Deck 13: Business Organization and Financial Data

Question 1

The goal of any firm should be the maximization of sales.

Answer 1

False

Question 2

A partnership is a form of business organization when two or more people own a business operated for profit.

Answer 2

True

Question 3

A close estimate of market value added (MVA)is the market value of equity less the book value of equity.

Answer 3

False

Question 4

Managerial lines of authority,legal responsibility and the allocation of income and risk are directly related to the form the organization takes.

Question 5

The success of a business in raising funds for operations depends upon the extent that profits can be produced from operations.

Question 6

A weakness for a proprietorship is that owner's liability for debts of the firm is unlimited.

Question 7

Limited partners must take an active role in the operations of the firm.

Question 8

The market value added measures the value created by the firm's managers.

Question 9

A business should begin with a vision or mission statement that is consistent with the planned overall strategy.

Question 10

Limited partners face liability limited to their investment in the firm,but they can participate in the operations of the firm.

Question 11

Poison pills are provisions in a corporate charter that make a corporate take-over more unattractive.

Question 12

The bylaws are the rules established to govern the corporation and include how the firm will be managed.

Question 13

proprietorships are the most widely used form although they are generally the smallest organizations in terms of assets.

Question 14

Partnership income is taxed at the partnership income tax rate.

Question 15

Most of the limited liability company shareholders must take active roles in managing the company.

Question 16

Profits from a proprietorship are taxed at the corporate income tax rates.

Question 17

With generally accepted accounting practices,there is one "right way" of accounting for business transactions.

Question 18

Under partnership law,each partner has unlimited liability for all the debts of the firm.

Question 19

A limited liability company can have an unlimited number of shareholders,including other corporations.

Question 20

Shareholder wealth is the market value of a firm's common stock.

Question 21

Shareholder wealth may be defined as the price of a company's stock times the number of shares outstanding.

Question 22

The balance sheet is a statement of a company's financial position over an accounting period.

Question 23

The net working capital of a firm would be cash and other assets that are expected to be converted into cash within a year.

Question 24

One of the important reasons corporations can accumulate large sums of capital is that they are allowed to sell capital stock.

Question 25

The most desirable form of business organization in terms of ease of start-up is a corporation.

Question 26

Privately held corporations register shares with the Securities and Exchange Commission before selling them to shareholders.

Question 27

A corporation is a legal entity created under federal law with an unending life and limited financial liability to its owners.

Question 28

Accounting is primarily concerned with matching revenues and expenses while finance focuses on identifying cash inflows and outflows.

Question 29

The most desirable form of business organization from a liquidity standpoint is a corporation.

Question 30

If a corporation liquidates in bankruptcy,creditors may attach the personal assets of the owners of the company.

Question 31

One advantage of the corporate form of organization is the ease with which ownership may be transferred.

Question 32

An annual report contains descriptive information on operating and financial performance during the past year,a discussion of current and future business opportunities,and five year projected stock prices and shareholder returns.

Question 33

Implicit agency costs do not have a direct expense associated with them,but they harm shareholders anyway.

Question 34

Most of accounting practice is based upon the cash concept.

Question 35

The most desirable form of business organization in terms of ease of start-up is a proprietorship.

Question 36

The liability of all owners in both a limited liability company and a limited partnership is limited to the owners' investment in the company.

Question 37

Common-size financial statements express balance sheet and income statement numbers as a percent of sales.

Question 38

The marginal tax rate is the rate paid on the last dollar of income.

Question 39

The most desirable form of business organization from a liquidity standpoint is a limited liability company.

Question 40

A firm's net income over some period is the same as its cash flow.

Question 41

Of the following forms of business organization,which have the advantage of limited liability but no stockholders?

A)proprietorships
B)partnerships
C)corporations
D)limited partnerships

Question 42

Which one of the following is not a basic function of financial management?

A)financial planning and analysis
B)acquiring other business firms
C)asset management
D)raising of funds

Question 43

A limited liability company (LLC):

A)must register with the SEC to sell securities to the public
B)is an ongoing entity,even if one of the owners leaves
C)has a limited number of shareholders
D)all the above
E)none of the above

Question 44

The goal of the firm is the maximization of profits and market share.

Question 45

The balance sheet equation or accounting identity can be written as: assets equal liabilities plus owners' equity.

Question 46

Agency costs are the tangible and intangible revenues generated by shareholders because of the actual or potential selfless actions of managers;and agency costs include explicit,out-of-pocket expenses.

Question 47

Of the following forms of organization,which businesses are the greatest in numbers?

A)proprietorships
B)partnerships
C)corporations
D)limited partnerships

Question 48

For a given accounting period,which of the following is likely to represent primarily variable costs?

A)cost of goods sold
B)general and administrative expenses
C)depreciation expense
D)interest expense

Question 49

The Sarbanes-Oxley Act of 2002 was passed by the U.S.Congress in response several political scandals.

Question 50

The current liabilities of a business may include:

A)notes payable
B)accounts receivable
C)prepaid expenses
D)depreciation reserves

Question 51

The actual disbursement of cash is recorded in which of the following financial statements?

A)income statement
B)balance sheet
C)statement of cash flows
D)cash transactions statement

Question 52

Two basic tools that can be used to reduce the consequences of managers making self-serving decisions include offering managers stock options and offering managers restricted stock.

Question 53

The balance sheet equation or accounting identity can be written as: assets equal liabilities minus owners' equity.

Question 54

Computation of a firm's market value added (MVA)includes all of the components EXCEPT:

A)market value of equity
B)market value of debt
C)book value of equity
D)book value of debt
E)all of the above are included

Question 55

Agency costs are the tangible and intangible expenses borne by shareholders because of the actual or potential self-serving actions of managers;and agency costs include explicit,out-of-pocket expenses.

Question 56

The Sarbanes-Oxley Act of 2002 was passed by the U.S.Congress in response several accounting scandals.

Question 57

Market value added can be written as: the market value of stock minus the market value of debt plus the book value of stock minus the book value of debt.

Question 58

Information about which accounting principles were used by the firm are included in the:

A)balance sheet
B)footnotes
C)management discussion on annual report
D)none of the above

Question 59

Market value added can be written as: the market value of stock plus the market value of debt minus the book value of stock minus the book value of debt.

Question 60

Of the following forms of business organization,which have stockholders with limited liability?

A)proprietorships
B)partnerships
C)corporations
D)limited partnerships

Question 61

A business organization that receives the limited liability of a corporation but is taxed as a proprietorship or partnership is called a:

A)limited proprietorship
B)limited partnership
C)limited corporation
D)S corporation

Question 62

The notes receivable of a firm may be:

A)loans to other businesses
B)loans to employees
C)loans to the CEO
D)all of the above

Question 63

Which one of the following balance sheet accounts would not be considered to be a current liability?

A)account payable
B)bank notes payable
C)accrued liabilities
D)mortgage debt

Question 64

Which of the following are required to file annual reports with the Securities and Exchange Commission?

A)proprietorships
B)partnerships
C)public corporations
D)all the above

Question 65

Net income is:

A)equal to cash flow
B)profits remaining after income taxes are paid
C)unavailable to the owners of the business
D)none of the above

Question 66

Nestle,IBM,and Coca-Cola are examples of:

A)U.S.corporations
B)corporations with mainly domestic revenues
C)"stateless" corporations
D)multinational corporations based in the U.S.

Question 67

If a firm issues 10,000 shares of common stock with a par value of $5 and for a sales price of $15,what amount would be recorded in the paid-in capital account?

A)$10,000
B)$15,000
C)$50,000
D)$100,000

Question 68

What would be recorded in the common stock account on the balance sheet if 20,000 shares are issued at a par value of $2 and the market value is $5?

A)$20,000
B)$40,000
C)$30,000
D)$60,000

Question 69

Which of the following accounts is usually part of the owners' equity for a corporation?

A)common stock
B)paid-in-capital
C)retained earnings
D)all of the above

Question 70

The three main sections of the statement of cash flows include all of the following EXCEPT:

A)cash from saving
B)cash from investments
C)cash from operations
D)cash from financing
E)all are included

Question 71

The term ___________ conveys a relationship of equality between the assets of the business and the sources of funds for their acquisition.

A)statement of cash flows
B)cash transactions statement
C)income statement
D)balance sheet

Question 72

Which of the following business organizations do not limit the liability of some or all of their owners to the extent of their investment in the company?

A)proprietorships and partnerships
B)corporations and proprietorships
C)limited partnerships and proprietorships
D)corporations and limited partnerships

Question 73

Which of the following are included in an annual report?

A)balance sheet
B)income statement
C)statement of cash flows
D)all of the above
E)none of the above

Question 74

Corporate stockholders:

A)cannot have limited liability
B)cannot easily transfer ownership
C)cannot be subject to taxes on dividends
D)can limit their liability to the amount of their investment

Question 75

Which form of business organization has a basic weakness of reaching a capital limit?

A)proprietorship
B)partnership
C)limited partnership
D)all of the above

Question 76

The accrued liabilities of a firm are:

A)retained earnings from past years
B)reflect the prepayment of certain expenses
C)owners' equity in the firm
D)amounts owed but not yet due

Question 77

Which of the following are considered to be major financial management functions?

A)financial planning and analysis
B)asset management
C)raising funds
D)all of the above

Question 78

Which of the following business organizations limit the liability of some or all of their owners to the extent of their investment in the company?

A)proprietorships and partnerships
B)corporations and proprietorships
C)limited partnerships and proprietorships
D)corporations and limited partnerships

Question 79

The average tax rate on a corporation with $75,000 in income and a tax liability of $15,000 is:

A)15%
B)20%
C)25%
D)39%

Question 80

A limited partnership is comprised of:

A)only limited partners
B)only general partners
C)both general and limited partners
D)both partners and proprietors