Bus 100 Exam 2 Review
_____ is a type of divestiture in which a firm converts a particular unit or division into a separate company and issues stock in the newly created corporation to outside investors.
A carve-out
Which of the following is an example of an institutional investor?
A mutual fund
_____ is a management tool that explicitly shows how a firm will acquire and use the resources needed to achieve its goals over a specific time period.
Budgeting
When people use the term "corporation" without specifying which type, they are generally referring to a(n) _____.
C corporation
Which of the following is a key item that is most likely covered in a franchise agreement?
Conflict resolution
C Corporation Disadvantages
Double taxation,Expensive to start,Regulations and formalities,No deduction of corporate losses
_____ indicate the cash a firm spends, or other assets it uses up, to carry out the business activities necessary to generate its revenue.
Expenses
S-Corporation Disadvantages
Formation and ongoing expenses,Tax qualification obligations, Calendar year, Stock ownership restrictions,Closer IRS scrutiny,Less flexibility in allocating income and loss,Taxable fringe benefits
_____ perform a variety of accounting functions for local, state, or federal agencies, such as the Internal Revenue Service (IRS) and the Federal Deposit Insurance Corporation (FDIC).
Government accountants
domestic corporation
In a given state, a corporation that does business in, and is organized under the law of, that state.
Which of the following statements best describes a money market mutual fund?
It pools funds from many investors and uses these funds to purchase very safe, highly liquid securities.
Franchise advantages
Less Risk, Training and Support, Brand Recognition, Access to Funding
C Corporation Advantages
Limited liability,Perpetual existence,Enhanced credibility,Unlimited growth potential, No shareholders limit,Certain tax advantages
_____ provide analysis and prepare reports and financial statements for their organization.
Management accountants
Government Accountant
Perform accounting functions for local, state, or federal government agencies
S Corporation advantages
Protected assets,Pass-through taxation,Tax-favorable characterization of income,Straightforward transfer of ownership,Cash method of accounting,Heightened credibility,
Public Accountant
Provide services such as tax preparation, external auditing, and management consulting to clients on a fee basis
_____ measures the income earned per dollar invested by the stockholders of a firm.
Return-on-equity
budgetary slack
The amount by which a manager intentionally underestimates budgeted revenues or overestimates budgeted expenses in order to make it easier to achieve budgetary goals.
Which of the following is a leverage ratio?
The debt ratio
Which of the following is a disadvantage of franchising for a franchisee?
The negative halo effect
In the context of accounting, which of the following best defines cost?
The value of what is given up in exchange for something else
Management Accountant
Work within a company and provide analysis, prepare reports and financial statements, and assist managers
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
money market mutual fund
a mutual fund that pools funds from many investors and uses these funds to purchase very safe, highly liquid securities
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
Covenant
a restriction lenders impose on borrowers as a condition of providing long-term debt financing
Distributorship
a type of franchising agreement in which the franchisor makes a product and licenses the franchisee to sell it
partnership agreement
a written agreement among all owners detailing the rules and procedures that guide ownership and operations
Partnership Advantages
ability to pool financial resources, share responsibility and capitalize on complementary skills, ease of formation, possible tax advantages
In the context of balance sheets, assets such as machinery, building, and equipment have a limited useful life, so accountants subtract _____ from the original value of these assets, to reflect the fact that these assets are being used up over time.
accumulated depreciation
Current Liabilities
amounts due to be paid to creditors within twelve months
budget
an estimate of income and expenditure for a set period of time.
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 three kinds of basic financial statements that are prepared in financial accounting are:
balance sheet, income statement, and statement of cash flows.
3 basic financial statements
balance sheet, income statement, statement of cash flows
A _____ can help a firm evaluate how much internal financing (funds generated by earnings) will be available for a planning period.
budgeted income statement
current assets
cash and other assets that are expected to be converted to cash within a year
Liabilities
claims that outsiders have against a firm's assets; current liabilities and long-term liabilities
financial ratio analysis
computing ratios that compare values of key accounts listed on a firm's financial statements; purpose is toe value a firms current strengths and weaknesses
The basic rules governing how a corporation is organized and how it conducts its business are known as _____.
corporate bylaws
A _____ is a form of business ownership in which the business is considered a legal entity that is separate and distinct from its owners.
corporation
Franchise Disadvantages
costs, lack of control, negative halo effect, growth challenges, restriction on sales, poor execution
A _____ is a requirement a lender imposes on the borrower as a condition of the loan.
covenant
A firm's _____ include cash and other assets expected to be converted into cash in the following year.
current assets
In the context of liquidity ratios, a firm's _____ are the debts that must be repaid in the following year.
current liabilities
Balance sheets usually organize liabilities into two broad categories, which are:
current liabilities and long-term liabilities.
When a company takes out a bank loan, or issues and sells corporate bonds, it is relying on _____.
debt financing
A _____ is a type of franchising arrangement in which the franchisor makes a product and licenses the franchisee to sell it.
distributorship
average collection period
dividing amounts receivable by average daily credit sales; to determine how quickly consumers pay back their credit
Return on Equity
dividing net income(profit) by owners equity; measures the income earned per dollar invested by stockholders
When a business that is incorporated in one state does business in other states, it is called a(n) _____ in the state where it is incorporated.
domestic corporation
Financial managers use _____ to assess the financial strengths and weaknesses of their firm.
financial ratio analysis
liquidity ratio
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
target firm
firm being purchased in the acquisition
corporate bonds
formal IOUs; have due dates of then or more years after issuing, they are sellable; certification of debt
Financial capital refers to the:
funds a firm uses to acquire its assets and finance its operations.
debt financing
funds provided by lenders (creditors)
equity financing
funds provided by the owners of a company
The _____ summarizes the financial results of a firm's operations over a given period of time.
income statement
A _____ is a partnership arrangement that includes at least one general partner and at least one limited partner.
limited partnership
leverage ratios
ratios that measure the extent to which a firm relies on debt financing in its capital structure;debt-to asset ratio;
assets
resources owned by a business; intangible assets- brand recognition, copyrights, trademarks, etc
expesnse
resources that are used up as a result of business operations
Carve-out divestiture
setting up a separate business from an operation (sell stock to outside investors)
The _____ of a company is a simple statement that shows how the accumulated revenues that have been reinvested in the company have changed from one accounting period to the next.
statement of retained earnings
Statement of Retained Earnings
statement that shows how retained earnings have changed from one accounting period to the next
corporate bylaws
the basic rules governing how a corporation is organized and how it conducts its business
risk
the degree of uncertainty regarding the outcome of a decision
net income
the difference between the revenue a firm earns and the expenses it incurs in a given time period
statement of cash flows
the financial statement that identifies a firms 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
Accumulated Depreciation
the total amount of depreciation expense that has been recorded since the purchase of a plant asset
cost
the value of what is given up in exchange for something
top-down budgeting
top management prepares the budget with little or no input from middle and supervisory managers
Partnership Disadvantages
unlimited liability, potential disagreement, lack of continuity, difficulty in withdrawing from partnership