Test Bank Chapter 9 Entrepreneurial Finance And Accounting

Chapter 9: Entrepreneurial Finance and Accounting

= Correct answer

Multiple Choice/Fill in the Blank

1. Which of the following represents the correct order of a business’s lifecycle?

A. early stage, maturity, seed-stage

B. early stage, seed-stage, maturity

C. seed-stage, early stage, maturity

D. seed-stage, maturity, early stage

Difficulty: Easy

1. Which of the following could be considered collateral for a loan? (Select all that apply.)

A. buildings

B. inventory

C. machinery

D. wages

Difficulty: Easy

1. Which of the following is a true statement about an IPO?

A. The IPO process is highly regulated by the SBA.

B. Companies can be considered publicly held without an IPO.

C. The company does not need to publish audited financial statements.

D. Owners lose part of their ownership of the business.

Difficulty: Easy

1. Which of the following do not have to be repaid by the business?

A. crowdfunding

B. grants

C. investments

D. no interest loan

Difficulty: Easy

1. The accounting equation may be expressed as ________.

A. Assets = Owner’s Equity − Liabilities

B. Assets + Liabilities = Owner's Equity

C. Assets = Profit − Liabilities

D. Assets – Owner’s Equity = Liabilities

Difficulty: Easy

1. Which of the following are considered assets? (Select all that apply.)

A. inventory

B. investments

C. liabilities

D. owner’s equity

Difficulty: Easy

1. Which of the following occurs when customers pay for items before they are launched?

A. bartering

B. bootstrapping

C. crowdfunding

D. pre-ordering

Difficulty: Easy

1. Which of the following is true about assets?

A. Liabilities are always more than the assets of a business.

B. Assets of a business are equal to owner’s equity less liabilities.

C. Expenses and assets are the same since they are both acquired with cash.

D. Owners and/or creditors finance the assets of a business.

Difficulty: Easy

1. The statement of cash flows is not useful for ________.

A. planning future investing

B. determining if the business can pay its debt

C. determining if the business is building cash from operations

D. calculating the overall value of the business

Difficulty: Easy

1. Which of the following is considered a liability?

A. accounts receivable

B. accounts payable

C. returns and allowance

D. service revenue

Difficulty: Easy

1. Charitable missions include all of the following except

A. advancing education

B. collecting taxes for a government body

C. defending human rights

D. protecting the environment

Difficulty: Easy

1. Which of the following are considered fixed costs?

A. sales commissions

B. shipping costs

C. supplies

D. wages

Difficulty: Moderate

1. Which of the following are considered variable costs?

A. insurance

B. raw materials

C. rent

D. utilities

Difficulty: Moderate

1. If you pay $4,250 toward an outstanding amount owed, the effect on the accounting equation is ________.

A. decrease an asset and increase an asset

B. decrease an asset and decrease a liability

C. increase an asset and increase owner’s equity

D. decrease an asset and increase owner’s equity

Difficulty: Moderate

1. Earning revenue’s effect on the accounting equation would be ________.

A. increase assets and increase owner’s equity

B. increase assets and decrease liabilities

C. increase owner’s equity and decrease liabilities

D. increase assets and increase liabilities

Difficulty: Moderate

1. Which of the following is most likely to obtain large amounts of investments by the issuance of stock?

A. corporation

B. government entity

C. not-for-profit

D. partnership

Difficulty: Moderate

1. The assets of a business equal $100,000. The liabilities are $64,000. What is owner’s equity?

A. $24,000

B. $36,000

C. $100,000

D. $164,000

Difficulty: Moderate

1. If total assets decreased by $88,000 and owner's equity increased by $71,000 during a quarter, how did the total liabilities change in that same quarter?

A. $17,000 increase

B. $17,000 decrease

C. $159,000 increase

D. $159,000 decrease

Difficulty: Moderate

1. Which of the following is the best description of accounting’s role in business?

A. Accounting statements provide stockholders with information regarding the market value of the business’s stocks.

B. Accounting statements provide information to managers to operate the business and to other users to make decisions regarding the economic condition of the business.

C. Accounting statements help decrease the credit risk of the business and help other users to make credit decisions for the business.

D. Accounting statements are not responsible for providing any information to users. That is the role of the Information Systems Department of the business.

Difficulty: Moderate

1. Which of the following is not a role of accounting statements in a business?

A. keeps internal users informed on the business’s economic conditions

B. guarantees loans of the business that the owners use for everyday expenses

C. keeps external users informed of the business’s economic performance

D. designs a system that meets the informational needs of users

Difficulty: Moderate

1. Which of the following is one of the disadvantages of crowdsource funding?

A. It creates a great amount of attention for your project.

B. If the target isn’t reached, investors don’t get their money back.

C. Failed projects could damage the business’s reputation.

D. The business could get positive/negative feedback about a project.

Difficulty: Difficult

1. Which of the following is one of the advantages to bootstrap funding?

A. Customers are not a priority, but rather building the business is.

B. It creates a strong, lean, efficient customer-focused business.

C. Debt is more manageable for the owners of the business.

D. Your growth depends on the cash availability.

Difficulty: Difficult

1. Which of the following would create a taxable income event from a bartering system?

A. providing free television ad time for a charity’s fund drive

B. offering free legal services for a homeless shelter

C. preparing a tax return in exchange for free office cleaning for a month

D. taking free holiday photos for a local animal shelter

Difficulty: Difficult

1. Which of the following would not be considered an accounting transaction of the business?

A. selling goods for cash

B. providing a sales offer

C. receiving payment for services

D. using loan proceeds to pay for raw materials

Difficulty: Difficult

True/False

1. True or false? The statement of cash flows is a mandatory financial statement.

Difficulty: Easy

1. True or false? The income statement shows the effects of a company's operating, investing, and financing activities on cash.

Difficulty: Easy

1. True or false? The readers of financial accounting statements need reports about the overall economic activities and condition of the business to make informed decisions.

Difficulty: Easy

1. True or false? Financial accounting statements are only useful to the owners of the business.

Difficulty: Easy

1. True or false? One of the advantages of bootstrapping as a financing method is that the owner makes personal sacrifices.

Difficulty: Easy

1. True or false? The basic accounting equation can be stated as Assets – Liabilities = Owner’s Equity.

Difficulty: Easy

1. True or false? Every business has the ability to accept donations.

Difficulty: Moderate

1. True or false? Program revenue is generated by the nonprofit’s operations.

Difficulty: Moderate

1. True or false? The rights (collateral) to the assets of a business may be subdivided into the rights of the lienholders and the rights of the owners.

Difficulty: Moderate

1. True or false? If total assets decreased by $20,000 and owner's equity decreased by $25,000 during a quarter, the total liabilities increased by $45,000 in that same quarter.

Difficulty: Moderate

1. True or false? If total assets increased by $190,000 and liabilities decreased by $10,000 during a specific period, the total owner's equity increased by $200,000 during that same period.

Difficulty: Moderate

1. True or false? When a business uses bartering for services, there are no accounting transactions to worry about.

Difficulty: Difficult

1. True or false? When a company issues stock or a stake in the company, the influx of cash is reflected in the investing section of the cash flows statement.

Difficulty: Difficult

1. True or false? Fixed costs for a business are easy to control.

Difficulty: Difficult

1. True or false? A business can have negative owner’s equity and still be profitable.

Difficulty: Moderate

Short Answer

1. Why do entrepreneurs provide their financial statements?

Difficulty: Easy

1. Explain the funding across the company lifecycle.

Difficulty: Easy

1. Explain debt versus equity financing.

Difficulty: Easy

1. Explain the three major financial statements.

Difficulty: Easy

1. You and your friend want to start a landscape business. The initial startup investment for machinery will cost $10,000. What method of financing would you choose to use and why?

Students’ answers will vary. Each answer should include what method of financing they chose, such as bootstrapping, loan, etc. They should be able to list the advantages of this method and why they think it is best.

Difficulty: Easy

1. Does a nonprofit organization have to worry about breakeven analyses or projections?

Difficulty: Moderate

1. What are the purposes of accounting systems for internal and external users?

Difficulty: Moderate

1. How is the statement of cash flows useful?

Difficulty: Moderate

1. Does a business have to record any transactions related to bartering services?

Difficulty: Difficult

1. Can a company survive if they are constantly creating revenue at the breakeven point?

Difficulty: Difficult

1. Every business has the ability to accept donations. Why then do for-profit businesses tend to shy away from accepting donations?

Difficulty: Difficult

This file is copyright 2020, Rice University. All Rights Reserved.