Deck 13: Business Organization and Financial Data

Question 1

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

Answer 1

True

Question 2

Limited partners cannot participate in the operations of the firm.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

Highly successful, rapidly growing firms are disproportionately manufacturers.

Question 7

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

Question 8

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

Question 9

Partnership income is taxed at the partnership income tax rate.

Question 10

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

Question 11

The mission statement should guide every decision management makes.

Question 12

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

Question 13

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

Question 14

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

Question 15

Past professional experience in their fields is a common characteristic of successful entrepreneurs.

Question 16

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

Question 17

Many of the CEOs of Inc. 500 companies own more than 50 percent of the equity in their businesses.

Question 18

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

Question 19

A mission statement is a subset of a vision statement.

Question 20

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

Question 21

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

Question 22

Limited liability companies (LLC) are limited to 35 or fewer owners.

Question 23

Corporations issue stock.

Question 24

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

Question 25

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

Question 26

Subchapter S corporations issue stock.

Question 27

Subchapter S corporations are limited to 35 or fewer owners.

Question 28

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

Question 29

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

Question 30

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

Question 31

Partnerships are limited to 35 or fewer owners.

Question 32

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

Question 33

Limited partnerships issue stock.

Question 34

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

Question 35

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

Question 36

Limited liability companies (LLC) have an unlimited life span.

Question 37

In a limited partnership, the number of partners with limited liability is limited.

Question 38

If a corporation files for bankruptcy, creditors may try to get control of the personal assets of the owners of the company to collect on their debts.

Question 39

Limited liability companies (LLC) issue stock.

Question 40

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 41

Corporations are required to pay cash dividends to their common stockholders.

Question 42

Accounting focuses on profitability while finance focuses on cash.

Question 43

Worldwide, all corporations use a suffix of either "Inc." or "Corp."

Question 44

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

Question 45

One of the advantages for corporate stockholders is the limitation on liability.

Question 46

Among the inputs used to construct the financial statements are generally accepted financial principles (GAAP), which are formulated by the Financial Accounting Standards Board (FASB).

Question 47

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

Question 48

From the financial manager's perspective, profits are what matters most.

Question 49

Often, gross revenues are larger than net revenues.

Question 50

The income statement reports the revenues generated and expenses incurred by a firm at a given point in time.

Question 51

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

Question 52

The amount of cash flowing into the firm can be higher or lower than the net income figure.

Question 53

For a corporation, a firm commonly shows its net income on a per-shareholder basis. This is referred to as the earnings per shareholder (EPS).

Question 54

Each financial period's income statement shows the amount of depreciation expense for all assets since they were purchased.

Question 55

The U.S. federal government, through the Financial Accounting Standards Board (FASB), oversees the accuracy and truthfulness in public company financial statements.

Question 56

Most of accounting practice is based upon the cash concept.

Question 57

The costs of producing or manufacturing the products sold to earn revenues are grouped under cost of sales (COS).

Question 58

Corporate earnings distributed as shareholder dividends are subject to double taxation.

Question 59

Three important financial statements are provided in the annual report: the statement of income, the balance, and the 401Q.

Question 60

Under accrual accounting, revenues and their associated expenses are recognized when a sale occurs, regardless of when cash revenues or expenses occur.

Question 61

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

Question 62

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

Question 63

Amount of net income plus amount of depreciation is a source of cash flows.

Question 64

The current assets of a business include cash and other assets that are expected to be converted into cash within one quarter.

Question 65

Liabilities are classified as secured and non-secured.

Question 66

Every dollar of a firm's assets must be financed by a dollar of liabilities.

Question 67

Positive cash flows must equal negative cash flows.

Question 68

Two broad groups of assets are identified on the balance sheet: liquid and non-liquid.

Question 69

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 70

Only corporations have owners' equity.

Question 71

Inventories are treated as a liability on the balance sheet.

Question 72

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

Question 73

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 74

A cash dividend is a use of cash flows.

Question 75

An increase in a liability account is a source of cash flows.

Question 76

A decrease in an asset account is a use of cash flows.

Question 77

Typically, a close estimate of market value added (MVA) is the market value of equity less the book value of equity.

Question 78

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

Question 79

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

Question 80

An increase in an equity account is a use of cash flows.