Exam
Name___________________________________
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
1) Your company is effective if you establish a specific goal and accomplish that goal.
2) When you go into business, your goal should be to earn both an accounting and an entrepreneurial
1)
2)
profit.
3) Once a company sells more units of a product than are required to break even, the company will
3)
T
t
t
t
make a profit.
4) In a leveraged approach, the break-even point is higher than in a conservative approach.
4)
5) Leverage uses those fixed costs of finance only to magnify a company's return.
5)
f
f
6) A forecast is an accurate estimate of future demand.
6)
f
7) Lenders require pro forma statements because they want to make sure the business will generate
7)
f
enough profit to pay back both the principal and interest on the loan.
8) Once we select a forecasting model, changing market conditions may require us to change the
8)
t
model if it no longer performs as desired.
9) On a pro forma income statement, the value we enter for sales revenue is normally derived from
9)
t
our forecast.
10) The pro forma cash budget projects future receipts and expenditures.
10
)
t
11) Working capital consists of the current assets and current liabilities of a company.
11
)
t
12) Finished goods inventory is made up of those items that are actually sold by the business.
12
)
t
13) The three Cs of credit are character, capacity, and comedy.
13
)
f
14) The collection float is the amount of time that elapses between depositing the debtor's check in an
14
)
T
15
)
F
account and the check clearing an account.
15) The disbursement float is the amount of time that elapses between depositing the debtor's check in
an account and the check clearing the account.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
16) Obtaining the highest possible return with the minimum use of resources committed is the basic 16) B
definition of
A) effectiveness and efficiency.
B) efficiency.
C) effectiveness.
D) none of the above.
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17) Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting
17)E
firm. He earned $40,000 with the accounting firm We Keep Books Accurately. During the current
year, Sam had revenues of $150,000 and total expenses of $110,000. Sam earned an
A) accounting profit of $40,000.
B) entrepreneurial profit of $40,000, but had an accounting loss.
C) accounting profit of $40,000 and an entrepreneurial profit of $40,000.
D) entrepreneurial loss of $40,000.
E) Both A and D above are correct.
18) Profitability is the same as
18)E
A) effectiveness.
B) expectations of the owners.
C) return on investment.
D) meeting a goal.
E) profit.
19) In order to determine the break-even point, we must identify several variables. At a minimum
we
must know
A) fixed costs.
B) sales.
C) variable costs.
D) all of the above.
20) Break-even analysis is the process of determining ________ before we begin earning a profit.
19)
D
20)
A
A) how many units must be produced, or how much revenue must be obtained
B) how much revenue must be obtained, or how much net profit will be made
C) what price we will charged for a product, or how many units must be produced
D) what price will be charged for a product, or how much net profit will be made
E) how much net profit will be made, or how many units will be produced
21) A forecast is used to
21)E
A) help plan for the hiring of personnel.
B) determine the physical size of the plant.
C) determine future sales and revenue.
D) help plan for the purchase of equipment and machinery.
E) all of the above.
22) You have a current balance sheet with liabilities of $50,000 and assets of $75,000. You estimate
22)D
that
you will have to purchase a new vehicle next year for $20,000. You believe you will be able to pay
20% down and can finance the remainder through your bank. If nothing else changes, your pro
forma balance sheet will show assets of ________ and liabilities of ________.
A) $91,000; $66,000
B) $91,000; $54,000
C) $95,000; $70,000
D) $95,000; $66,000
23) XYZ Company has assets that are traditionally 85% of sales, and its liabilities traditionally are
23)B
50%
of sales. Sales for this year are $50,000 and sales for next year are projected to be $150,000 with
a profit margin of 10%. No owner payout will be taken. Using the percentage of sales method,
XYZ will need ________ of additional financing.
A) $52,500
B) $20,000
C) $70,000
D) $15,000
E) No financing is required.
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24) Which of the following is a variable expense?
A) a security deposit
B) a utility bill
C) sales commission
D) a phone bill
25) Which of the following are reasons to generate a pro forma cash budget on a monthly basis?
24)B
25)D
A) Sales are recognized as income when the sale is made.
B) An income statement indicates a profit but the budget may indicate a loss.
C) A business can monitor the actual cash on hand.
D) All of the above.
26) Which of the following would NOT be counted as part of working capital?
A) inventory
B) accounts payable
C) accounts receivable
D) equipment
E) cash
27) Net working capital can be found by subtracting
26)D
27)A
A) current liabilities from current assets.
B) current assets from current liabilities.
C) current liabilities from total assets.
D) total liabilities from total assets.
E) current assets from total liabilities.
28) Collection float is the amount of time that elapses between ________ a check in an account and
the
check's ________, at which point the funds are actually placed in the account.
A) depositing; clearing
B) issuing; clearing
C) writing; being deposited
D) receiving; being deposited
E) A and B above
29) Which of the following is a method used to speed up cash receipts?
29)D
A) lock box
B) electronic funds transfer
C) writing a check
D) A and B above
E) B and C above
30) The credit decision involves
30)B
A) investigating the customer.
B) making sure that the customer is a good credit risk.
C) granting credit to all applicants.
D) looking at the borrower's collateral.
E) all of the above.
28)e
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