Business Exam 2
If a firm's assets equal $18,000 and its liabilities equal $7,500, then the owners' equity is _____
$10,500
In the context of preferred stock, which of the following is true of payment of dividends?
A corporation cannot pay any dividend to its common stockholders unless it pays the full dividend on its preferred stock.
Which of the following nations is most likely to have the lowest percentage of entrepreneurs?
A nation that places complex regulations on businesses
Which of the following statements is true of a revolving credit agreement?
A revolving credit agreement is a guaranteed line of credit.
Which of the following is a difference between a statement of retained earnings and a stockholders' equity statement?
A statement of retained earnings only shows how net income and dividends affect retained earnings, whereas a stockholders' equity statement also shows changes in stockholders' equity that arise from the issuance of additional shares of stock.
Tyron needs financing for his new business venture. He feels that the best way to obtain the funds would be to tap his personal financial resources. In the context of this scenario, the most appropriate source of personal finance for Tyron would be:
Bob, Tyron's rich uncle with whom he has a close relationship.
Which of the following statements is a similarity between general partnerships and sole proprietorships?
Both allow owners to avoid double taxation.
Which of the following is a similarity between corporate stocks and corporate bonds?
Both are marketable.
Which of the following is a similarity between buying an established business and buying a franchise?
Both find getting financing less challenging.
Which of the following is a similarity between angel investors and venture capital firms?
Both put in money in exchange for a share of ownership
Which of the following statements is true in the context of cash budgets
Cash budgets show projected cash inflows and outflows for each month.
Which of the following is an advantage of sole proprietorships?
Ease of formation
Sheila wants to start her own business that would specialize in fashion accessories. However, she decides to continue with her current job at Potters Fashion Inc. as a fashion consultant for another three years to get to know the industry better. Which of the following entrepreneurial strategies is Sheila executing?
Gaining experience
A major provision of the _____ banned commercial banks from dealing in securities markets, selling insurance, or otherwise competing with nondepository institutions such as insurance companies and investment banks.
Glass-Steagall Act of 1933
Which of the following is true of the Securities Act of 1933?
It required firms issuing new stock in a public offering to file a registration statement with the Securities and Exchange Commission.
In the context of various strategies to become a successful small business owner, which of the following statements is true of an effective business plan?
It takes about six months to write
Which of the following is a drawback of franchising?
Restrictions on sale
Which of the following is a disadvantage of general partnerships?
Unlimited liability
Sansburn & Sons, an institutional investor, issues a fixed number of shares and invests the money received from selling these shares in a portfolio of assets. The scenario is an example of
a closed-end fund
The price-to-earnings ratio is calculated by:
a. dividing the stock's price per share by its earnings per share.
Institutional investors do not
accept deposits
In a private placement, the issuing firm negotiates the terms of the offer directly with a small number of _____.
accredited investors
The net present value (NPV) of an investment proposal is found by
adding the present values of all of its estimated future cash flows and subtracting the initial cost of the investment from the sum.
Financial accounting
addresses the needs of stockholders, creditors, and government regulators.
Unlike corporations, limited liability companies (LLCs)
are subject to less paperwork
A commitment to meeting social responsibilities
can contribute to a more profitable company
Firms that use factors
do not receive the full amount their customers owe.
When a firm provides its employees with a good work environment,
employee turnover is likely to be lower
Entrepreneurs with an internal locus of control tend to:
feel that their success or failure is largely the result of their own actions.
Small businesses have contributed to the U.S. economy by:
fueling innovation.
A key advantage of a C corporation is:
its ability to raise large amounts of financial capital
Richard wants to buy additional stock in Rancor Mobil, but the price of the stock has fluctuated in recent days. He wants to make sure he does not pay too much. His analysis suggests that $80 per share is the highest price he should pay. Richard is likely to place a _____ with his broker.
limit order
Irina, Ron, and Benz want to start the business of designing the interiors of offices. All of them want to actively manage the company and do not want to be personally responsible for the debts and obligations of the company. Moreover, they do not want to hold regular board meetings. The three are most likely to form a _____.
limited liability company
Silva and Ron start a taxi service together. Ron only invests money in the venture and does not actively participate in managing the business. Silva, on the other hand, manages the venture entirely. According to the agreement between Silva and Ron, Silva is personally responsible for the debts and losses while Ron takes responsibility of the debts only up to a certain amount. The agreement also mentions that Ron cannot participate in the management of the business. In this scenario, Ron and Silva have formed a _____.
limited partnership
The _____ of a firm organizes the operating and financial budgets into a unified whole, representing the firm's overall plan of action for a specified time period.
master budget
Historically, the most widely accepted goal of financial management has been to
maximize the value of a firm to its owners
Understanding of the timing of cash flows within the planning period is important because:
most firms experience uneven inflows and outflows of cash over the course of a year.
Two companies offer Gayle a job. The first is a successful, venture capital-backed, competently led start-up that has been operating for over a year. The second is a well-established corporation that has been running operations for 50 years. Gayle, after considering factors such as his family, decides to join the well-established corporation. This is most likely because:
start-ups find it difficult to provide health insurance coverage to their employees
represents what customers who buy on credit owe the firm.
Accounts receivable
In the context of an independent auditor's report, which of the following is a difference between an unqualified opinion and a qualified opinion?
An unqualified opinion is given if the independent auditor does not find any problems with the way a firm's financial statements were prepared and presented, whereas a qualified opinion is given if the independent auditor identifies minor concerns but believes that on balance the firm's statements are a fair representation of the company's financial position.
In the context of how small businesses have contributed to the U.S. economy, in which of the following ways do small firms allow new thinking to take hold?
By displaying a refreshing lack of bureaucracy
Eugene Playem, a small firm that develops games, wants to raise capital to develop a new expensive video game. The firm's finance team plans to find several video game enthusiasts online, who can afford to invest money for the video game's development. In this scenario, which of the following funding options has Eugene Playem planned?
Crowdfunding
Which of the following is an advantage of starting one's own business?
Independence
are stocks of finished goods, work-in-process, parts, and materials that firms hold as a part of doing business.
Inventories
Identify a true statement about equity financing.
It does not yield the same tax benefits as debt financing
Which of the following statements is true of return on equity (ROE)?
It indicates earnings per dollar invested by the owners of a company.
Which of the following statements is true of managerial accounting?
It involves presenting customized information on request
Which of the following statements best describes an S corporation?
It is a form of corporation that avoids double taxation by having its income taxed as if it were a partnership.
Which of the following statements best describes a C corporation?
It is a legal business entity that offers limited liability to all of its owners, who are called stockholders.
Which of the following statements is true of the Financial Accounting Standards Board (FASB)?
It is a private organization responsible for developing accounting rules
Which of the following statements is true of a capital gain?
It is a type of return on investment for common stockholders.
Which of the following statements is true of the debt-to-assets ratio?
It is a way of measuring the degree of financial leverage.
Which of the following statements is true of equity financing?
It is more flexible than debt financing.
In the context of the approaches to budget preparation, which of the following statements is true of participatory budgeting?
It is more resource intensive than the top-down approach.
Which of the following statements is true of commercial paper?
It is normally unsecured.
Identify a true statement about commercial paper.
It is only offered by firms with excellent credit ratings
In the context of funding options for small businesses, which of the following statements is true of the U.S. Small Business Administration (SBA)?
It lends microloans through community nonprofit organizations
Which of the following statements is true of earnings per share (EPS)?
It measures the net income per share of common stock outstanding.
Dyno Corp. is a publicly traded firm that has 800 shareholders and $25 million in assets. As per the Securities Exchange Act of 1934, which of the following actions should Dyno Corp. undertake?
It should file quarterly and annual financial reports with the Securities and Exchange Commission.
Which of the following scenarios illustrates entrepreneurship?
Jill who has a degree in landscaping has started her own landscaping service business and has hired several employees under her supervision.
Which of the following is an advantage for small businesses?
Lower overhead costs
Which of the following is a difference between managerial accounting and financial accounting?
Managerial accounting is intended to provide information to internal stakeholders, whereas financial accounting is primarily intended to provide information to external stakeholders.
Which of the following is a difference between market orders and limit orders?
Market orders instruct a broker to buy or sell a security at the current market price, whereas limit orders place restrictions on the prices at which orders are executed.
Which of the following statements is true of sole proprietorships?
Owner receives the entire share of the firms' profits
Which of the following statements is true about private placements?
Private placements are usually less expensive than public offerings.
Derek, after retiring as the CEO of Solitaire Graces Inc., decides to donate his time and expertise to assist newly established small businesses. He learns about an organization called the Service Corps of Retired Executives (SCORE), which is supported by the Small Business Administration (SBA), and joins as a volunteer. As a SCORE volunteer, in which of the following activities is Derek expected to be involved?
Providing free business counseling and mentoring for small business owners
In the context of corporate restructuring, which of the following is a common objective of a vertical merger?
Providing tighter integration of production and increased control over the supply of crucial inputs
In the context of corporate restructuring, which of the following is a common objective of a conglomerate merger?
Reducing risk by making a firm less vulnerable to adverse conditions in any single market
Onkel Inc., a large corporation, goes out of business and announces its closure. The company liquidates its assets, and the stockholders of the company become entitled to share in the proceeds in proportion to their ownership. Which of the following common stockholders' rights is reflected in this scenario?
Right to a residual claim on assets
In the context of various strategies that can help you become a successful entrepreneur, which of the following is a difference between Small Business Development Centers (SBDCs) and the Service Corps of Retired Executives (SCORE)?
SBDCs provide a range of free services for small businesses, whereas SCORE provides free counseling for small businesses
Which of the following is a difference between securities brokers and securities dealers?
Securities brokers execute trades on behalf of others, whereas securities dealers execute trades for their own accounts.
In the context of formation, which of the following is a similarity between limited liability companies (LLCs) and corporations?
Similar to the bylaws of a corporation, organizers of most LLCs draft an operating agreement.
Rosserdam Bank, a commercial bank in Louisiana, which was previously barred from dealing in securities market and selling insurance, began involving itself in such activities in the 90s. Which of the following acts allowed Rosserdam Bank the liberty to perform those activities?
The Gramm-Bliley-Leach Act
Bret likes to invest in smaller U.S. companies because of their active trading and high potential for growth and good long-term returns. Which of the following stock indices should Bret follow?
The Russell 2000
Which of the following is a disadvantage of sole proprietorship?
The company legally ceases to exist if the owner withdraws.
In the context of financial statements, which of the following statements is true of long-term liabilities?
They are debts that don't come due until more than a year after the date on the balance sheet.
Which of the following statements is true of management accountants?
They assist their superiors in preparing financial statements.
In the context of small business opportunities, which of the following statements is true of market niches?
They offer more than enough potential for small, specialized companies.
Which of the following statements is true of savings and loan associations (S&Ls)?
They traditionally accepted only savings account deposits and used them to make mortgage loans.
Greg started a business of tire shops and one by one opened several shops in various parts of his hometown. However, he had to shut down all the shops because they failed to make profits. At 65 years of age, he raised capital and started Gregton Inc., which is now a well-known two-wheeler manufacturing firm in his country. Which of the following entrepreneurial traits most likely contributed to Greg's success?
Tolerance of failure
is sometimes called spontaneous financing because it is granted when a company places its orders without requiring any additional paperwork or special arrangements.
Trade credit
In the context of C corporations, which of the following is a difference between preferred stockholders and common stockholders?
Unlike preferred stockholders, common stockholders normally have the right to vote in stockholder meetings.
Audrey launched a start-up called Baintley Inc. Steven, her wealthy friend, believes that her company has high growth potential. He invests in Baintley Inc. in exchange for a share of ownership. In this scenario, Steven is a(n) _____.
angel investor
The _____ is computed by dividing accounts receivable by average daily credit sales.
average collection period
Frank is a loan officer who approves loans for small businesses. One factor he looks at carefully when making loan decisions is the amount of outstanding debt a firm already has—an information that he can find in the firm's
balance sheet
Keegee Corp. associates itself with an investment bank to issue some new stock. The bank has agreed to help the company develop a pricing strategy and to help find buyers for the stock. However, the bank has not guaranteed that all of the shares will be sold at the desired price. Keegee's investment bank is using the _____ approach to raise funds.
best efforts
Members of the general public cannot directly trade stocks and other securities on the exchanges or the over-the-counter market. Therefore, most individuals seek the help of a(n) _____.
broker
The top managers of Promedium Inc. are creating a master budget for the company. They require a statement of the budget goals from each of its departments to be able to make an appropriate master budget. Karren, the manager of the sales department, overstates her needs in the budget and presents the statement to the top managers. The outcome of Karren's actions is known as _____.
budgetary slack
In the context of budget preparation, the document created in the final stage of an operating budget is referred to as a _____.
budgeted income statement
Comfy Trend Inc., a clothing in the United States, licenses a garment manufacturing firm in Tokyo to operate under its name and trademark. The firm also buys the rights to use Comfy Trend Inc.'s production and business methods. This scenario is an example of a _____.
business format franchise
In the context of comparative financial statements, comparative balance sheets
can be used to check if the owners' equity had increased.
In the context of corporations, the _____ and other corporate officers manage the company on a daily basis.
chief executive officer
Hakeem owns shares worth $4,000 dollars in a textile firm. Having a stake in the company, he has the right to vote, the right to receive return on investment in the form of capital gain, and the right to residual claim on assets. Hakeem is a(n)
common stockholder
In the context of the U.S. economy, small businesses
comprise more than 99% of inner-city business establishments
Lindsay is planning to start a new seafood restaurant. She has considered the opinions of many consultants, friends, and family members about her business idea. Despite overwhelming negativity, Lindsay has faith in her abilities as she possesses five years of experience in this field. In this scenario, Lindsay displays the entrepreneurial characteristic of _____.
confidence
Gerrilyn works for a business firm that manufactures breakfast cereal. The firm is owned by many individuals who are not personally responsible for any debts or losses incurred by it. Legally, the firm is considered a separate artificial person. In this scenario, Gerrilyn is working for a _____.
corporation
Earnings per share (EPS) is computed by
dividing the net income available to common stockholders by the number of shares of common stock outstanding.
The accountants at Gamone Phones, a cell phone manufacturing company, discover that the firm has performed poorly over the last two quarters, leading to negative financial implications. Instead of stating the actual figures, the managers decide to wrongly present the firm's debts and overstate its earnings. The aspect of financial accounting that should be emphasized to avoid such incidents of accounting fraud is
ethics in accounting
In the context of financial statements, the specific accounts listed in the stockholders' equity section of a balance sheet depend on the:
form of business ownership.
In the context of the various forms of operating a business, instant brand-name recognition is a benefit ensured by a
franchise
Max and Lucio start a retail store. They take turns to manage the store, and they share the profits equally. Max and Lucio understand that they are personally liable for any debts or losses that the store may incur in the future. This type of business venture exemplifies a _____.
general partnership
A(n) _____ is one that relies heavily on debt.
highly leveraged firm
Nusreen, a financial manager in a company, compares the operating budgets from the past three years to identify trends in the cost of materials purchased and to learn whether the company's net expenses have increased or decreased over the time span. Nusreen is using _____ to compare the financial statements.
horizontal analysis
Daynon Inc. buys Leeston Corp., a firm that makes shipbuilding components, despite the opposition from Leeston's board of directors and its top management. This acquisition exemplifies a _____.
hostile takeover
Lecona, a start-up company, failed to acquire any major funding from potential investors. Therefore, the owners of the company set up their office in an unoccupied apartment owned by one of them. In this scenario, the company most likely incurred a(n) _____.
implicit cost
Colleen lost an important business project. According to her, she would not have lost the project if she had been organized in her work approach. This scenario indicates that Colleen most likely has a(n) _____.
internal locus of control
In the context of franchising, a Franchise Disclosure Document (FDD)
must be provided to the franchisee at least 14 calendar days before the franchise agreement is signed.
Adrian recently lost his job and has been unsuccessful in finding a new one. To sustain himself and his family, he decides to open a small café. He believes that the café is his only economic option. Adrian is now trying to acquire funds from family and friends to open his café. In this scenario, Adrian is a(n) _____.
necessity entrepreneur
Companies that are not publicly traded
obtain external audits at their own discretion
In the context of managerial accounting, _____ are usually easy to measure because they involve actual expenditures of money or other resources.
out-of-pocket costs
Power Toolz Inc. is a small, publicly traded corporation with only 370 stockholders and total assets of $8.9 million. It does not have its shares listed on an organized exchange. Investors who want to buy stock in this company would probably purchase the stock in the _____.
over-the-counter market
Mr. Rob O'Leary owns 17.6 percent of the existing shares of stock in Dyna Corp. The corporation is presently issuing new stock. Before the stock is offered to other investors, Mr. O'Leary buys 17.6 percent of the new shares to maintain his share of ownership in the company. By doing so, Mr. O'Leary is exercising his _____.
preemptive right
A positive net present value (NPV) means that the
present value of the expected cash flows from a project is greater than the cost of the project.
Return-on-equity (ROE) and earnings per share (EPS) are both classified as _____.
profitability ratios
Mark, an accountant, is given the task to lead an external auditing project for a multinational company. In his spare time, Mark also acts as a consultant for Mayfair Hut Inc., a local company. In this scenario, Mark is a:
public accountant
Lance signs a contract with Gerove Corp. to perform an external audit for the company. In his audit, he finds certain minor issues in the firm's financial statements but is of the view that the statements are, nevertheless, an accurate representation of the firm's financial status. In this scenario, Lance is most likely to issue a(n) _____ opinion.
qualified
The _____ suggests that sources and uses of funds that offer the potential for high rates of return tend to be riskier than sources and uses of funds that offer lower returns
risk-return tradeoff
Thiago has spent a long time working in various commercial establishments owned by some of his close relatives. He now wishes to establish his own business, a sporting goods retail store. Thiago plans to manage the store single-handedly. In the context of the various business ownership options, Thiago's store will be an example of a:
sole proprietorship
As a shareholder of Syder Corporation, Carl wants to know whether the company had earned a profit over the last financial year. He begins by looking into the net income of the company to know if it has sufficient amount of money to pay off the workers and suppliers and also the amount of money remaining with the owners. In this scenario, Carl is looking at Syder Corporation's _____.
statement of cash flows
In the context of the sources of funds for a business, a _____ calls for a regular schedule of fixed payments sufficient to ensure that the principal and interest are repaid by the end of the tenure for which the money has been borrowed.
term loan
Mr. Whyte analyzes the stock market for companies to invest in. He realizes that DDrive, an online car rental service operating in his city, has stocks that are currently underrated in the market. He decides to invest in this company as he believes that its market price will increase over time, yielding him a good amount of capital gain. By investing in this company, Mr. Whyte uses the _____ strategy.
value investing