BUSA 1105 Test 2

one of the most important sources of short-term financing for many firms and arises when suppliers ship materials, parts, or goods to a firm without requiring payment st the time of delivery

trade credit

short-term IOUs issued by the US government that typically mature in 4, 13, or 26 weeks

treasury bills

in the context of managerial accounting, _______ are costs that change directly with the level of production

variable costs

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

venture capital firms

in the context of corporate restructuring, a _______ refers to a combination of firms that are at different stages in the production of a good or service

vertical merger

a projection showing how a firm's budgeted sales and costs will affect expected net earnings

budgeted income statement

a financial budget and shows how a firm's operations, investing, and financing activities are expected to affect all of the asset, liability, and owners' equity accounts

budgets balance sheet

an advantage of a general partnership is that the

business is taxed as the personal income of its owners

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

corporation

a restriction lenders impose on borrowers as a condition of providing long-term debt financing

covenant

the purpose of ______ is to protect creditors by preventing the borrower from pursuing policies that might undermine its ability to repay the loan

covenants

in the context of financial statements, _____ are debts that come due within a year of the date on the balance sheet

current liabilities

stockholders typically want to view a firm's accounting information to

know if management has generated a strong enough return on investment

entrepreneurs must understand that no conventional lending source, whether private or public, will:

lend all of a start-up's funding

a financial arrangement in which a bank agrees to provide a firm with funds up to some specified limit, as long as the borrower's financial situation does not deteriorate, and the bank has sufficient funds

line of credit

small segments of a market with fewer competitors than the market as a whole

market niches

in the context of basic financial planning tools, the budgeted income statement and the budgeted balance sheet are referred to as:

pro forma financial statements

provide a framework for analyzing the impact of a firm's plans on the financing needs of the company

pro forms financial statements

when a firm negotiates a loan with a bank, it signs a ____ , which specifies the length of the loan, the rate of interest the firm must pay, and other terms and conditions of the loan.

promissory note

which of the following is an advantage of starting a business from scratch?

the entrepreneur gets to build his or her own business concept and structure

which of the following statements is true of franchises set up across borders?

the limit of a franchisee's right over a territory is decided through a franchise agreement

when starting a business from scratch...

the logistics can be challenging

which of the following statements is true of limited liability companies (LLCs)?

there is no separate tax on the earnings of the companies if they choose to be treated as a partnership

which of the following statements is true of people with an external locus of control?

they believe that the actions of others can control their fate

which of the following statements is true of small businesses?

they have more scope to provide personal customer service than large businesses

in the context of a limited partnership, which of the following statements is true of general partners?

they have the right to participate fully in managing their partnership

in the context of external audits of financial statements, which of the following statements is true of CPA firms?

they must be independent of the companies they are auditing

which of the following is a reason why many members of the European Union have low entrepreneurship rates?

they provide strong unemployment insurance to their citizens

which of the following is a threat to small businesses?

a bigger regulatory burden compared to large business

in the context of the balance sheet, which of the following serves to be the rationale behind the accounting equation?

a firm must finance the purchase of their assets, and the owners and nonowners should contribute towards it

in the context of small businesses and the economy of a country, which of the following factors can bring down entrepreneurship rates?

a high level of employment opportunities

entrepreneurs who mortgage their homes for the business and stake their reputation on the success of an unproven product demonstrate:

a high tolerance of uncertainty

a ______ refers to a corporate restructuring that occurs when two formerly independent business entities combine to form a new organizations

a merger

in the context of corporations, _______ is a corporate restructuring in which one firm buys another

an acquisition

in the context of an independent auditor's report, ________ indicated that the auditor believes the financial statements are seriously flawed and that they may be misleading and unreliable

an adverse opinon

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

angel investors

in the context of business ownership, the document filed with a state government to establish the existence of a new corporation is referred to as the

articles of incorporation

the major responsibilities involved in financial accounting are the preparation of the:

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

in accordance with corporate bylaws, stockholders elect a ______ and rely on it to oversee the operation of their company and protect their interests

board of directors

the process a firm uses to evaluate long-term investment proposals

capital budgeting

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

capital structure

the securities and exchange commission requires publicly traded corporations to provide:

comparative financial statements

which of the following is a disadvantage of a LLC?

complexity of formation

computed by dividing a firm's total liabilities by its total assets

debt ratio

a _______ occurs when a firm transfers total or partial ownership of some of its operations to investors or to another company

divestiture

earnings per share is calculated by

dividing net income of a firm minus preferred dividends by the average number of shares of common stock outstanding

from the franchisee's perspective, which of the following is an advantage offered by franchising?

easy access to funding

a characteristic that most successful entrepreneurs possess

energy and confidence

people who risk their time, money, and other resources to start and manage a business are known as:

entrepreneurs

refers to funds provided by the owners of a company

equity financing

an individual who decides to establish a sole proprietorship must realize that he or she would be

facing unlimited personal liability for the company's debts

a company that provides short-term financing to firms by purchasing their accounts receivables at a discount

factor

the legal and ethical obligation of financial managers to make decisions consistent with the financial interests of their firm's owners is called their:

fiduciary duty

the functional area of business that is responsible for finding the best sources of funds and the best ways to use them

finance

in the US, the securities and exchange commission has delegated the responsibility for developing accounting standards to a private organization called the:

financial accounting standards board

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

flexible schedule

a licensing arrangement under which one party allows another party to use its name, trademark, patents, copyrights, business methods, and other property in exchange for monetary payments and other considerations

franchise

in the context of interpreting financial statements, using statements to identify changes in key accounting values over time is called:

horizontal analysis

in the context of corporate restructuring, a _______ is defined as a combination of firms in the same industry

horizontal merger

the opportunity cost that arises when a firm uses owner-supplied resources is known as an

implicit cost

costs that are the result of a firm's general operations and are not tied to any specific cost object

indirect costs

are organizations that pool contributions from investors, clients, or depositors and use these funds to buy stocks and other securities

institutional investors

work within their organization to detect problems such as waste, mismanagement, embezzlement, and employee theft

internal auditors

the _____ considers a C corporation to be a separate legal entity and taxes its earnings accordingly

internal revenue service

computed by dividing a firm's cost of goods sold by average inventory levels

inventory turnover ratio

in the context of various launching options when starting a new business, which of the following statements is a drawback associated with buying a new franchise?

it has less opportunity for creativity

which of the following is a drawback of buying an established business?

it may entail inheriting the previous owner's mistakes

in the context of funding options for small businesses, which of the following statements is true of crowdfunding?

its sites are used to fund nonprofits

which of the following is one of the largest crowdfunding sites in terms of traffic?

kickstarter.com

one of the drawbacks of sole proprietorships is that the owners

may find it difficult to attract and maintain talented employees

the __________ is a situation where the behavior of an incompetent or an irresponsible franchisee adversely affects not only the franchise as a whole but also the success of other franchisees

negative halo effect

According to the US Small Business Administration (SBA), to officially count as a small business the

number of employees should range from fewer than 100 to 1,500

budgets that identify projected sales and production goals and the various costs the firm will insure to meet these goals

operating budgets

the vast majority of limited liability companies (LLCs) elect to be taxed as

partnerships

generally accepted accounting principles (GAAP) are a set of accounting standards that is used in the:

preparation of financial statements

the part of a firm's net income it reinvests

retained earnings

calculated by dividing net income by owners' equity

return-on-equity

increases in a firms assets that result from the sale of goods, provision of services, or other activities intended to earn income

revenue

in the US, the ultimate legal authority to set and enforce accounting standards lies with the:

securities and exchange commission

in the context of budget preparation, the cash budget is a financial budget document that identifies:

short-term fluctuations in cash flow

in the context of statement of cash flows, cash flows from investing activities:

show the amount of cash received from the sale of fixed assets

which of the following is a major issue that confronts financial managers as they seek to maximize the market price of stock?

social responsibility

refers to the claims owners have against their firm's assets

stockholders' equity