ICS CHAPTER 10

Using the ________ method of projecting cash flow, adjustments are made to net income based on the fact that cash may not actually be received or disbursed. A. indirect B. break-even C. direct D. pro forma

A. Indirect

Capital budgets project expenditures on: A. new equipment. B. future production costs. C. advertising. D. costs of goods sold.

A. New Equipment

Which of the following software programs is most widely used by entrepreneurs? A. Quickbooks B. Vision Point C. Peachtree D. all of the above

A. Quickbooks

The formula for break-even analysis is: A. total fixed costs divided by selling price minus variable cost per unit. B. total variable costs divided by marginal contribution. C. total sales divided by selling price plus variable cost per unit. D. total fixed costs divided by selling price plus marginal contribution.

A. Total fixed costs divided by selling price minus variable cost per unit

Current liabilities are: A. those liabilities due for payment within a year. B. everything owed to creditors. C. everything of value owned by the company. D. those liabilities that represent the excess over all assets

A. those liabilities due for payment within a year

If the total fixed costs are $850,000, the sale price is $110 and the variable cost per unit is $25, what is the break-even volume? A. 17,000 B. 10,000 C. 7,000 D. 1,000

B. 10,000

The basic balance sheet relationship is: A. assets plus owner's equity equal liabilities. B. assets equal liabilities plus owner's equity. C. assets plus liabilities equal owner's equity. D. assets equal owner's equity minus liabilities.

B. Assets equal liabilities plus owner's equity

Negative cash flow: A. results when cash receipts exceed cash payments. B. can cause a firm to fail. C. is included in the pro forma income statement. D. is common for a business during its phase of expansion.

B. Can cause a firm to fail

Equipment would be included on the balance sheet in which section? A. Current assets B. Fixed assets C. Retained earnings D. Owner's equity

B. Fixed assets

A _____________ summarizes all the projected sources and applications of funds available to the venture and how these funds will be disbursed. A. Pro forma income statement B. Pro forma sources and applications of funds statement C. Break-even analysis D. Cash flow statement

B. Pro forma sources and applications of funds statement

The _____ budget is used to project cash flows for the cost of goods produced. A. operating B. production C. capital D. depreciation

B. Production

As the business grows: A. selling expenses should go down. B. salaries and wages will go up as output increases. C. the pro forma income statement becomes unimportant. D. advertising expenses should go down.

B. Salaries and wages will go up as output increases

As long as the selling price is greater than the _______________ cost per unit, some contribution can be made to cover the ________________. A. fixed, variable costs B. variable, fixed costs C. total, expenses D. fixed, negative cash flow

B. Variable, fixed costs

Zappos, under a cash flow crunch, was bought out by _______. A. Google B. Microsoft C. Amazon D. Netflix

C. Amazon

Notes payable is considered a ________ on the balance sheet. A. cash outflow B. current asset C. current liability D. long-term liability

C. Current liability

The pro forma cash flow, like the _________, is based on best estimates. A. business cash flow at a certain point of time B. expense statement C. income statement D. actual cash flow statement

C. Income Statement

Profit from the business would be included on the balance sheet in which section? A. Assets B. Liabilities C. Owners equity D. Assets or liabilities

C. Owners equity

Which of the following would be an application of funds? A. Decrease in assets. B. Increase in turnover. C. Paying dividends. D. Increase in liabilities.

C. Paying dividends

Fixed operating expenses include all of the following except: A. Rent B. Utilities C. Raw Materials D. Depreciation

C. Raw Materials

______ is(are) the major source(s) of revenue. A. Borrowing from banks B. Outside investors' contributions C. Sales D. Dividends

C. Sales

Fixed assets are those that: A. are intangible. B. include cash. C. will be used over a long period of time. D. are similar to loans and advances.

C. Will be used over a long period of time

______ is the volume of sales needed to cover total variable and fixed costs. A. Cash flow B. Depreciation C. Revenue D. Break-even

D. Break-even

In projecting operating expenses for the second and third year, costs like ______ are likely to remain stable unless new equipment or additional space is purchased. A. cost of goods sold B. gross profit C. advertising D. insurance

D. Insurance

________ is the amount owners have invested and/or retained from the venture operations. A. Cash flow B. Retained earnings C. Profit D. Owner's equity

D. Owner's equity

Which of the following would be a source of funds? A. An equipment purchase B. Retiring a long term liability C. Inventory D. Personal funds of founders

D. Personal funds of founders

Pro forma cash flow is: A. cash flow based on the actual. B. calculated from subtracting assets from liabilities. C. cash flow calculated on past receipts and expenses. D. projected cash inflow and outflow

D. Projected cash inflow and outflow

The cost of goods sold expense can be determined either by directly computing the variable cost of producing a unit times the number of units sold or by using an industry standard percentage of sales.

False Total Variable Cost= (VC/unit)*Quantity

Depreciation is considered a cash outlay, not an expense.

False "Also, depreciation on capital assets is an expense, which reduces profits, not a cash outlay."

Profit from the business will be included on the balance sheet in the assets section.

False "Any profit from the business will also be included in net worth as retained earnings."

As long as the selling price is less than the variable cost per unit, some contribution will be made to cover fixed costs.

False "As long as the selling price is GREATER than the variable cost per unit, some contribution will be made to cover fixed costs."

Break-even analysis is a technique to determine the total liabilities of the firm.

False "Break-even analysis is a useful technique for determining how many units must be sold or how much sales volume must be achieved to break even."

Cash flow is the same thing as profit.

False "Cash flow is NOT the same as profit. Profit is the result of subtracting expenses from sales whereas cash flow results from the difference between actual cash receipts and cash payments."

The first step in preparing a pro forma income statement is to separate fixed and variable costs.

False "In preparation of the pro forma income statement sales by month must be calculated first" Pro Forma Income Statement: projected net profit calculated from projected revenue minus projected costs and expenses

Costs of goods sold should be calculated using actual cost figures; using industry standard figures is too inaccurate.

False "It is most important for the entrepreneur to remember that the pro forma cash flow, like the income statement is based on best estimates"

The purpose of the pro forma sources and applications of funds statement is to show the relationship between revenue and expenses.

False "Its purpose is to show how net income and financing were used to increase assets or to pay off debt."

Assets represent the net worth of the firm.

False "Owner Equity represents the net worth of the business."

Selling expense is an expense that can be expected to remain stable over time.

False "The entrepreneur should also consider increasing selling expenses as sales increase " - visual seen in table 10.4

A reasonable profit that is earned with conservative estimates is not considered to be an initial success for a new venture

False "Using profit as a measure of success for a new venture may be deceiving if there is a significant negative cash flow"

When projecting cash flows for the pro forma cash flow statement, it is important to be conservative in the estimates.

False "When calculating the projected operating expenses, it is most important to be conservative for initial planning purpose." "It is most important for an entrepreneur to remember that the pro forma cash flow like the income statement is based off estimates."

Inventory is considered a source of funds because of the revenue it brings in.

False Inventory is considered an application of funds

Rent and insurance are examples of variable costs.

False Rent and insurance are examples of fixed costs.

One of the simplest and probably the most widely used small business accounting software package is Intuit's Quickbooks.

True

Using a spreadsheet software package is helpful when developing budgets as it helps to gauge the impact of different financial scenarios.

True

Capital budgets project expenditures on new equipment, vehicles, computers, or new facilities

True "Capital budgets are intended to provide a basis for evaluating expenditures that will impact the business for more than one year."

When developing operating and capital budgets, the entrepreneur can seek advice from experts, but should retain the final say so.

True "For example a sales budget may be prepared by a sales manager, a manufacturing budget by the production manager, and so on. Final determination of these budgets will ultimately rest with the owners or entrepreneurs"

Pro forma sources and applications of funds summarize all the projected sources of funds available to the venture and how these funds will be disbursed.

True *exact definition of Pro forma sources and applications of funds*

For the Internet start-up, capital budgeting and operating expenses will tend to be consumed by equipment purchasing or leasing, inventory, and advertising expenses.

True *exact same words in the book*

In projecting cash flows the most difficult problem is in determining the exact amount of monthly receipts and disbursements.

True *exact words in book*

Owner equity is the excess of all assets over all liabilities.

True *exact words in book*

The indirect method of projecting cash flow is the most popular.

True *exact words in book*