2024 – Question 1 The first step in creating the pro forma income statement is to

  

Question 1 

1. The first step in creating the pro      forma income statement is to:

  

create a sales forecast.

 

determine a reasonable salary and   return on investment in the company.

 

find published figures on the   specific type of business in order to forecast sales.

 

figure out operating costs and make a   realistic sales estimate.

2 points   

Question 2 

1. ________ ratios help a business      owner evaluate the company’s performance and indicate how effectively the      business employs its resources.

  

Liquidity

 

Leverage

 

Operating

 

Profitability

2 points   

Question 3 

1. The ________ ratio is a      conservative measure of a firm’s liquidity and shows the extent to which a      firm’s most liquid assets cover its current liabilities.

  

current

 

quick

 

turnover

 

net profit

2 points   

Question 4 

1. Depreciation is:

  

the difference between the total   sources available to the owner and the total uses of those assets.

 

listed as a source of funds because   it is a noncash expense, deducted as a cost of doing business.

 

the owner’s total investment at the   company’s inception plus retained earnings.

 

creditors’ total claims against the   firm’s assets.

2 points   

Question 5 

1. ________ are those items of value      the business owns; ________ are those things the business owes.

  

Assets; liabilities

 

Liabilities; assets

 

Ratios; equities

 

Equities; liabilities

2 points   

Question 6 

1. Once a credit account becomes past      due, a small business owner should:

  

wait patiently; the customer will   most likely pay the bill sooner or later.

 

turn the account over to a collection   agency the day it becomes past due.

 

contact the customer immediately, ask   for full payment, and set a deadline.

 

call the “deadbeat” in the   middle of the night and make harassing and threatening remarks until he pays.

2 points   

Question 7 

1. Small businesses selling on credit      find that:

  

it is relatively inexpensive and   simple.

 

it is expensive and requires a great   deal of effort.

 

it is essentially borrowing money   from the customer.

 

many can get by without selling on   credit because their business customers don’t expect to use credit.

2 points   

Question 8 

1. Bill and Henry are discussing the      volume of cash that has been coming into and going out of their business      during the accounting period. They are discussing:

  

profit.

 

net income.

 

accounts receivable and payable.

 

cash flow.

2 points   

Question 9 

1. When creating the cash budget,      keep in mind that:

  

it should be a monthly plan,   projected out for 3 years.

 

the more variable the sales pattern,   the shorter the planning horizon should be.

 

it should be quarterly estimates for   a period of 1 year.

 

it is a verbal or mental   “document” in order to permit maximum flexibility.

2 points   

Question 10 

1. Marking down inventory items that      don’t sell will result in:

  

keeping the inventory lean.

 

reduction in inventory turn over   ratio.

 

paying expenses on time.

 

All of the above

2 points   

Question 11 

1. Tien is looking for capital to      purchase new buildings and equipment for her small manufacturing company.      Tien is looking for ________ capital.

  

working

 

fixed

 

growth

 

asset-based

2 points   

Question 12 

1. When looking for an angel, the key      is:

  

networking.

 

using the SBA as a contact point.

 

searching the web.

 

using business incubators’ computer   matching services.

2 points   

Question 13 

1. The most common source of equity      funds used to start a small business is:

  

private investors or   “angels.”

 

loans from commercial banks.

 

the entrepreneur’s pool of personal   savings.

 

public stock issues.

2 points   

Question 14 

1. A disadvantage of using friends      and relatives as investors is:

  

they tend to demand more stock   options.

 

familial seniority often conflicts   with the “chain of command.”

 

they require more leniency with   benefits and pay.

 

unrealistic expectations or   misunderstood risks destroy friendships or family relationships.

2 points   

Question 15 

1. Private investors, or “angels,”      are often:

  

wealthy individuals.

 

entrepreneurs.

 

persons who invest in business   startups in exchange for equity stakes in the companies.

 

All of the above

2 points   

Question 16 

1. The SBA’s ________ program offers      short-term capital to growing companies seeking to finance seasonal      buildups in inventory or accounts receivable.

  

The Direct Loan

 

CDC

 

Immediate Participation Loan

 

CAPLine

2 points   

Question 17 

1. A small business that uses      factoring:

  

pledges its accounts receivable as   collateral to obtain a loan from a financial institution.

 

relies on a third-party consultant to   apply for SBA-guaranteed loans.

 

sells its accounts receivable to a   third party to get the capital it needs.

 

borrows money from lenders by   offering them the option to convert the loan into stock in the company.

2 points   

Question 18 

1. Asset-based borrowing permits      small businesses:

  

to borrow up to 100% of the value of   their inventory or their accounts receivable for the money they need for   long-term goals.

 

to use normally unproductive   assets—accounts receivable and inventory.

 

to obtain loans more easily but with   less borrowing power than if they used an unsecured line of credit.

 

access to a source of funds ideally   suited for long-term financing needs.

2 points   

Question 19 

1. A(n) ________ is a hybrid between      a conventional loan and a bond; at its heart it is a bond, but its terms      are tailored to the borrower’s individual needs, as a loan would be.

  

private placement

 

industrial revenue bond

 

504 loan

 

zero coupon bond

2 points   

Question 20 

1. A(n) ________ is a private      nonprofit financial institution that will make small loans to its members      for the purpose of starting a business.

  

SBIC

 

private placement

 

credit union

 

insurance company