is an agreement with an insurance or bonding company that will pay a specified amount in the event that the entity bonded fails to comply with specified contractual requirements.

surety bond.

The Sarbanes-Oxley Act only covers small businesses that are not publicly traded.

False.

Identifying risks is the first task to be completed before a comprehensive insurance program can be developed for a business.

True.

Economic order quantity (EOQ) helps a business to think in terms of:

ordering costs and carrying costs.

Joshua suffered a serious knee injury at work after a machine he was using malfunctioned. Joshua plans to sue for compensation from Milch Enterprises, the company that built that machine. Joshua's attorney wants a percentage of the compensation if it is proven that Milch Enterprises' negligence caused the accident. Which of the following types of legal fee would Joshua be paying to his attorney?

Contingency fees. Contingency fees are typical in accident (especially personal injury) situations, but are not usually used in everyday contract and business-related matters. With a contingency fee, the attorney will take a percentage of recovery as his or her fee.

There are two basic categories of information available to small business owners: legal and commercial.

False.

A measure of the amount of debt relative to total investment is called cost of capital.

False. A measure of the amount of debt relative to total investment is called financial leverage.

Copyright involves the expression of ideas as well as the ideas themselves.

False. Copyright involves the expression of ideas, not (as with patents and trade secrets) the ideas themselves. For example, if a greeting card company creates a picture of a single sunflower for use on a greeting card, what can be copyrighted is that particular rendition of a single sunflower. Copyright does not mean that no one else can create a card with a single sunflower (which would use that idea). That particular image of a sunflower is protected, so another person or company cannot use that same image without permission.

In the U.S., government programs are the number one source for financing small businesses.

False. The number one source for financing small businesses is from the owners (or potential owners) themselves.

All business contracts have to be in writing to be enforceable.

False. The vast majority of business law in the everyday operations of a business is contract law. Contracts are essentially agreements in which the parties exchange promises. Not all contracts have to be in writing to be enforceable.

Knowing one's personal worth is not important when starting a business.

False. When starting a business, it is critical that the owner know his personal worth. Also, potential investors would want to check personal financial statements to understand the owner's commitment to the business.

Which of the following is a feature of the perpetual inventory system?

It maintains a constant record of the receipt and sale of inventory.

Which of the following dispute resolution methods is the least expensive and much faster to complete?

Mediation. In mediation, the dispute is put to a neutral third party who is not a judge. While arbitration and court cases have decisions that are binding, mediation works only if the two sides agree to the decision and settlement. Mediations are generally much faster to complete than either arbitration or litigation, and it is the least expensive of the three approaches.

Crux Inc. and Synapse Inc. are two competing businesses in the same city. They use the services of the same insurance company and have taken the same policy. Crux has a higher deductible than Synapse for the policy. Which of the following statements would be true in this case?

Synapse pays a higher premium than Crux.

Which of the following describes angel investors?

They are wealthy individuals who invest in companies in relatively early stages of development.

A lease is simply a rental agreement that specifies a minimum period of time for which one must make rental payments.

True.

Adverse possession occurs when an owner of real property does not enforce property rights and allows a non owner to use the property as if it were his or her own.

True.

Business interruption insurance provides funds to pay the ordinary operating expenses of your business if it is forced to close temporarily because of an insured event.

True.

A _____ describes the difference between the original acquisition cost of capital assets and the amount of depreciation expense that has been recognized to date.

book value.

The Age Discrimination in Employment Act makes it illegal to:

discriminate against people who are older than 40 years of age

Misappropriation of business property by employees of that business is referred to as:

employee theft. Misappropriation of business property by employees of that business refers to employee theft. Theft by personnel may involve direct stealing of money or other assets of the business, or may be the conduct of an illegal act that is intended to provide personal benefit at a cost to the business.

Potential buyers and investors are most interested in the _____ value of a business's assets.

replacement. Replacement value sets an "upper level" for the value of the business's assets as an approximation of the cost that would be incurred to equip a start-up business.

Factoring receivables to a commercial lender is usually less expensive than pledging receivables.

False. Pledging receivables to a commercial lender is usually less expensive than factoring.

Which of the following policies is a minimum standard for managing customer credit?

Filing suits and liens against the assets of customers who default on payment.

Anderson and Anderson is a law firm that has been handed a job to take care of patent issues for Gantar Labs. Anderson and Anderson charges a fixed amount for patent-related cases. Which of the following types of fees will Gantar be paying Anderson and Anderson?

Flat fees. Flat fees are a fixed amount paid for a certain task. For example, an attorney may have a flat fee for handling all the paperwork to establish a corporation.

In a C corporation and S corporation, the IRS expects the owner to pay himself or herself a salary that is roughly at market rates.

True.

Joint ventures are partnerships through which two or more businesses combine to undertake a specific economic activity.

True.

Majority of small business start-ups are funded by bootstrapping.

True.

One of the policies for managing customer credit requires business owners to maintain constant "aging" of accounts to quickly identify customers who become delinquent.

True.

Patents are essentially monopolies granted to inventors by the U.S. government giving patent owners the exclusive rights to make, use, or sell that invention for a certain period of time.

True.

Payments of profits to the owners of corporations are called dividends.

True.

Reduced taxes are the most common form of institutional gift financing.

True.

Risk from loss of key personnel and former employees setting up competition against your business can be managed by negotiating employment contracts with those key employees.

True.

The name of a business can be called its doing business as (dba) name.

True.

The time value of money is the concept that a dollar received today is worth much more than is a dollar to be received at some time in the future.

True.

Clients and attorneys start with a natural conflict of interest related to money.

True. Clients and attorneys start with a natural conflict of interest. The attorney wants to make money for the services, and one would like the services for as little cost as possible. In reality, all entrepreneurs know they will have to pay, so the key issues are how and how much will be charged for legal services.

A sole proprietorship is not considered as a separate legal entity from its owner.

True. In a sole proprietorship, the owner and the firm are one and the same. If an employee has an accident while at work, the business is liable for the damages—and the owner is personally responsible too. This means the sole proprietor's home, stocks, savings, and even personal property could be taken to pay damages.

The most common mandatory insurance coverage includes:

liability for damages caused by vehicle accidents.

A(n) _____ is a closed receptacle for money, the keys to which are not available to those who physically handle the receptacle.

lock box.