Test Bank Answers nan Chapter.7 Financing And Accounting

Entrepreneurship, 3e (Bamford)

Chapter 7 Financing and Accounting

1) Extra expenses, not counted on in the planning stage of a new business, can quickly eat up cash intended to grow the business.

2) Funding for a small business starts with the founders and their personal resources.

3) Dan asks Mike to invest in his sporting goods store. Mike invests $10,000 in return for 25 percent of the ownership of the business. This is a form of equity investment.

4) A grant, a form of non-equity funding, is expected to be repaid at a predetermined interest rate once a beneficiary firm begins to profit from its operations.

5) Debt is a generic term that describes any type of non-equity funding tied to a business.

6) Debt, a source of non-equity funding, allows a new business to handle the disparity between when goods must be purchased and when money will be received from a customer to pay for those goods.

7) A loan involves a contractual agreement where a business receives some amount of money that must be repaid over a specified period of time at a specified interest rate.

8) In the case of business failure, debt does not need to be repaid.

9) John takes out a loan for a necessary machine in his business. This type of loan would be called asset-based lending.

10) Banks will lend money for the establishment and maintenance of inventory by arranging a revolving line of credit.

11) A problem with having a line of credit to purchase inventory is that a business tends to carry old and outdated inventory on the books.

12) Founders cannot lend money to their own firm.

13) Debt is typically a secured investment; if the business fails, the business's assets would be sold in order to repay the debt.

14) A credit card has a set repayment schedule.

15) Supplier credit is typically offered on both physical assets and actual supplies of inventory purchased by a business.

16) Accepting supplier credit limits a company's ability to shop around for a cheaper source of goods.

17) One form of funding for new small businesses is grants from governmental and private foundation sources.

18) The founders of an entrepreneurial business must avoid personally lending money to the business, as such debts are considered to be unsecured investments that need not be paid back, should the business fail.

19) Accepting an equity stake from an investor makes the owner accountable to that investor when founding and managing a business.

20) Equity investment does not involve selling a percentage of the business to an outside investor.

21) Many large and established businesses are willing to make equity investments in start-up companies.

22) In the context of funding a business, crowdfunding refers to funds received by a business by soliciting a large number of very small investors, usually via the Internet.

23) A cash-based accounting system recognizes expenses as they are paid and recognizes revenue when it is generated.

24) Accrual-based accounting is a system where expenses and revenues are recorded when they occur.

25) A chart of accounts is a listing of each type of activity (such as expense items) and each type of asset within the company.

26) A petty cash fund operates like a bank savings account.

27) Shrinkage is the difference between inventory that has been sold and inventory that was purchased by the business.

28) A profit and loss statement represents your business performance over time.

29) Which of the following activities is directly related to the establishment of the financial structure and record keeping of a new company?

A) The funds and the level of funding required for the new business

B) Maintenance of accounting records

C) Management of the paper/data flow of the new company

D) All of these

30) New businesses need to be aware of what issue(s) related to start-up?

A) Funding

B) Accounting system

C) Flow of information

D) All of these

31) ________ funds are received by a business in exchange for a percentage ownership of the company.

A) Asset-based

B) Venture capital

C) Equity

D) Tangible

32) Debt is a form of ________ funding.

A) equity

B) non-equity

C) asset

D) venture

33) A common form of debt for a small business can be classified as ________.

A) loans

B) credit cards

C) supplier credit

D) all of these

34) A ________ is a contractual agreement where a business receives money that must be repaid over a period of time.

A) credit card

B) loan

C) compact

D) lease

35) ________ have traditionally been a major source of funds for established firms but are quite restrictive in their lending to start-up firms, as the risk is perceived to be too high.

A) Investors

B) Families

C) Banks

D) Suppliers

36) A bank provides John money for the necessary hamburger maker for his business. This is called ________.

A) debt-asset lending

B) contractual assets

C) necessary funding

D) asset-based lending

37) Credit cards have all the following EXCEPT

A) no set repayment schedule.

B) not being tied to a particular asset.

C) equity investment.

D) high interest rate.

38) In the context of non-equity funding, identify a true statement about loans.

A) Debt holders have a right to a firm's assets if the firm fails to pay off their loans.

B) Banks take a controlling percentage of ownership of any small business they give a loan to.

C) Equity investors receive proceeds from a filed firm before all other loans are paid off.

D) Banks have traditionally been eager to fund entrepreneurial firms. 

39) Borealis Computing is a small start-up firm that needs to purchase essential equipment and supplies to begin operations. Gencent LLC, a larger firm, offers to finance Borealis Computing's purchases. Under their agreement, Borealis Computing will repay Gencent LLC overtime at a specified interest rate. In the context of non-equity funding, Gencent LLC's financing of Borealis Computing's purchases is an example of ________.

A) supplier credit

B) crowdfunding

C) equity investment

D) factoring

40) ________ are special funds that are neither equity nor debt, that do not require repayment, and are designed to aid businesses in specific areas.

A) Grants

B) No-pay loans

C) Small business loans

D) Incubator equity

41) Accepting ________ ties a firm to the supplier and usually stops the firm from shopping around for a lower price.

A) non-equity credit

B) funding grants

C) supplier credit

D) equity funding

42) Investors can be

A) active.

B) passive.

C) a minority.

D) all of these.

43) Covore Inc., a start-up firm, receives the majority of the funds it requires to begin its operations from five individuals. In exchange for these funds, each individual receives a share of ownership in the firm. The funds provided to Covore Inc. by the individuals are an example of ________.

A) debt

B) crowdfunding

C) equity investment

D) asset-based lending

44) Several successful businesspeople establish a partnership with each other. They combine their financial resources and use the resultant pool of resources to make equity investments in various high-growth new ventures. In the context of equity funding, the partnership and the pooled resources of the businesspeople are best described as

A) an angel investment scheme.

B) a venture capital fund.

C) a crowdfunding initiative.

D) an asset lease arrangement.

45) Established businesses are willing to make ________ investments in other start-up firms.

A) collateral

B) asset

C) non-equity

D) equity

46) ________ is a fund that is organized as a limited partnership.

A) Asset capital

B) Venture capital

C) Business angel

D) Equity

47) In the context of equity funding, identify a characteristic of venture capital funds.

A) They invest in large and established businesses that have slow and steady growth rates.

B) They raise capital for small businesses by sourcing small investments from multiple individuals.

C) They seek to make small investments in numerous small-sized businesses and start-ups to improve the possibility of consistent returns.

D) They tend to invest in high-growth business that can cash out by being bought out by a larger company within a set period of time. 

48) ________ are high-net-worth individuals who invest in business not as a business, but as an individual.

A) Venture capitalists

B) Business angels

C) Supplier capitalists

D) Equity investors

49) Sonor Designs is a small business that makes greeting cards. Because of the small scale of the firm's operations, it cannot afford to purchase the expensive printers it needs to make greeting cards. Instead, it rents the printers from another organization. In the context of business financing, Sonor Designs renting essential business equipment from another company is an example of

A) asset leasing.

B) crowdfunding.

C) factoring.

D) microfinancing.

50) In the context of financing tools available to new businesses, identify a major disadvantage to asset leasing.

A) Any assets that are leased must be paid for upfront, making the proposition of leasing nearly as expensive as purchasing new equipment outright.

B) A new business might spend more money on leasing equipment over time than if it had bought the equipment outright.

C) Equipment leasing agreements make it difficult for a small business to upgrade to newer machines when their leased machines become obsolete.

D) Major asset leasing companies are unwilling to risk leasing equipment to new businesses.

51) In the context of financial tools, a business can quickly generate cash in the short run by selling accounts receivable at a discount to another company. This is a technique known as ________.

A) crowd funding

B) asset leasing

C) factoring

D) leasing

52) Funding for any new business starts with a(n) ________.

A) bank

B) investment banker

C) founder(s)

D) equity fund

53) ________ can be described as a form of non-equity funding where one organization finances another organization's purchasing of physical assets and supplies.

A) Angel investments

B) Supplier credit

C) Asset leasing

D) Factoring

54) What is the difference between venture capital funds and business angels?

A) Venture capital companies make only small investments, whereas business angels make both small and big investments.

B) Venture capital companies usually invest in small businesses, whereas business angels usually invest in big businesses.

C) Venture capital companies usually invest in large businesses, whereas business angels usually invest in small businesses.

D) Venture capital companies have a philanthropic attitude, whereas business angels have a profit-minded attitude.

55) ________ are high-net-worth individuals who invest in businesses not as a business, but on an individual basis.

A) Business angels

B) Venture capitalists

C) Investment bankers

D) Peer-to-peer lenders

56) Carla is a high-net-worth individual who was once an entrepreneur. She now financially invests in small start-ups and businesses. Though Carla funds their initial operations and advises them on the best way to develop their operations, she rarely interferes with their day-to-day operations. In the context of the various forms of equity funding, Carla is most likely

A) an investment banker.

B) an asset lender.

C) a business angel.

D) a venture capitalist.

57) What are the advantages of leasing equipment for a new business?

A) Beginning operations with a minimum cash outlay

B) No hassles of an aging asset

C) Ability of the business to trade up as newer, higher-quality machines become available

D) All of these

58) In the context of proper accounting techniques, the system that recognizes expenses when they are paid for and recognizes revenue as it is generated is known as ________.

A) accrual-based accounting

B) cash-based accounting

C) expenditure-based accounting

D) payable liabilities-based accounting

59) In the context of proper accounting systems, which of the following best describes accrual-based accounting?

A) It categorizes material assets that can quickly be converted to cash as a source of revenue.

B) It recognizes expenses as they are paid and recognizes revenue as it is generated.

C) It treats accounts payable, fixed assets, and current assets as expenses until they are fully paid out.

D) It records expenses and revenues when they actually occur, regardless of when the cash is received.

60) A(n) ________ is a listing of each type of activity (expense) and each asset within the company.

A) systems account

B) accrual account

C) chart of accounts

D) inventory account

61) In the context of good accounting practices, the organizational fund used for expenses too small to write a check for is known as

A) a petty cash fund.

B) an expense account.

C) accounts payable.

D) venture capital.

62) A ________ statement is a financial statement that summarizes the revenue, costs, and expenses incurred during a specific period of time.

A) balance

B) profit and loss

C) liabilities owed

D) pro forma

63) A company seeks to have inventory present only shortly before it is used. This method of inventory control is called

A) just-in-time inventory.

B) accrual inventory.

C) balanced inventory.

D) monitoring inventory.

64) In the context of proper accounting practices, identify a major difference between cash-based and accrual-based accounting systems.

A) Cash-based systems must be used by large businesses, whereas accrual-based systems must only be used by the smallest businesses.

B) Cash-based systems recognize revenue as it is generated, whereas accrual-based systems record revenue only when it occurs.

C) Cash-based systems are generally used with periodic inventory counting systems, whereas accrual-based systems are used primarily with perpetual inventory counting systems.

D) Cash-based systems are mostly used by publicly held corporations, whereas accrual-based systems are mostly used by privately held corporations.

65) Which one of the following is a key report that a new business owner should be prepared to generate?

A) An expense account

B) A check register

C) A chart of accounts

D) All of these

66) In the context of good accounting practices, ________ allow entrepreneurs to perform a monthly tracking of how much they spend and ultimately form an annual record of all business-related costs.

A) accounts payable

B) expense accounts

C) petty cash registers

D) inventory accounts

67) The catalog of items maintained by a business, which lists the description, quantity, item number, unit cost, and total cost of each item the business carries, is known as a(n) ________.

A) payroll record

B) expense account

C) inventory account

D) check register

68) Which of the following items does a payroll record list?

A) Taxes

B) Gross pay

C) Base pay

D) All of these

69) In the context of managing data flows, the ________ of inventory control seeks to minimize excess capital investment in inventory.

A) accrual-based method

B) perpetual method

C) safety-stock method

D) just-in-time method

70) Of the key accounting reports that a new businessperson should be prepared to generate, which of the following tracks the work times of hourly employees and attendance for salaried employees?

A) A payroll record

B) An accounts payable record

C) A chart of accounts

D) An expense account

71) One of the accounting records maintained by Visors Inc. lists the number of regular work hours worked by its employees, the overtime hours worked by various employees, and the firm's overtime pay rate. This record also tracks salary checks issued to each employee. This record is most likely a(n) ________.

A) expense account

B) payroll record

C) inventory account

D) accounts payable record

72) In the context of inventory accounts, the difference between what is sold by a business and what was brought into it is known as ________.

A) equity

B) supplier credit

C) shrinkage

D) factoring

73) Funding in any business must come first from the ________.

74) ________ is a generic term that describes any type of non-equity funding to a business.

75) ________ are contractual agreements where a firm receives money that must be repaid over a specified period of time at a set interest rate.

76) ________ are special funds, neither equity nor debt, that do not require repayment. 

77) The difference between what is sold and what was brought into the system is called ________.

78) What are the three common forms of debt for a small business?

79) What is the operational impact of equity investments?

80) In the context of equity funding, define and briefly describe a venture capital fund.

81) In the context of equity funding, who are business angels? Briefly describe them.

82) List and describe the two accounting systems available for a small business.