Deck 6: Financial Accounting and Business Plans

Question 1

Working capital ratio is

A)the ratio of total assets to total liabilities.
B)the ratio of total current assets to total current liabilities.
C)the ratio of total owners' equity to total assets.
D)the ratio of current assets to long-term assets.
E)the ratio of long-term assets to long-term liabilities.

Answer 1

B

Question 2

You are one of five shareholders in a corporation. You have invested $10 000 of your own money in the corporation. The business is unsuccessful and is left with no assets and liabilities of $100 000. Your partners all leave the country leaving no forwarding addresses. How much of the debt are you legally responsible for?

A)$0
B)$2 000
C)$10 000
D)$20 000
E)$100 000

Answer 2

E

Question 3

You are one of five partners in a general partnership. You have invested $10 000 of your own money in the business. The business is unsuccessful and is left with no assets and liabilities of $100 000. Your partners all leave the country leaving no forwarding addresses. How much of the debt are you legally responsible for?

A)$2 000
B)$10 000
C)$20 000
D)$30 000
E)$100 000

Answer 3

E

Question 4

A factory produces two million hand-held computers a year. The annual fixed costs of the factory are and the marginal cost of each computer is $7. What is the average cost per unit?

A)$12.25
B)$16.25
C)$17.30
D)$18.75
E)$19.50

Question 5

From the standpoint of financial accounting, annual revenue is

A)a component of the Balance Sheet.
B)a through variable.
C)an across variable.
D)an asset.
E)a liability.

Question 6

The extent to which a business relies on debt in its operations is reflected in

A)the equity ratio.
B)the return-on-equity ratio.
C)the quick ratio.
D)the net-profit ratio.
E)the return-on-asset ratio.

Question 7

The Balance Sheet of YYY Ltd. is as follows: ASSETS
Current Assets
Cash $30 000
Accounts receivable $20 000
Raw materials inventory $50 000
Finished goods inventory $600 000
Total current Assets $700 000
Long-Term Assets
Equipment $2 000 000
Buildings $1 100 000
Land $400 000
Total Long-Term Assets $3 500 000
TOTAL ASSETS $4 200 000
LIABILITIES & OWNER'S EQUITY
Current Liabilities
Accounts payable $10 000
Current loans $60 000
Total current liabilities $70 000
Long-Term Liabilities
Long-term loans $900 000
TOTAL LIABILITIES $970 000
Owners' equity
Common stock $2 130 000
Retained Earnings $1 100 000
TOTAL OWNERS' EQUITY $3 230 000
TOTAL LIABILITIES
AND OWNERS' EQUITY $4 200 000
What is the current ratio of this company?

A)0.43
B)0.50
C)2.00
D)6.00
E)10.00

Question 8

Which of the following are NOT quick assets?

A)Notes receivable
B)Temporary investments
C)Cash and deposits
D)Capital assets
E)Accounts receivable

Question 9

In a balance sheet Current Assets are $9 000; Long-term Assets are $11 000; Current Liabilities are Long-term Liabilities are $8 000; and Total Owners' Equity is $5 000. What is the equity ratio?

A)0.25
B)0.33
C)0.50
D)0.75
E)1.0

Question 10

What are the two basic summary financial statements that provide information about a firm's revenues, expenses, assets, and liabilities?

A)the cash flow statement and the statement of retained earning
B)the income statement and the cash flow statement
C)the statement of retained earning and the balance sheet
D)the balance sheet and the cash flow statement
E)the income statement and the balance sheet

Question 11

In a balance sheet Current Assets are $4 000; Long-term Assets are $6 000; Total Owners' Equity is $6 000; Current Liabilities are $3 000. What are Long-term Liabilities?

A)$1 000
B)$5 000
C)$9 000
D)$13 000
E)$15 000

Question 12

The return-on-assets ratio is a reflection of a business's

A)marginal costs.
B)profitability.
C)marginal revenue.
D)marginal benefits.
E)net annual savings.

Question 13

What items should be treated as extraordinary items for a Canadian company that sells its goods to the US market?

A)loss of revenues caused by the Bank of Canada as it raises the bank rate
B)loss of revenues caused by the US government as it imposes extra duties on the company's goods
C)loss of revenues caused by the increased delays on the Canada-US border that occur due to new security measures
D)loss of revenues caused by the changes in demand for the company's goods in the US
E)loss of revenues caused by the longer haul of goods that occurs as a result of heavy snow on the roads

Question 14

For a given firm, the balance sheet

A)summarizes firm's revenues and expenses over a period of time.
B)gives the firm's assets, liabilities and owners' equity at a moment in time.
C)provides the firm's net income.
D)lists the individuals and institutions that own the company assets.
E)gives the firm's assets, liabilities and owners' equity over a period of time.

Question 15

The Balance Sheet of YYY Ltd. is as follows: ASSETS
Current Assets
Cash $30 000
Accounts receivable $20 000
Raw materials inventory $50 000
Finished goods inventory $600 000
Total current Assets $700 000
Long-Term Assets
Equipment $2 000 000
Buildings $1 100 000
Land $400 000
Total Long-Term Assets $3 500 000
TOTAL ASSETS $4 200 000
LIABILITIES & OWNER'S EQUITY
Current Liabilities
Accounts payable $10 000
Current loans $60 000
Total current liabilities $70 000
Long-Term Liabilities
Long-term loans $900 000
TOTAL LIABILITIES $970 000
Owners' equity
Common stock $2 130 000
Retained Earnings $1 100 000
TOTAL OWNERS' EQUITY $3 230 000
TOTAL LIABILITIES
AND OWNERS' EQUITY $4 200 000
If the sales of this company are $5 400 000, what is the company's inventory-turnover ratio?

A)8.4
B)9.0
C)8.3
D)12.0
E)18.00

Question 16

The net-profit ratio is defined as

A)net income divided by total equity.
B)revenue divided by net income.
C)net income divided by total assets.
D)net income divided by revenue.
E)revenue divided by total assets.

Question 17

Owner's equity

A)is the difference between a firm's assets and liabilities.
B)is cash and other assets that could be converted to cash within a relatively short period of time, usually a year or less.
C)is the cumulative sum of earnings from all transactions that can be reinvested in the business.
D)is the price per share set at the time the shares are originally issued.
E)is the sum of the firm's long-term assets and current assets.

Question 18

What is the distinguishing feature of a limited partnership?

A)Some partners are involved as investors while other partners manage everyday operations.
B)The partners have liabilities limited to their personal assets only.
C)The partners can elect the board of directors that selects the managers to run the business in the interest of the partners.
D)The partners run the business together and share all profits and losses according to the partnership agreement.
E)The partners have their investments protected from the creditors; however, they are liable for up to the amount of their assets.

Question 19

One of the major drawbacks of the inventory-turnover ratio is that:

A)Inventories are an across variable while sales are a through variable.
B)Inventories are a through variable while sales are an across variable.
C)Sales are measured at costs while inventories are measured in terms of market prices.
D)It includes only quick assets.
E)It includes only current liabilities.

Question 20

Your supervisor, Ms. Applebee, is asking you to provide her with the cost of equipment the firm owns. Where will you look for it?

A)in a balance sheet under the Current Assets
B)in a balance sheet under the Long-Term Assets
C)in an income statement under the Operating Expenses
D)in an income statement under the Revenues
E)in an income statement under the Expenses

Question 21

What are the most important features that should be emphasized in the Executive Summary (of the Business Plan)?

A)executive profiles, financial debt load, market penetration, and areas of research
B)mission statement, Executive profiles, market penetration, and future plans
C)mission statement, products and services provided, overall financial situation and future plans
D)statement of income, balance statement, pertinent business ratios, and marketing efforts to date
E)executive profiles, financial debt load, pertinent business ratios, and future plans

Question 22

You run a software development business in Toronto. You are offered a chance to bid on a government contract that you estimate will require 600 000 lines of code, deliverable in one year. You have developed a model: Effort = 3.0(KLOC)1.2 to predict the effort, in programmer-months, required to complete a job, where `KLOC' stands for `thousands of lines of code'. On the basis of this model, how many programmers should you assign to work on the project?

A)150
B)450
C)540
D)1 800
E)6 500

Question 23

Suppose that a business has $100 million in long-term assets and $50 million in current assets. The business's liabilities are: current liabilities = $30 million and long-term liabilities = $80 million. Calculate the equity ratio and comment on the business's performance on the basis of this ratio.

Question 24

What is the cost principle of accounting?

Question 25

The strategies to penetrate the target market and gain market share are included in what section of the Business Plan?

A)Market Analysis and Future Outlook
B)Funding Requirements
C)Executive Summary
D)Sales and Marketing
E)Company Description

Question 26

Your company recently constructed a steel mill producing 600 000 tons of steel per year, for a construction cost of $12 000 000. You know that a rival company has constructed a similar mill, producing twice as much steel, at a cost of $20 900 000. Based on these figures, what is your estimate of the capacity factor for the steel industry?

A)0.5
B)0.6
C)0.7
D)0.8
E)0.9

Question 27

What section of the business plan includes the company's human resource capabilities and the competitive advantages of the company?

A)Executive Summary
B)Company Description
C)Sales and Marketing
D)Management and Organization
E)Market Analysis and Future Outlook

Question 28

What is the difference between financial accounting and managerial accounting?

Question 29

Explain how owners' equity is defined.

Question 30

What is the main purpose of a Business Plan?

A)to provide a 3-5 year road map outlining the company's operating, marketing, financial and HR intentions
B)to provide a 1 year estimate of the company's spending on operations and research/development
C)to provide a road map describing corporate competitors and its approach of competing in the market
D)to provide a document prepared for external financiers in order to apply for a loan
E)to outline the research and development areas of commercial interest to the company

Question 31

You are trying to estimate the annual cost of setting up a branch of a manufacturing business in Vancouver, based on your experience of running a similar business in Halifax. The original business produces 800 units per year, whereas the Vancouver branch will produce 1 700. If the cost of setting up the Halifax operation was $9 000 000 and the capacity factor is 0.6, give an order of magnitude estimate for the cost of setting up the Vancouver operation.

A)$5 400 000
B)$11 475 000$
C)$14 147 000
D)$19 125 000
E)$20 250 000

Question 32

According to a firm's balance sheet, total assets account for $10 million while total liabilities account for $8 million. Calculate the equity ratio.

Question 33

What is the fundamental difference between a Balance Sheet and an Income Statement?

Question 34

How are assets defined in a Balance Sheet? What types of assets are usually included in this financial document?

Question 35

What section of the Business Plan describes the company's industry and analyzes the growth plans of the company?

A)Company Description
B)Executive Summary
C)Management and Organization
D)Market Analysis and Future Outlook
E)Business Plan

Question 36

You are trying to estimate the annual cost of setting up a branch of an engineering consulting business in Vancouver, based on your experience of running the original business in Halifax. The original business employs 80 engineers, whereas the Vancouver branch will initially employ 15. On the other hand, Vancouver salaries are typically 50% higher than those paid in Halifax. If the annual salary bill for the Halifax office is $9 000 000, give an order of magnitude estimate for the salary bill of the Vancouver office.

A)$844 000
B)$1 687 000
C)$2 400 000
D)$2 530 000
E)$2 953 000

Question 37

In this section of the Business Plan, information about key company employees are provided, including experience, education and qualifications for each individual.

A)Company Description
B)Executive Profiles
C)Management and Organization
D)Market Analysis and Future Outlook
E)Executive Summary

Question 38

The Funding Requirements section of the Business Plan should not only consider how much money will be borrowed from a bank (and interest rate), and how much funding comes from owners or investors, but also:

A)corporate cash flow and balance sheet
B)how the company plans to attract investors for new projects or company start-up
C)how the equity ratio and current ratio have performed over time
D)executive profiles and human resource factors
E)the company's track record for paying creditors

Question 39

Consider the following balance sheet:
Define and calculate the acid-test ratio.

Question 40

When describing your company's market share in the Market Analysis and Future Outlook section, what are some of the items that you could analyze?

A)strengths/weaknesses, technological advances, geographic location, financial outlook, as well as experience and human factors
B)strength/weaknesses, mission statement, financial outlook, year-over-year financials
C)SWOT analysis, funding requirements, competitors' failures, stock market performance
D)SWOT analysis, technological advances, funding requirements, executive profiles
E)executive profiles, strength/weaknesses, mission statement, and the financial outlook

Question 41

How can a business plan can be used internally by business owners?

Question 42

Describe what should be included in the Sales and Marketing section of the Business Plan.