Question 1

_______ refer(s) to the financial obligations of a business created by borrowing.

Accepted Answer

Liabilities refer to the financial obligations of a business created by borrowing, such as loans, accounts payable, and bonds. Net worth refers to the value of a business's assets minus its liabilities. Cash flow refers to the movement of money in and out of a business, while equities refer to the ownership interest of shareholders in a business.

Question 2

Gemini Inc. earned a net income of $250,000 in the year 2000. If its expenses for that year amounted to $50,000, what was the revenue that Gemini Inc. earned in the year 2000?

Accepted Answer

Net income is calculated as Revenue minus Expenses. Therefore, to find the revenue, we add the expenses back to the net income: $250,000 + $50,000 = $300,000.

Question 3

What will the net income of a company be if its revenue is $600,000 and expenses $200,000?

Accepted Answer

To find the net income, we subtract expenses from revenue: 
$600,000 - $200,000 = $400,000. Therefore, the net income of the company is $400,000. Choice C is the correct answer.

Question 4

A(n) _____ periodically shows revenues, expenses, and profits from a firm's operations.

Accepted Answer

The income statement shows revenues, expenses, and profits over a specific period of time, typically quarterly or annually. The balance sheet shows a firm's assets, liabilities, and equity at a specific point in time. The statement of retained earnings shows how a firm's retained earnings changed over a specific period of time. The cash flow statement shows the inflow and outflow of cash from a firm's operations, financing, and investing activities.

Question 5

Which of the following is an example of a fixed asset?

Accepted Answer

Fixed assets are long-term assets that have a useful life of more than one year and are not easily converted into cash. Equipment is a common example of a fixed asset. Cash, prepaid expenses, and inventory are current assets but not fixed assets.

Question 6

_______ refer(s) to obligations to pay, resulting from purchasing goods or services.

Accepted Answer

Accounts payable refers to obligations to pay, resulting from purchasing goods or services. Mortgage payable relates to a loan used to purchase property, surplus value is the difference between the price of a sold good and the cost of producing it, and owner's equities refer to the residual interest in the assets of an entity after liabilities are deducted.

Question 7

_____ refer(s) to current assets resulting from selling a product on credit.

Accepted Answer

Accounts receivable refer to current assets resulting from selling a product on credit. Accounts payable refer to debts owed to suppliers for purchasing on credit. Liabilities refer to debts or obligations owed by a company. Owners' equity refers to the residual interest in the assets of a company after deducting liabilities.

Question 8

_____ show(s) a firm's financial position and reflect(s) any changes in that position.

Accepted Answer

Accounting records maintain a record of all financial transactions and show a firm's financial position through financial statements like balance sheets, income and cash flow statements, which reflect any changes in the firm's financial position.

Question 9

Land, cash, accounts receivable, inventory, equipment, building and other things of value that a company owns are its _____.

Accepted Answer

Assets are the physical and financial resources that a company owns and can use to generate revenue. They include land, cash, inventory, and equipment, among other things. Profits, revenues, and expenses are all related to a company's financial performance but are not the same as assets.

Question 10

Acute Business Corp., a small business firm, has $500,000 in assets and $300,000 in liabilities. What is the value of the owners' equity?

Accepted Answer

The value of the owners' equity is calculated by subtracting liabilities from assets. Therefore, the owners' equity for Acute Business Corp. is $200,000 ($500,000 - $300,000).

Question 11

A _____ is a statement of a firm's assets, liabilities, and owners' equity at a given time.

Accepted Answer

A balance sheet is a financial statement that shows a company's assets, liabilities, and equity at a specific point in time. It gives a snapshot of a company's financial health and is used by investors to help make decisions about whether or not to invest in a company.

Question 12

_____ describes the relative proportions of a firm's assets, liabilities, and owners' equity.

Accepted Answer

Financial structure refers to the mix of a firm's assets, liabilities, and owners' equity that determines the relative proportions of these elements and their maturity and risk characteristics.

Question 13

Which of the following is true of benchmarking?

Accepted Answer

Benchmarking is a process of comparing a firm's performance against standards or best practices in the industry. It involves setting up standards or benchmarks and then measuring performance against them. This allows firms to identify areas where they are falling behind and take steps to improve their performance. Options B, C, and D do not accurately describe the process of benchmarking.

Question 14

Which of the following is an example of current asset?

Accepted Answer

Inventory is an example of current asset since it is the items that a company has in stock and expects to sell or use in their operations within a year. The other options are fixed assets since they are long-term resources that a company uses to generate revenue but have longer useful lives than a year.

Question 15

Current assets are expected to _____.

Accepted Answer

Current assets are expected to turn over, meaning they are expected to be converted into cash or used up within a year.

Question 16

Which of the following is true of profit planning?

Accepted Answer

Profit planning must precede other planning activities, as it provides a basis for setting other goals and objectives. Option A is incorrect because profit planning cannot completely eliminate the risk of failure. Option B is incorrect as determining the volume of sales revenue is a crucial aspect of profit planning. Option D is incorrect as the profit goal should be a specific target value for effective profit planning.

Question 17

In the context of small businesses, _____ is a series of prescribed steps to be taken to ensure that a profit will be made.

Accepted Answer

Profit planning involves developing strategies and plans to ensure that a business will generate a profit. It involves identifying the costs associated with various business activities and developing a pricing strategy that will ensure that revenue exceeds those costs. It also involves identifying potential areas for growth and implementing strategies to capitalize on those opportunities. Budgeting is related to profit planning, as it involves allocating resources to various business activities based on expected revenue and expenses. Forecasting is the process of estimating future revenue and expenses based on past performance and market trends. Profit monitoring involves tracking actual revenue and expenses to ensure that a business is on track to meet its profit goals. While all of these activities are important for small businesses, profit planning is specifically focused on ensuring that a profit will be made.

Question 18

Which of the following is an example of current liability?

Accepted Answer

Accounts payable is a current liability as it represents the amount owed by a company to its suppliers for goods or services received but not yet paid for. Prepaid expenses are a current asset, inventory is also a current asset, and mortgage payable is a long-term liability.

Question 19

Which of the following is an example of long-term liability?

Accepted Answer

Mortgage payable is a long-term liability as it is a loan that has a repayment period of over one year. Choices A, B, and C are all examples of current liabilities.

Question 20

______ refers to the owners' net worth in the business after liabilities are subtracted from assets.

Accepted Answer

Owners' equity is the amount of money that the owner(s) have invested in the business and is calculated by subtracting liabilities from assets. It represents the residual value of the business belonging to the owner(s) after all debts have been paid off.

Quiz 14: Basic Financial Planning