Chapter 1 LS

A sole proprietorship is a business that Blank______.

is owned by one person

Businesses are motivated to organize as corporations because stockholders in a corporation have Blank______ liability for corporate debts.

limited

In a limited partnership, a limited partner's liability for business debts is Blank______.

limited to their cash contribution to the partnership

A Blank______ liability does not have to be paid within 1 year.

long-term

Capital budgeting is concerned with making and managing expenditures on Blank______.

long-term assets

Corporate bonds are generally classified as Blank______.

long-term debt

Since Blank______ and ownership are separated, a corporation's life is unlimited.

management

A business without separate legal authority formed by two or more people is known as a Blank______.

partnership

Because shareholders get paid last after all other obligations are satisfied, they are often called Blank______.

residual owners

The owners of a corporation are called Blank______.

shareholders

Which of the following are owners of a corporation?

shareholders

When a corporation is formed, it is granted which of the following rights? (Check all that apply.)

-the ability to issue stock -provincial citizenship for jurisdictional purposes -legal powers to sue

______ budgeting is the process of making and managing expenditures on long-term assets.

Capital

Which term applies to the mixture of debt and equity maintained by a firm?

Capital structure

Which of the following are examples of current assets?

Cash Inventory

Which corporate officer is responsible for the accounting function of a firm?

Controller

The purpose of a firm is to Blank______. Multiple choice question.

Create value for the owner

A current asset has a(n) Blank______ life.

short

Under profit maximization, managers have an incentive to maximize Blank______-term profits to the detriment of Blank______-term value.

short; long

When would individuals prefer to receive cash flows?

sooner rather than later

Which of the following are included in a firm's capital structure?

Equity Long-term debt

True or false: Limited partners manage the day to day operations of a business.

False

Identify which assets last a long time and include items such as equipment, land, machinery, or buildings.

Fixed

On a balance sheet, patents and trademarks are classified as Blank______.

Fixed assets

What determines when a sale is recorded for accounting purposes?

Generally accepted accounting principles

Which of the following are examples of current assets?

Inventory Cash

A corporation is a distinct Blank______ entity and as such can have a name and take advantage of the legal powers of natural persons.

Legal

Which corporate officer is responsible for managing the firm's cash?

Treasurer

True or false: Accounting profit does not adequately account for cash flow.

True Explanation: Accounting profit records sales made and expenses incurred but not the timing of cash receipts and expenditures.

A partnership must have at least Blank______ owners.

Two

Which of the following are examples of fixed assets?

Warehouses Equipment

An organization must prepare Blank______ and bylaws when forming a corporation.

articles of incorporation

A firm's balance sheet shows a snapshot of its finances Blank______.

at a point in time

Which of the following shows a snapshot of a firm's finances at a given point in time?

balance sheet

The rules used by a corporation to regulate its existence are known as Blank______.

bylaws

Which term applies to the mixture of debt and equity maintained by a firm?

capital structure

In large firms, financial activity is usually associated with which top officer?

chief financial officer

Which of the following positions generally report to the chief financial officer (CFO)?

controller treasurer

The federal government taxes which of the following?

corporate earnings and shareholder dividends Explanation: For corporations, shareholders (owners) are taxed on their dividends after the income has been taxed to the corporation. Sole proprietors and partners, who are also owners, are taxed on the income of the company rather than on withdrawals from the company. Hence, the income is taxed only once at the personal level.

Which of the following business forms is easiest to transfer ownership stakes in?

corporation

The main job of a financial manager is to Blank______.

create value for shareholders

Some of the cash flow generated by a firm goes back to the financial markets in the form of Blank______.

dividends and debt payments

Which of the following are disadvantages faced by corporations?

federal tax treatment

A shareholder's liability is limited to which of these?

the amount the shareholder invested in the corporation

Which of the following is most complicated to start?

the corporation

Which of the following is the most important form of business enterprises?

the corporation

If a shareholder purchases $5,000 of Coca-Cola stock, what is the maximum amount they could lose?

$5,000

Which of the following shows why a corporation is the most important form of business?

-Corporations can enter into contracts. -A corporation is a separate legal entity with the ability to acquire and exchange property. -Corporations can sue and be sued.

A general partnership has which of the following characteristics?

-Each partner shares profits and losses. -Each owner has unlimited liability for all firm debts.

Which of the following statements are true about shareholders' equity?

-Shareholders' equity is the difference between the value of a firm's assets and its debt. -Shareholders' equity is a residual claim on a firm's assets.

Bylaws of a corporation concern which of the following groups?

-directors -shareholders -officers

A treasurer's responsibilities typically include:

-managing capital expenditure decisions. -handling cash flows. -making financial plans.

Which of the following, according to the textbook, are possible financial goals for a company?

-maximize profits -minimize costs -survival

Which of the following are reasons why businesses organize as corporations?

-perpetual succession -ease of ownership -transfer limited liability

Cash generated by a firm is paid to ________ and _______ .

-shareholders or stockholders -creditors or bondholders

A corporation receives cash from financial markets by selling Blank______ and Blank______.

-stocks -bonds

The left side of a balance sheet shows a firm's current and fixed Blank______.

Assets

The rules used by a corporation to regulate its existence are known as Blank______

Bylaws

A current liability is defined as debt that must be repaid within which period of time?

1 year

Which of the following is an example of a current liability?

Accounts payable

Corporate bonds are generally classified as Blank______.

Long Term-debts

Assuming interest rates are positive and are greater than the inflation rate, one dollar received today is worth Blank______ one dollar received next year.

More than

How is ownership transferred in a corporation?

Ownership is transferred by gifting or selling shares of stock.

In a general partnership, each partner shares in the ______ and _______ .

Profits Losses

What happens when a firm creates value?

Shareholder wealth increases.

A current asset has a(n) Blank______ life.

Short

What is the main goal of financial management?

to maximize current share value of existing stock

Shareholders' equity is the difference between which of the following?

total assets and total debt

The officer responsible for managing the firm's cash flows is the Blank______.

treasurer

The life of a corporation Blank______.

unlimited