Question 1

Along with purchasing a successful ice cream shop, Wilma acquired the building, as well as ice cream making equipment and enough inventories to operate for a month. These are best known as what type of assets?

Accepted Answer

The building and ice cream making equipment are physical items that can be seen and touched, making them tangible assets. The inventories can also be considered tangible assets since they are physical products that can be sold. Short-term and long-term assets refer more to the timeframe in which the assets will be used or sold, rather than their physical nature. Intangible assets are non-physical assets such as patents, copyrights, and trademarks.

Question 2

The intangible asset that allows a business to earn a higher return than a comparable business might generate with the same tangible assets is known as

Accepted Answer

Goodwill is the intangible asset that allows a business to earn a higher return than a comparable business might generate with the same tangible assets. Goodwill includes the business's reputation, relationships with customers and suppliers, brand recognition, and other factors that contribute to its ability to generate profits.

Question 3

Of all the tangible assets of a business, _______ and _____ should be examined most closely because they may be worth less than the seller is asking.

Accepted Answer

The answer of Of all the tangible assets of a...

Question 4

Assets that a business owns that can be seen and examined are known as

Accepted Answer

Tangible assets are physical assets that can be seen, touched, and examined. Examples include buildings, equipment, and inventory. Intangible assets, on the other hand, are non-physical assets like trademarks, patents, and goodwill. Long-term equity and accounts payable are not related to the concept of tangible assets.

Question 5

A provision that restricts the seller from entering the same type of business within a specified area for a certain amount of time is known as

Accepted Answer

A provision that restricts the seller from entering the same type of business within a specified area for a certain amount of time is called a noncompetitive clause. This clause is often included in contracts for the sale of a business in order to protect the buyer's investment by preventing the seller from competing with the buyer in the same market.

Question 6

Aging accounts receivable refers to the process of

Accepted Answer

Aging accounts receivable refers to determining how long outstanding invoices have been open and categorizing them by time frames (e.g. 0-30 days, 31-60 days, 61-90 days, etc.). From there, a company can determine how many are still collectible and may choose to apply discounts or alternative payment arrangements to encourage payment. This process helps a company track its outstanding invoices and identify potential issues with collections before they become significant problems.

Question 7

Trade names, customer lists, and goodwill are examples of which kinds of assets?

Accepted Answer

Trade names, customer lists, and goodwill are all examples of intangible assets, which are non-physical assets that have value but lack a physical presence.

Question 8

Assets that have value to a business but are not visible are known as

Accepted Answer

Intangible assets are non-physical assets that have value to a business, such as patents, copyrights, trademarks, intellectual property, and goodwill. These assets cannot be seen or touched but are essential to a company's success and can be monetized. Tangible assets, on the other hand, are physical assets that can be seen or touched, such as property, plant, and equipment (PP&E), inventory, and cash. Long-term assets are assets that can provide benefits to a business for more than one year, such as PP&E and intangible assets. Current assets are assets that can be converted into cash within one year, such as inventory and accounts receivable.

Question 9

Inventory, equipment, and building are examples of what kinds of assets?

Accepted Answer

These are all physical assets that can be seen and touched, making them tangible assets. Intangible assets refer to things like patents, trademarks, and intellectual property, while current and long-term assets refer to the time frame in which they are expected to be used or sold.

Question 10

To effectively use operating ratios, a prospective buyer should

Accepted Answer

The answer of To effectively use operating ratios, a prospective...

Question 11

Intellectual property is a valuable __________.

Accepted Answer

Intellectual property refers to creations of the mind, such as inventions, literary and artistic works, designs, symbols, and names used in commerce. These are intangible assets that can provide individuals or companies with a competitive advantage and have significant value. Examples of intellectual property include patents, trademarks, copyrights, and trade secrets.

Question 12

Machinery that has no, or very little, value is referred to as

Accepted Answer

Dead stock refers to inventory or machinery that has no value or very little value, and is typically considered obsolete or outdated. This is different from a payable or receivable, which refer to financial transactions or debts owed. "Long weight" is not a commonly used term in this context.

Question 13

The prospective buyer should determine a price for the business by adding the value of tangible and intangible assets with the _____________ potential.

Accepted Answer

The answer of The prospective buyer should determine a price...

Question 14

Samantha was in the final stages of selling her existing business, but she backed out of the deal at the last minute because the buyer asked her to sign a contract stating that she would not enter into a similar business within the state for at least 15 years. This is an example of

Accepted Answer

A noncompete clause is a contract that prohibits an individual from entering into a similar business in the same geographical area for a specified period after the termination of employment or sale of a business. In this case, the buyer's request for a noncompete clause for a period of 15 years is considered unreasonable as it restricts Samantha's future employment opportunities within the state. It is essential for a noncompete clause to be reasonable in terms of duration, geographical area, and scope of the prohibited activity.

Question 15

Any of the following may be included as an owner benefit of a small business except

Accepted Answer

Employees' salary cannot be included as an owner benefit of a small business. This is because employees' salary is paid to the employees for the work they do, and is not a benefit that is received by the owner of the business. Owner benefits typically include things such as the owner's salary, pretax profits, and additional owner perks such as a company car or paid vacation time.

Question 16

Which of the following by itself could be a reason a business owner wants to sell a business?

Accepted Answer

The outlived usefulness of equipment could be a reason a business owner wants to sell a business, as they may not want to invest more money into outdated equipment and instead choose to sell the business to pursue other opportunities. The other choices do not necessarily indicate a desire to sell the business.

Question 17

When evaluating the worth of the inventory for purchasing purposes, the primary concern should be

Accepted Answer

The primary concern when evaluating the worth of inventory for purchasing purposes should be to ensure that there is no "dead stock" listed at its original value. Dead stock refers to items that have not sold and are taking up valuable space in the inventory. Listing them at their original value would mean an overestimation of the inventory's worth, which may lead to overstocking, increased storage costs, and reduced profits. Therefore, it is crucial to conduct regular inventory audits and adjust prices for any dead stock to reflect their current market value. While the other options (A, B, and D) are essential considerations, they are secondary to the primary concern of avoiding dead stock.

Question 18

Rob is selling a business with machinery that has been protected from unauthorized use or infringement for the next three years. What type of intangible asset does this involve?

Accepted Answer

This involves a patent right, which is a legal protection granted by the government to prevent others from using, selling, or making the same invention for a period of time. This protection allows the inventor or owner to have exclusive rights to sell and profit from their invention, and prevents others from using it without permission.

Question 19

Few businesses that are for sale have a high amount of _________ value.

Accepted Answer

Goodwill refers to the intangible value of a business, such as its reputation, brand recognition, and customer base. It is not a physical asset and is not easily quantified, but can add significant value to a business. Therefore, few businesses for sale have a high amount of goodwill value.

Question 20

Patents, copyrights, and trademarks protect against unauthorized use or infringements for which of the following time periods?

Accepted Answer

Patents, copyrights, and trademarks are all forms of intellectual property protection that provide exclusive rights to the owner for a definite time and usage period. Patents typically last for 20 years, trademarks can last indefinitely as long as they are actively used and maintained, and copyrights generally last for the lifetime of the author plus 70 years.

Quiz 6: Taking Over an Existing Business