Section 1

Question 1

3 kinds of business

Answer 1

manufacturing
merchandising
service

Question 2

2 kinds of merchandising

Answer 2

retail

wholesale

Question 3

3 elements to start a successful business

Answer 3

management skill
idea
capital

Question 4

management skill

Answer 4

the ability to effectively employ resources and produce a profit

Question 5

capital

Answer 5

money or resources to bring a product or service to life

Question 6

a good idea

Answer 6

a product or service that can be sold at a profit

Question 7

2 ways to access capital

Answer 7

debt or equity financing

Question 8

debt financing

Answer 8

borrowing from lenders or creditors

Question 9

equity financing

Answer 9

contributions from investors or owners

Question 10

financing has to do with how

Answer 10

capital is obtained for a business

Question 11

accounting

Answer 11

the language of business

Question 12

3 characteristics of debt financing

Answer 12

1. borrowed resources must be repaid
2. consequences of failure to repay can be harsh
3. can be difficult to qualify for

Question 13

2 characteristics of equity financing

Answer 13

1. investors contribute resources/captial in exchange for ownership interests
2. investor contributions of resources are not subject to repayment

Question 14

ownership grants what 3 rights?

Answer 14

1. right to vote or have a say
2. right to share in profits
3. right to share in remaining resources if business terminates

Question 15

key advantage of debt financing

Answer 15

no sacrifice of ownership rights

Question 16

key advantage of equity financing

Answer 16

no requirement to repay capital contributions

Question 17

2 ways an owner gets their investment back

Answer 17

1. distribution upon discontinuance

2. subsequent sale of ownership interests to other investors

Question 18

3 ways investors make a profit/loss on investment

Answer 18

1. sharing in the business operating profits through dividends
2. capital gains or losses on the sale of stock
3. distributions if the business is terminated

Question 19

the primary purpose of financial accounting

Answer 19

provide info that assists investors and creditors in evaluating a company’s

1. credit worthiness
2. profit potential

Question 20

financial accounting provides (4)

Answer 20

• HISTORICAL info
• to CREDITORS and POTENTIAL INVESTORS
• outside of management
• about the company’s FINANCIAL POSITION and RESULTS OF OPERATIONS

Question 21

managerial accounting provides

Answer 21

• info that assists managers in the effective operation of a business
• more detailed reports
• not publicly available
• used to improve FUTURE performance

Question 22

3 general purpose financial statements

Answer 22

1. Balance Sheet
2. Income Statement
3. Cash flow Statement

Question 23

financial statements are found

Answer 23

in a company’s annual report

Question 24

2 critical conditions that must exist for financial statements to be truly useful

Answer 24

1. comparability

2. credibility

Question 25

GAAP

Answer 25

generally accepted accounting principles

Question 26

FASB

Answer 26

financial accounting standards board

Question 27

what is credibility?

Answer 27

providing financial info that is materially accurate and reliable

Question 28

the company’s management is responsible for

Answer 28

- a company’s accounting system | - the prep of its financial statements

Question 29

what does the SEC do?

Answer 29

regulates stock and bond transactions

Question 30

AICPA

Answer 30

american institute of cpa’s

Question 31

name 2 functions of the AICPA

Answer 31

1. license and certify CPA’s | 2. establish rules of how to conduct an audit

Question 32

GAAP was established by

Answer 32

the FASB

Question 33

EPS

Answer 33

earnings per share

Question 34

How do we know what the profit is?

Answer 34

earnings per share

Question 35

GAAP establishes

Answer 35

rules of accounting and disclosure

Question 36

T/F IASB has no regulatory authority

Answer 36

true

Question 37

IFRS

Answer 37

international financial reporting standards

Question 38

An external auditor’s report on financial statements expresses an opinion

Answer 38

1. as to the fairness of the financial statements | 2. as to compliance with GAAP

Question 39

A company’s annual report provided to the public will typically include

Answer 39

1. an explanation fr management summarizing the company’s operating results 2. an external auditor’s report on the financial statements 3. notes to the finanacial statements providing supplemental info

Question 40

The professional organization for certified public accountants in the US is

Answer 40

the American Institute of Certified Public Accountants AICPA

Question 41

T/F Company stock values are influenced most significantly by investors’ changing expectations of a company’s future earnings

Answer 41

true

Question 42

T/F the primary purpose of financial accounting is to communicate info to the managers of a business

Answer 42

false

Question 43

a disadvantage of the corporate form of business ownership is

Answer 43

possible double income taxation on profits distributed to the company owners

Question 44

T/F the Novo Mercado is a Brazilian stock market that has been proposed primarily for the listing of foreign stocks (non-Brazilian in order to make investment in such companies more accessible to Brazilian investors

Answer 44

False, it is for the listing of Brazilian companies to attract foreign investors and capital to Brazil

Question 45

T/F the SEC is considering the allowance of international accounting standards for companies wishing to access US capital markets, but such a policy is opposed by the the FASB and many US corporations

Answer 45

true

Question 46

T/F the IASB is a London based organization that has been established to require and enforce the use of international accounting standards in countries receiving funds through the IMF

Answer 46

False

Question 47

the prep and accuracy of a company’s financial statements and compliance with GAAP is primarily the responsibility of the company’s

Answer 47

management

Question 48

T/F stock selling at a low P/E ratio is more characteristic of a growing company than one that has stabilized earnings

Answer 48

false

Question 49

What is P/E ratio?

Answer 49

it shows the relationship of a company’s stock price relative to its earnings

Question 50

t/f a sporting goods store in the local mall is an example of a merchandising business

Answer 50

true

Question 51

when P/E ratio of a company is low relative to its earning

Answer 51

there is not a significant expectaton of future earnings growth

Question 52

Why does high growth company stock sell at a higher PE ratio

Answer 52

because people are willing to pay higher prices to own the stock of companies for which higher eanings are anticipated or hoped for

Question 53

financial accounting provides

Answer 53

information to investors and creditors

Question 54

GAAP applies to what type of accounting

Answer 54

financial accounting