B&E 201 Final

What are products that customers return to the company for a refund called?

Sales returns

What is a stock certificate?

A paper certificate representing a share of ownership in a company

In what denominations are Treasury bonds sold?

$1000 and $5000

Treasury notes mature within __ years of the date of the issue.

10

Under trade credit, how long does a seller tend to give a buyer to pay an invoice?

30-90 days

Approximately how many US small businesses receive loans from commercial banks?

50%

What is the definition of a transaction?

A business deal that involves the buying, selling, or exchanging of something

Budget

A detailed financial [plan showing estimated revenues and expenses for a particular future period, usually one year

What is a mutual fund?

A fund which an investment company pools money from many people to buy an array of diversified securities

When corporations attempt to raise money by seeing stock, it is called ______ financing.

Equity

Finance and insurance companies are what type of institution?

A nonbank institution

Financial controls

A periodic comparison of actual revenues and expenses with those predicted in its budget

What is a dividend?

A portion of a company's profits that is distributed to stockholders

Forecasting

A prediction about how money will come into and go out of a firm in the future

What is a ledger

A specialized record book or computer program that contains summaries of all journal entries

What is a journal?

A record book or part of a computer program containing the daily record of a firm's transactions

What is a money market instrument?

A short-term debt security issued by governments, large corporations, or financial institutions that matures within one year

What is a Treasury Bill?

A short-term debt security sold directly by the US government.

Who fo the following might be the most interested in a company's liquidity ratios?

A supplier who bills monthly for manufacturing materials

What is a load fund?

A type of mutual fund in which you pay a commission every time you purchase shares.

The process of converting information about individual transactions into financial statements for analysis is called the __________ process

Accounting

When customers have purchased a company's products or services on credit, what element on a balance sheet indicates the total amount of money that all of the customers owe?

Accounts receivable

Which kind of financial ratio indicates how well a company brings in money?

Activity ratios

What is the definition of a credit?

An entry recording a sum received

In the context of securities trading, what is a market order?

An order to purchase or sell a security at the best price available now

Money is defined as:

Any medium of value that is generally accepted as payment for goods and services

Jerry repairs computers in the basement of his home. His small business has accumulated $8000 in a savings account, and clients also woe him $1500 for services that he has completed. He often invests some of his profits in government bonds and money market certificates. Jerry has paid his business insurance in advance. How would these things be characterized on a balance sheet?

As current assets

Stanley's farming operation owns 40 acres of productive land, barns, and other buildings, two tractors, haying equipment, a dump truck, and some office furniture. How would these things be characterized on the balance sheet?

As fixed assets

Analysis

Assess the firm's financial condition

Which activity is most central to the role of a financial manager?

Assessing the risk-return trade-off

Jordan's retail outlet owns the company's furniture, office supplies, inventory, and the land and building where the business is located. In what section of a balance sheet would those items be listed?

Assets

What is the difference between assets and liabilities?

Assets are what the company owns, while liabilities are debts the company owes

What financial statement displays a company's assets, liabilities, and owner's equity?

Balance sheet

What are the main components fo the banking system?

Banks and nonbanks

Compared to the past, money today is more likely to:

Be made of cheap material that represents something of value

Stocks sold by big, reputable companies are often called _________ stocks.

Blue-chip

Types of investments that are suitable for income investment strategies:

Blue-chip stocks Bonds Preferred stocks

If a company is unable to obtain a long-term loan, it may try to issue corporate _____, contracts between the issuer and the buyer in which the purchase price represents a loan by the buyer and issuing firm pays interest.

Bonds

Conditions that investors use to set a securities order:

Buy below or sell above a certain price Buy or sell at the best price available now Use the broker's professional judgement about when to buy or sell

How is a stock's book value determined?

By dividing total shareholder equity by the number of shares issued or sold

How does the Federal Reserve make money available to banks?

By providing loans to banks By printing currency

Portability means that money:

Can be easily moved around

Which is a financial account of business receipts and expenditures that shows the cash a company has on hand?

Cash flow statement

What is the difference between checking accounts and savings accounts?

Checking accounts allow check writing

What is diversifying?

Choosing securities in such a way that a loss in one investment will not have a devastating impact on the total portfolio

Organizing journal entries in categories within a ledger is part of which step fo the accounting process?

Classification

Assets that are pledged in order to secure a loan are known as __________.

Collateral

Locating and sorting records is part of which step of the accounting process?

Collection

What are the steps of the accounting process in order?

Collection Recording Classification Summarization Reporting Analysis

What are true statements about commercial bank lenders?

Commercial Enders are popular sources of funding for small businesses Bank of America and Chase are examples of commercial banks

A type of investment vehicle called _________ trading involves a contract to buy a set amount of raw materials at a certain price on a certain date.

Commodity

Company X's balance sheet shows that total liabilities are $450,000, and owners' equity is $59000. When divided, it produces a ratio of 76.27%. Company X has conservative lenders. At does this debt to owners' equity ratio mean?

Company X's ratio is above 70%, so it would be difficult to borrow money from conservative lenders

Ways in which ratio analysis is used to evaluate a company's performance:

Comparing the company's performance to that of a similar company Comparing the company's performance to its stated objectives

One a balance sheet, the value of a firm if its assets were sold and its debts paid is called owners' ______.

Equity

In order to calculate gross profit, you must know:

Cost of goods sold and net sales

What are expenses?

Costs incurred as a part of a company's operating activities

Depositor-owned, nonprofit financial cooperatives that offer a range of banking services to their members are known as ______ unions.

Credit

In a line of ______, a bank specifies how much it is willing to lend the borrower during a specified period.

Credit

Items on a balance sheet in order:

Current assets Fixed assets Intangible assets Current liabilities Long-term liabilities Owners' equity

What is the difference between current assets and fixed assets?

Current assets can be converted into cash within one year, while fixed assets are more permanent and are usually held for a long time

What is the difference between current liabilities and long-term liabilities?

Current liabilities are due within one year or less, while long-term liabilities are due in one year or more

The recording or entry of debt in an account is known as _____.

Debit

The act of issuing bonds, both secured and unsecured, is known as ____ financing.

Debt

The purpose of financial accounting it to record and review a company's financial information and then submit the findings to which of the following groups?

Decision makers outside an organization The federal government

A brokers that executes only buy an sell orders for clients without providing investment advice or tax planing is a ________ broker.

Discount

A _____________ order involves eating the stock broker use his or her professional experience and judgement to determine the best time to make a security purchase or sale

Discretionary

The ability to break large bills down into smaller ones is an example of how money has the characteristic of ____________.

Divisibility

The process of recording a transaction in two different accounts is known as ______-entry bookkeeping.

Double

In addition to researching fees, minimum account balances, and the speed at which firms execute trade, prospective investors should also consider ___________________________________ before selecting a brokerage.

Each firm's research data and tools

Which investment vehicle offers investors the most convenience and flexibility?

Exchange-traded funds

Select all of the investment vehicles that are collections of stocks that are traded on an exchange:

Exchange-traded funds Mutual funds

What are prepaid expenses?

Expense that are paid in advance, such as insurance

Bond holders don't have to be repaid for their investment, but may be able to vote to change ownership of the company.

False

In a company, the person who oversees the use of funds is called a _________ manager.

Financial

Which activities are part of the recording step of the accounting process?

Financial data are entered into a journal or record book Double-entry bookkeeping is used to check for errors

What are market securities?

Financial investments (e.g. stocks, bonds, and money market certificates) that can be readily converted into cash

When accountants analyze items in a balance sheet, what do they obtain that is helpful for managing a business?

Financial ratios indicating the company's performance

A new investor who wants help with research and tax planning would be best suited by hiring a ____________ broker.

Full-service

Cost of _____ sold is the cost of producing a firm's merchandise for sale during a certain period of time.

Goods

An amount paid for a business beyond the value of its other assets is based on characteristics such as the firm's reputation, loyal employees, and customer list is called ________.

Goodwill

An IOU issues by the US Treasury that matures in 25 years is Ana example of which type of security?

Government bond

The US Treasury sells which type of bonds?

Government bonds

What is the definition of currency?

Government-issues coins and paper money

Features of speculative-grade bonds:

High risk of default Bond rating of BB or lower

Debt to owners' equity ratios:

How dependent is the company on borrowed funds?

Liquidity ratios:

How well can your company pay its debts?

Which type of mutual fund focuses on stocks listed in the Standard and Poor's 500 or the Dow Jones Industrial Average?

Index fund

What is the definition of angel investors?

Individuals who invest their own money in a private company to provide short-term financing

When a corporation's stock is offered for sale for the first time, it is called an _______ public offering.

Initial

Something that has value but is not a physical object, such as a patent or trademark, is called an __________ asset.

Intangible

How is a stock's par value determined?

It is set arbitrarily by the issuing company's board of directors

Which considerations should a borrower keep in mind when using credit cards?

Interest rates can be high Penalties for late payments can be costly

Sources of income that are commonly listed as line items in a cash flow statement:

Investing activities Financing activities Operating activities

Which investment strategy is considered ideal for an older investor seeking reliable, long-term returns with low effort and a low level of risk?

Investing for income

Bonds that are considered __________-grade have a low probability of default.

Investment

Companies, such as Goldman Sachs or Morgan Stanley that engage in buying and reselling new securities are known as __________ bankers.

Investment

Which of the following a benefit of mutual funds?

Investors do not have to do research or manage the investments themselves

Uniqueness means that money:

Is hard to counterfeit

Which statements are true of accounts payable?

It is a current liability It consists of money that the firm owes to others and that has not yet been paid

Which is a true statement about gross sales?

It is all of a company's sales before subtracting sales returns and allowances

Speculative-grade bonds are known as ____ bonds because they carry a high risk of default.

Junk

Which type of securities order specifies that the transaction be done only above or below a specific price?

Limit order

A loan from commercial banks, life insurance companies, pension funds, or commercial finance companies that generally requires repayment in three-seven years is a _________ loan.

Long-term

When Esmeralda launched her book publishing business, she took out a $300,000 mortgage to buy an office building and borrowed another $100,000 to purchase equipment and office furniture. She's been making payments on both loans for years and must have everything paid off in the next five years. How would the debts be characterized on a balance sheet?

Long-term liabilities

How do M1 and M2 compare in terms of the accessibility of money?

M1 is money that is accessible quickly, whereas M2 may take longer to access

Good advice for people who would like to borrow money from their family and friends:

Make the repayment terms as specific as possible Put the terms of the loan in writing

What is the difference between managerial accounting and financial accounting?

Managerial accounting prepares information for people within an organization, whereas financial accounting prepares information for people outside the company

Which method of determining the value of a stock is based on the price at which the stock is currently selling?

Market value

Types of securities:

Money market instruments Bonds Stocks

Fees that most checking accounts charge:

Monthly service fee Insufficient funds fee Fees for exceeding the check writing limit

_________ bonds are issues by state or local government agencies.

Municipal

___ income is the firm's profit or loss after paying income taxes.

Net

What is the difference between a commercial bank and a nonbank?

Nonbanks traditionally do not accept deposits

A promissory ____ is a written contract prepared by a buyer who agrees to pay a seller a certain amount by a certain time.

Note

What is the main difference between savings and loan associations and mutual savings banks?

One is owned by shareholders; the other is owned by depositors

Which of the following represents the ordinary costs of running a business?

Operating activities

Primary components of an income statement:

Operating expenses Net income Sales revenue Cost of goods sold

Irina has determined that as of September 30, her firm had $2000 in retained earnings and $25000 in common stock. In what section of the company's balance sheet would that data be listed?

Owner's equity

Characteristics of an investor for whole a buying and holding investment strategy is ideal:

Patient enough to ride out any downturns in the market Young enough to invest for the long-term Not interested in watching stock values on a day-to-day basis

NOW

Pays interest and allows depositors to write an unlimited number of checks

Certificate of deposit

Pays interest upon maturity

A _________ is a collection of securities representing a person's investments.

Portfolio

New securities are sold on the _______ securities market, whereas existing securities are resold to the pubic by investment bankers on the _________ securities market.

Primary; secondary

Which financial ratios use sales, assets, or owner's equity to determine how well a business is doing?

Profitability ratios

What to general obligation bonds pay for?

Public projects that will not generate revenue

Select all the responsibilities of the SEC:

Registering issuing companies and collecting reports on securities Investigating and preventing insider trading Providing information to investors

What are the four characteristics of financial statements, according to the General Accepted Accounting Principles (GAAP)?

Relevant Reliable Consistent Comparable

Omar has received a loan that is guaranteed by the bank. What type of short-term loan has he received?

Revolving credit agreement

Factors that help determine an investor profile:

Risk Liquidity Asset allocation

What type of bonds are backed by a firm's collateral?

Secured

Business owners can seek to raise resources by offering ___________________ to investors.

Shares of ownership

Liquidity ratios measure a company's ability to meet __________ financial obligations.

Short-term

Which of the five characteristics of money is represented by the fact that different people agree that twenty dollars is indeed worth twenty dollars?

Stability

Financial securities that are sold on securities market and represent shares of ownership in a company are known as ______.

Stocks

The amount of money the Federal Reserve makes available for people to buy various goods and services is called the money ______.

Supply

A promissory note indicating specific installments for repayment, such a as monthly or yearly, is known as a ___________________.

Term-loan agreement

Summarization

Test the accuracy of the ledger

How does the Federal Reserve use the discount rate to control inflation or deflation in the economy?

The Federal Reserve reduces the interest rate on loans to banks to control deflation the Federal Reserve increases the interest rate on loans to banks to control inflation

What determines when a security is bought or sold under a discretionary order?

The broker's judgement and experience

Problems that may occur if a company's debts to owners' equity ratio is too high:

The company may not be able to pay stock dividends The company may not be able to pay its bills The company may have difficulty borrowing additional funds

What is liquidity?

The ease at which an assets can be converted into cash.

Wha this sales revenue?

The funds received from the sales of goods and services during a certain period of time

What is the financial statement that is a company's 'profit-and-loss statements'?

The income statement

Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via ____________.

The internet

What is used to back unsecured loans?

The issuing firm's reputation

What is a net period?

The length of time for which the supplier (the seller) extends trade credit

Who pays interest on a loan?

The person borrowing money

What is accumulated depreciation?

The reduction of value of assets to reflect their wearing down or obsolescence over time

What is the definition of operating expenses?

The selling and administrative costs incurred by a company?

On a balance sheet, what is the meaning of inventory?

The value of the merchandise or products that the firm has on hand to sell to customers

What are true statements of commercial finance companies?

They charge high interest rates to borrowers They make high-risk short-term loans They require borrowers to pledge collateral

Features and benefits of revenue bonds:

They pay for public projects that will generate revenue Exempt from federal taxes Exempt from state taxes in some states

Which roles do accountants play in a business organization?

They prepare budgets and check compliance or deviation They record financial information and ensure its accuracy

How are new issues of stocks and bonds first sold to investors or financial institutions?

Through investment bankers engaged in underwriting

What is the purpose of the ratio statement?

To analyze how well a company is doing in relation to its competition and its own goals

What is the purpose of the accounting equation?

To calculate what a company is worth

What is the purpose of activity ratios?

To evaluate how well a company converts assets into income

Jessie owns an apparel company. The company foes not carry a lot of inventory beyond what is actually on the shelves. Jessie wants to borrow money because he feels his customers will not be satisfied. Identify the reason Jessie would like to borrow money.

To keep enough inventory available

The phrase 'terms of trade' is used in which type of financing?

Trade credit

Short-term financing options

Trade credit Short-term loans Pledging and factoring Commercial paper

What type of loan is extended by a commercial finance company for a specific purpose?

Transaction loan

Indenture terms refers tot he terms of:

True lending agreement associated with bonds

Characteristics fo money market instruments:

Very conservative Easily converted into cash Extremely safe

The regular payout of interest or dividends from a security is called the security's _____.

Yield

If your company takes out a long-term loan, what are you likely to encounter?

Your company's credit rating will be checked