Deck 4: Legal Considerations

Question 1

The three common groups into which financial ratios are typically arranged include all of the following,except:

A)Liquidity ratios
B)Debt ratios
C)Profitability ratios
D)Leverage ratios

Answer 1

B

Question 2

Fixed expenses are those which:

A)Are dependent on the level of sales.
B)Must be paid regardless of the level of sales.
C)Are proportionate to the level of sales.
D)Can be deferred in the event that sales are zero.

Answer 2

B

Question 3

All of the following are examples of fixed expenses,except:

A)Insurance premiums
B)Business taxes and licences
C)Rent
D)Travel costs

Answer 3

D

Question 4

Many retail businesses are:

A)Capital intensive
B)Labour intensive
C)Inventory intense
D)Employee intense

Question 5

All of the following are examples of variable expenses,except:

A)Insurance premiums
B)Salaries and commissions
C)Advertising and promotion
D)Travel costs

Question 6

Which of the following is considered a fixed asset?

A)Machinery and equipment
B)Inventory
C)Mortgages on land
D)Raw materials

Question 7

Which of the following is not considered a soft cost?

A)Utility deposits
B)Pre-opening advertising
C)Promotion expenses
D)Lease of furniture

Question 8

All of the following are examples of variable operating expenses,except:

A)Advertising and promotion expenses
B)Wages and salaries
C)Insurance premiums
D)Delivery expenses

Question 9

One-time expenditures include all of the following,except:

A)Capital expenditures
B)Fixtures
C)Soft costs
D)Employees' wages

Question 10

The cost of goods sold:

A)Is the price of the goods sold,including selling and other expenses.
B)Is the price of the goods sold,plus an estimated expense of carrying the inventory in the store or warehouse facility.
C)Is just the price of the goods,not including selling and other expenses.
D)Is a value that is not relevant when it comes to constructing the pro forma income statement.

Question 11

Which of the following is a long-term liability?

A)bills from suppliers
B)raw materials you will need for your initial inventory
C)notes on machinery and equipment
D)short-term loans from banks

Question 12

All of the following are current assets,except:

A)Accounts receivable
B)Inventory
C)Cash
D)Buildings

Question 13

Which of the following is an example of a fixed operating expense?

A)Rent
B)Advertising and promotion expenses
C)Wages and salaries
D)Delivery expenses

Question 14

In very simple terms,a cash flow forecast:

A)Traces the expected expenses of a business on a semi-annual basis.
B)Traces the cost of borrowing over the term of the debt.
C)Traces the expected flow of funds into and out of a business over some period of time.
D)Traces the amount of interest earned by a business when customers use credit cards to pay for their merchandise.

Question 15

Which of the following is considered an operating expense?

A)Capital expenditures
B)Equipment leasing
C)Employees' wages
D)The purchase of beginning inventory

Question 16

Which category of financial ratios measure the level of debt the business has incurred?

A)Leverage ratios
B)Profitability ratios
C)Liquidity ratios
D)Asset ratios

Question 17

Debts you expect to incur that will fall due in less than 12 months are considered:

A)Current liabilities
B)Current assets
C)Fixes assets
D)Long-term liabilities

Question 18

Which of the following financial statements provides a "snapshot" of your business's health at one point in time?

A)Income statement
B)Cash flow statement
C)Balance sheet
D)Pro forma income report

Question 19

All of the following are required to construct a pro forma income statement,except:

A)Projected net sales
B)Projected cost of goods sold
C)Variable operating expenses
D)Last period's actual sales

Question 20

A(n)_______ measures the company's sales and expenses during a specified period of time.

A)Balance sheet
B)Ratio analysis
C)Income statement
D)Budget

Question 21

(p.129 (templates on Connect))A feasibility study will help you determine:

A)Whether your new business venture will be scrutinized by Revenue Canada.
B)Whether your prospective business venture will be feasible or not.
C)If you have to pay taxes on income earned by the business.
D)The way to get around government regulations which could impede your business.

Question 22

If a business's net sales are $20,000 while cost of goods sold totals $6,000,its gross margin is $14,000 or 70 percent of sales.

Question 23

If the business carries an inventory of $25,000 and its overall net revenue is $150,000,inventory turnover is three times per year.

Question 24

The gross margin ratio is an example of a:

A)Liquidity ratio
B)Profitability ratio
C)Debt ratio
D)Leverage ratio

Question 25

The current ratio is an example of a(n):

A)Liquidity ratio
B)Profitability ratio
C)Asset ratio
D)Leverage ratio

Question 26

The times interest earned ratio is an example of a(n):

A)Liquidity ratio
B)Profitability ratio
C)Asset ratio
D)Leverage ratio

Question 27

Briefly outline the key information that must be available to construct a pro forma income statement.

Question 28

Many new businesses take several months or even years before they operate "in the black."

Question 29

(p.129 (templates on Connect))A feasibility study can help a potential business owner determine the liquidity of future assets.

Question 30

It is not uncommon that a new business will have to pay for its inventory and supplies up front on a "cash on delivery" (COD)basis until it establishes a reputation for meeting its financial commitments.

Question 31

(p.129 (templates on Connect))Which of the following is a comprehensive,objective evaluation of the viability of your new business venture?

A)A lean business plan
B)A pro forma income statement
C)A ratio analysis
D)A feasibility study

Question 32

If your sales level is less than the break-even point,your business will incur a profit.

Question 33

The return on assets is an example of a(n):

A)Liquidity ratio
B)Profitability ratio
C)Asset ratio
D)Leverage ratio

Question 34

The break-even point indicates the level of operation of the business at which:

A)Fixed expenses equal variable expenses
B)Current assets equal current liabilities
C)Total costs equal total revenue
D)Total revenue is greater than total costs

Question 35

(p.129 (templates on Connect))If your feasibility study suggests to you that your new business venture is not viable,the next step is to:

A)Hire someone to work on the financial aspects of your plan to make the business viable.
B)Find investors to raise capital for the equipment and fixtures you will need when you open.
C)Create a lean business plan to convince the bank to lend you money.
D)Re-evaluate your concept,market,etc.,with the hope of salvaging some of the viable aspects of your business prospect.

Question 36

Non-cash accounting entries that may show up on an income statement such as depreciation,amortization,and asset transfers are ignored in forecasting the cash flow statement.

Question 37

If the business carries an inventory of $10,000 and its overall net revenue is $160,000,inventory turnover is sixteen times per year.

Question 38

The break-even point is affected by several factors,including your fixed and variable costs and your selling price.

Question 39

If a business's net sales are $200,000 while cost of goods sold totals $140,000,its gross margin is 60 percent of sales.

Question 40

The debt-to-equity ratio is an example of a(n):

A)Liquidity ratio
B)Profitability ratio
C)Asset ratio
D)Leverage ratio

Question 41

How do many small retail and wholesale businesses determine their cost of goods sold?

Question 42

Compare and contrast liquidity ratios with profitability ratios.

Question 43

What is the formula used to determine cash flow from investment activities?

Question 44

What do leverage ratios measure?

Question 45

What is the basic algebraic formula used to determine the break-even point?

Question 46

(p.129 (templates on Connect))A feasibility study will help you determine all of the following,except HYPERLINK "" :

Question 47

What is the formula used to determine cash flow from operating activities?

Question 48

What are the three sections in a typical cash flow statement?