Chapter 2 Test: Business

corporation

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

commercial bank

A _____ is the most common depository institution.

General Partnership

A _____ refers to a partnership in which all partners can take an active role in managing the business and have unlimited liability for any claims against the firm

stock index

A _____ tracks the prices of a large group of stocks that meet certain defined criteria.

External Locus of Control

A deep-seated sense that forces other than the individual are responsible for what happens in his or her life

Internal Locus of Control

A deep-seated sense that the individual is personally responsible for what happens in his or her life

Budget

A detailed forecast of your expected cash inflows and cash outflows to determine your net inflow or outflow for a given period of time

it makes it hard for some people to maintain financial discipline

A disadvantage of using a credit card is that:

Investment Banks

A financial intermediary that specializes in helping firms raise financial capital by issuing securities in primary markets

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

horizontal mergers

A firm considers _____ to increase size and market power within the industry.

Sole Proprietorship

A form of business ownership with a single owner who usually actively manages the company

Limited Liability Partnership (LLP)

A form of partnership in which all partners have the right to participate in management and have limited liability for company debts

Dodd-Frank Act

A law enacted in the aftermath of the financial crisis of 2008-2009 that strengthened government oversight of financial markets and placed limitations on risky financial strategies such as heavy reliance on leverage

Standard & Poor's 500 (S&P 500)

A stock index based on prices of 500 major US corporations in a variety of industries and market sectors

board of directors

A textile corporation has two hundred odd stockholders. As it is inconvenient for so many stockholders to manage the company, the stockholders elect a group of individuals to oversee the company's operation and to represent their interests. In this scenario, the stockholders elect a _____.

conglomerate merger

A(n) _____ is a combination of two firms that are in unrelated industries.

investment bank

A(n) _____ is a financial intermediary that specializes in helping firms raise financial capital by issuing securities in primary markets.

limited liability company

A(n) _____ is a form of business ownership that offers both restricted responsibility to its owners and flexible tax treatment.

preferred stock

A(n) _____ is a type of stock that gives its holder priority over common stockholders in terms of dividends and claims on assets.

Partnership

A(n) _____ is a voluntary agreement under which two or more people act as co-owners of a business for profit.

initial public offering

A(n) _____ is the first time a company issues stock that may be bought by the general public.

Individual Retirement Account (IRA)

A(n) _____ provides tax benefits to people who are investing for their retirement

place a high priority on eliminating her credit card balance as quickly as possible

After reviewing Brenda's current financial situation, Ronald, her friend, assesses that she has an unpaid credit card balance of $4,500, on which an annual percentage rate of 15% is applicable. In this case, the best advice that Ronald can give Brenda is to:

Liquid Asset

An asset that can quickly be converted into cash with little risk of loss

Dow Jones Industrial Average (DJIA)

An index of 30 representative stocks used to monitor price changes in the overall stock market

IRA

An individual retirement account that provides tax benefits to individuals who are investing for their retirement

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 firms replaced much of the debt in their capital structure with equity.

As the recession of 2007-2008 loomed over both large and small businesses, many firms looked for ways to deleverage. The term deleveraging implies that:

Accounting Equation

Assets = Liabilities + Owner's Equity

Venture Capital Firms

Companies that invest in start-up businesses with high growth potential in exchange for a share of ownership

capital gain

Damien buys stocks worth $2800 in a cosmetic products manufacturing company. His investment turns out to be a sound decision as the prices of his stocks go up by $900. In this scenario, Damien earns a _____.

financial management

Dora works for PowTran Corp. Her primary responsibilities include managing the firm's working capital and analyzing long-term investment opportunities for the firm. Dora is most likely a part of the firm's _____ team.

Discretionary Payments

Emma runs a salon but does not make much profit from her business. She likes to go on holidays frequently and spends most of her income on vacations. Emma knows that she needs to cut down on her expenses or it would be difficult to bear the daily expenses in the future. In the context of Emma's budget, her expenditures on vacations can be referred to as

Asset Management Ratios

Financial ratios that measure how effectively a firm is using its assets to generate revenues or cash

Liquidity Ratios

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

highly leveraged

Firms that rely on a lot of debt in their capital structure are said to be _____.

Debt Financing

Funds provided by lenders (creditors)

Equity

Funds provided by the owners of a company

limit order

Garret wants to buy shares of an iron manufacturing company, but he does not want to pay a high price for them. He asks his securities broker to only buy shares that come within the price of $300 and $400. In this scenario, Garret places a _____ with his broker.

annual percentage rate

In a credit card agreement, the _____ is the interest expense charged on a credit card

considered to be the owner's personal liabilities

In a sole proprietorship, any debts the company incurs are:

issuing bonds.

In addition to contributions from owners, firms can also raise long-term funds by:

liquid asset

In finance, a _____ is one that can be quickly converted into cash with little risk of loss.

liabilities plus owners' equity.

In the accounting equation, assets are equal to:

intangible assets

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

assets

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

owners' equity

In the context of balance sheets, retained earnings are a major component of the _____ section.

have a predetermined amount from each paycheck automatically deposited into your savings account.

In the context of establishing a sizable savings balance, the concept of "pay yourself first" suggests that you:

Dividend

In the context of financial securities, _____ is a distribution of profits paid out to stockholders by a corporation

Large corporations with publicly traded stock must provide an annual report containing financial statements to all stockholders.

In the context of financial statements, which of the following statements is true of large corporations?

Risk and Return

In the context of investments, one widely accepted financial principle is that a tradeoff exists between:

current liabilities

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

are often lower than big companies.

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

are called necessity entrepreneurs.

In the event that a large company has to downsize, the middle-aged workers who are laid off find it difficult to find new jobs. When such workers decide to start their own businesses, they:

Revenue

Increases in a firm's assets that result from the sale of goods, provision of services, or other activities intended to earn income

Angel Investors

Individuals who invest in start-up companies with high growth potential in exchange for a share of ownership

personal resources

Julian wants to open a bakery. He uses his savings and borrows some funds from his family to start his business. In the given scenario, Julian uses _____ to fund his business.

credit union

Lina, along with ten of her colleagues, starts a financial cooperative to financially assist each other. The members pool their savings in the cooperative, and they can also take loans from it on a low interest rate. Members of the cooperative benefit from higher returns on savings and lower rates on loans. In this scenario, the cooperative started by Lina and her colleagues exemplifies a(n) _____.

balance sheet.

Marcus is a venture capitalist who invests in start-ups and small businesses. He is interested in investing in an online start-up company that has been in business for a year. Before making a decision, Marcus does some research on the value of the company's assets and liabilities. In this scenario, Marcus is most likely analyzing the company's:

financial markets

Markets that transfer funds from savers to borrowers are referred to as _____.

The Internal Revenue Service usually adds a 10% penalty for early withdrawals from retirement accounts

Most likely to discourage people from trying to spend funds from their retirement accounts

securities broker

Mr. Troy wants to buy stocks of a local retail company. He needs help with market research and requires some investing advice, as well as someone to do the trading for him. Mr. Troy should contact a(n) _____.

Credit Score

One of the most important determinants of the amount of credit you can obtain is your _____, which is a numerical indicator of your creditworthiness

Leverage Ratios

Ratios that measure the extent to which a firm relies on debt financing in its capital structure

Profitability Ratios

Ratios that measure the rate of return a firm is earning on various measures of investment

the spread.

Reese buys securities in a pharmaceutical company for $3300. After a period of eight months, when the prices of the securities go up in the market, she sells her securities for $3700. In this case, the difference of $400 in the prices of the securities is called:

Compounding

Refers to a process by which you earn interest not only on the money you directly invest but also on the interest you've earned in previous years

Credit

Refers to your ability to obtain goods or resources without having to make immediate payment

Assets

Resources owned by a firm

Expenses

Resources that are used up as the result of business operations

He is an angel investor

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?

business format franchise.

Scoopjoe, an ice cream brand in Wisconsin, has ten other outlets in Illinois, Michigan, and Ohio. As part of the agreement between Scoopjoe's main outlet and the other outlets, the former not only supplies raw materials to the latter but also provides help with site selection, training of staff, and finance. The given scenario exemplifies a:

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

The Consumer Financial Protection Bureau was created by the

using inside information to profit unfairly from trading in a company's securities.

The Securities and Exchange Commission (SEC) has the authority to go after individuals who engage in illegal insider trading, which is the practice of:

inventory turnover ratio

The _____ measures how many times a firm's stock is sold and replaced each year.

Dodd-Frank Act

The _____ of 2010 expanded the Fed's regulatory authority over nondepository financial institutions, such as hedge funds and mortgage brokers that had previously operated with little regulatory oversight or accountability.

income statement

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

corporate bylaws

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

Owner's Equity

The claims a firm's owners have against their company's assets

Risk

The degree of uncertainty regarding the outcome of a decision

Spread

The difference between the prices at which securities dealers buy and sell a security

Net Income

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

Articles of Incorporation

The document filed with a state government to establish the existence of a new corporation

capital structure

The extent to which a firm relies on various forms of debt and equity to satisfy its financing needs is called that firm's _____.

Statement of Cash Flows

The financial statement that identifies a firm's 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

coupon rate

The government of Brunasia issues bonds with a guarantee to make periodic interest payments on the par value. The government offers a 6.5% interest on its bonds. In this case, the percentage of interest offered by the government of Brunasia is called the _____.

Capital Structure

The mix of equity and debt financing a firm uses to meet its permanent financing needs

300-850

The most commonly used credit scoring system is the Fair, Isaac and Company (FICO) scale. The FICO scale runs from

Risk-Return Trade=Off

The observation that financial opportunities that offer high rates of return are generally riskier than opportunities that offer lower rates of return

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

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

Financial Leverage

The use of debt in a firm's capital structure

financial accounting

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 _____.

equity financing

When a company issues and sells new stock or uses retained earnings to meet its financial needs, it is using _____.

debt financing

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

Limited Liability

When owners are not personally liable for claims against their firm. Owners with limited liability may lose their investment in the company, but their other personal assets are protected

C corporation

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

People who have trouble being subordinates because of their personalities

Which of the following categories of people is most likely to step into entrepreneurship?

Its unlimited liability

Which of the following features of a sole proprietorship proves that it is a risky endeavor?

Venture capital

Which of the following funding options provides advice and guidance to start-up businesses along with the funds?

The individual's payment history

Which of the following is a factor that affects an individual's Fair, Isaac and Company (FICO) score

Shareholders have limited liability in the firm.

Which of the following is an advantage of a C corporation?

The ability to set their own hours

Which of the following is an appealing benefit that entrepreneurs enjoy?

It has an obligation to respect the needs of all stakeholders.

Which of the following statements is true of a socially responsible firm?

They tend to view nonsuccess as a chance to learn.

Which of the following statements is true of entrepreneurs who possess tolerance of failure?

Leverage ratios

_____ are ratios that measure the extent to which a firm relies on debt financing in its capital structure.

Profitability ratios

_____ are ratios that measure the rate of return a firm is earning on various measures of investment.

Expenses

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

Market cap

_____ is found by multiplying the price per share times the number of shares of common stock outstanding.

Crowdfunding

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

Net income

_____ is the profit or loss a firm earns in the time period covered by the financial statement that reports the revenues and expenses.

Asset management ratios

_____ measure how effectively an organization uses its resources to generate net income.

Liquidity ratios

_____ measure the ability of an organization to convert assets into the cash it needs to pay off liabilities that come due in the following year.

Management accountants

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

Corporation

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

Limited Liability Company (LLC)

a form of business ownership that offers both limited liability to its owners and flexible tax treatment

General Partnership

a partnership in which all partners can take an active role in managing the business and have unlimited liability for any claims against the firm

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

Retention of control

advantage associated with a sole proprietorship

Institutional investors:

amass huge pools of financial capital from various sources.

Unlike mutual funds, ETFs are bought and sold just like shares of corporate stock

difference between Exchange Traded Funds (ETFs) and mutual funds

stockholder

n owner of a C corporation is called a _____.