Deck 3: Start-Up Costs and Financing

Question 1

Start-up costs are the costs necessary to open the business.

Answer 1

True

Question 2

Inventory consists of items purchased by the entrepreneur for resale to the customers.

Answer 2

True

Question 3

Deposits may include lease deposits, utility deposits, and tax deposits.

Answer 3

True

Question 4

Leasehold improvements are changes in the terms of the entrepreneur's lease agreement.

Question 5

Money that is borrowed and must be repaid is known as equity financing.

Question 6

Small businesses are usually charged an interest rate that is equal to prime rate.

Question 7

Those who provide financing in exchange for ownership are equity investors.

Question 8

The Small Business Administration is a federal agency, which has many loan programs available to small businesses.

Question 9

Collateral consists of personal and business assets, which the bank will sell if the loan is not repaid.

Question 10

It is usually possible for an entrepreneur to obtain bank financing for a start-up without investing any personal funds.

Question 11

Finance companies often provide loans to companies that cannot get financing through banks.

Question 12

Equity financing includes funds from venture capital firms and stock sales.

Question 13

Venture capital firms invest in companies that are expected to grow rapidly.

Question 14

The Small Corporate Offering Registration Act made it more difficult for small businesses to sell stock publicly.

Question 15

Items that the entrepreneur buys and resells to customers are

A) supplies.
B) inventory.
C) deposits.
D) prepaid expenses.

Question 16

Computers, cash registers, and copiers would be listed in start-up costs under

A) inventory.
B) supplies.
C) machinery and equipment.
D) prepaid expenses.

Question 17

If the entrepreneur pays for the first six months of insurance before the business opens, this is listed under start-up costs as

A) inventory.
B) deposits.
C) prepaid expenses.
D) utilities.

Question 18

A lease deposit is often

A) $500.
B) $1,000.
C) equal to two months rent.
D) equal to six months rent.

Question 19

Leasehold improvements are

A) better terms in a lease agreement.
B) expenses for leased property paid after opening day.
C) renovations to leased property.
D) deposits paid to utility companies.

Question 20

In general, working capital should cover at least

A) all of the start-up costs.
B) three to six months of expenses.
C) renovations and insurance.
D) deposits and inventory.

Question 21

Money that is borrowed to start a business is known as

A) equity investment.
B) debt financing.
C) venture capital.
D) stock sales.

Question 22

The length of time allowed for repaying a business loan depends on

A) prime rate.
B) government regulations.
C) the asset that is purchased with the loan.
D) the availability of venture capital.

Question 23

A loan for a delivery van would be repaid over

A) one to six months.
B) six months to one year.
C) three to five years.
D) ten to fifteen years.

Question 24

Prime rate

A) is always below 5%.
B) is a benchmark rate that fluctuates depending on economic conditions in the country.
C) is set by venture capital firms.
D) does not affect small businesses.

Question 25

When small businesses borrow money from banks, the interest rate they are charged is usually

A) not affected by prime rate.
B) two points below prime rate.
C) one to three points above prime rate.
D) five to seven points above prime rate.

Question 26

Those who provide financing in exchange for ownership are called

A) debt financing.
B) equity investors.
C) bank loans.
D) prepaid investments.

Question 27

Debt financing includes

A) bank loans.
B) loans from the Small Business Administration.
C) loans from finance companies.
D) all of the above.

Question 28

The amount of funding for Small Business Administration loans varies because

A) the SBA does not always make a profit.
B) funds are provided through the federal budget.
C) investors provide the money to SBA.
D) the level of funding is determined by prime rate.

Question 29

Which of the following is a factor in determining an entrepreneur's ability to obtain bank financing?

A) The amount of collateral available
B) The amount the entrepreneur has invested or will invest in the company
C) The entrepreneur's credit record
D) All of the above

Question 30

Which of the following is a factor in determining an entrepreneur's ability to obtain bank financing?

A) The entrepreneur's credit record
B) The company's ability to repay the loan
C) General economic conditions
D) All of the above

Question 31

Finance companies may provide loans to businesses that are

A) considered a high risk.
B) in industries with high failure rates.
C) in a marginal financial condition.
D) all of the above.

Question 32

Equity financing includes

A) private investors.
B) partners.
C) venture capital firms.
D) all of the above.

Question 33

Which of the following is not a type of equity financing?

A) Partners
B) Venture capital
C) Finance companies
D) Stock sales

Question 34

Venture capital firms

A) provide debt financing but not equity financing.
B) invest in companies that have the potential to grow quickly.
C) usually invest less than $500,000 in a small business.
D) all of the above.

Question 35

Stock sales may be either

A) public or private.
B) equity or debt.
C) commercial or industrial
D) trademark or trade secret.

Question 36

Which of the following laws is designed to minimize the regulatory burden of small companies that sell stock publicly?

A) Taft-Hartley Act
B) Wagner Act
C) Small Corporate Offering Registration Act
D) National Stock Sale Regulation Act

Question 37

If investors are given periodic payments based on the net profit of the company, these payments are known as

A) deposits.
B) rewards.
C) incentive payments.
D) dividends.

Question 38

Projected financial statements that are included in the business plan include the opening-day balance sheet, the projected income statements, and the projected cash flow statements.

Question 39

The cash basis of accounting is the simplest and easiest to use.

Question 40

The cash basis of accounting records a sale when the payment is received from a customer.

Question 41

The accrual method of accounting gives a more accurate picture of the financial health of the company than does the cash basis.

Question 42

The cash basis of accounting always provides an accurate picture of the financial status of the company.

Question 43

The accrual basis of accounting records sales when they are made and records expenses when they are incurred.

Question 44

The income statement compares the possessions of a company and the debts that it owes on a specific day.

Question 45

A company's possessions are called liabilities.

Question 46

Current assets are those that are easily converted into cash.

Question 47

Current assets include vehicles and renovations.

Question 48

Fixed assets are those that are attached to the walls of the building.

Question 49

Machinery and equipment are current assets.

Question 50

Liabilities are classified as current and long term.

Question 51

Current liabilities include accounts payable and accrued expenses.

Question 52

The current portion of the long-term debt is the interest due on the loan in the next year.

Question 53

Goodwill and patents are considered company liabilities.

Question 54

Retained earnings is an accumulation of all profits and losses of the company from the day it began operations until the day the balance sheet is prepared.

Question 55

A profitable business may not be able to pay all of its bills.

Question 56

A corporation owner's salary is a tax-deductible expense.

Question 57

The money that is taken by a proprietor for his or her wages is not a tax deductible expense.

Question 58

Depreciation affects cash but does not affect profit.

Question 59

The proprietor's wages and loan principal appear on the cash flow statement.

Question 60

One step in determining break-even is calculating the contribution margin.

Question 61

Which of the following is not an accounting method?

A) Cash basis
B) Accrual basis
C) Completed-contract method
D) Calculation basis

Question 62

Which of the following accounting methods is the simplest and easiest to use?

A) Cash basis
B) Accrual basis
C) Completed-contract method
D) All of the above

Question 63

Which accounting method records a sale when the payment is received from the customer and records the expense when the bill is paid?

A) Cash basis
B) Accrual basis
C) Completed-contract method
D) Calculation basis

Question 64

Which accounting method records sales when they are made and records expenses when they are incurred?

A) cash basis
B) accrual basis
C) completed-contract method
D) calculation basis

Question 65

The completed-contract accounting method is most likely to be used by

A) a retail company.
B) a wholesale company.
C) a construction company.
D) All of the above.

Question 66

The _____________ compares the possessions of a company and the debts that it owes on a specific day.

A) income statement
B) balance sheet
C) cash flow projection
D) completed-contract method

Question 67

A company's possessions are called

A) debts.
B) assets.
C) liabilities.
D) accounts.

Question 68

Which of the following is not a category used for assets on the balance sheet?

A) Current
B) Fixed
C) Other
D) Accrued

Question 69

Which of the following is not a current asset?

A) Cash
B) Vehicles
C) Inventory
D) Prepaid expenses

Question 70

Which of the following is not a fixed asset?

A) Machinery and equipment
B) Furniture and fixtures
C) Supplies
D) Land and building

Question 71

Which of the following would be listed under "other assets?"

A) Cash
B) Accounts receivable
C) Patents
D) Renovations

Question 72

The section of the balance sheet that includes all company debts is the

A) assets.
B) liabilities.
C) equity.
D) cash flow.

Question 73

Current liabilities are those that

A) were just incurred.
B) must be paid within 30 days after they are billed.
C) must be paid within twelve months of the date of the balance sheet.
D) were charged on a charge card.

Question 74

The current portion of long-term debt is the

A) interest due on a loan in the next 12 months.
B) total amount of interest that will be paid on a loan.
C) principal due on a loan in the next 12 months.
D) total amount of principal and interest that will be paid on a loan by the time it is paid off.

Question 75

Long-term liabilities are

A) debts or portions of debt due more than 12 months from the date of the balance sheet.
B) bills for inventory.
C) amounts due for renovations.
D) amounts due for supplies.

Question 76

Which of the following is not the same as the others?

A) Equity
B) Net worth
C) Accrued expenses
D) Capital account

Question 77

The difference between assets and liabilities is the

A) balance sheet.
B) profit.
C) gross margin.
D) equity.

Question 78

The account that is an accumulation of all of the profits and losses of the company from the day it began is the

A) retained earnings.
B) gross margin.
C) liabilities.
D) asset margin.

Question 79

The opening day balance sheet corresponds closely with

A) the income statement.
B) the cash flow statement.
C) the start-up costs.
D) retained earnings.

Question 80

The income statement records

A) sales.
B) cost of goods sold.
C) expenses.
D) all of the above.