MGMT 3850 CHAPTER 11 HOMEWORK

Essentials of Entrepreneurship & Small Business Mgmt., 7e (Scarborough)
Chapter 11 Creating a Successful Financial Plan

1) In order to reach profit objectives, entrepreneurs must be aware of their firms':
A) current ratio and liabilities.
B) fixed assets and owner's equity.
C) assets and liabilities.
D) overall financial position and any changes in the financial status.
Answer: D Your text here 1
Diff: 2 Page Ref: 391
AACSB: Analytic Skills
Learning Obj.: 1

2) The ________ shows what assets the business owns and what claims creditors and owners
have against those assets, and is built on the basic accounting equation:
Assets = Liabilities + Owner's Equity.
A) income statement
B) sources and uses of funds statement
C) balance sheet
D) cash budget
Answer: C
Diff: 1 Page Ref: 390
AACSB: Analytic Skills
Learning Obj.: 2

3) The ________ represents a "snapshot" of a business, showing an estimate of its value on a
given date, while the ________ is a "moving picture" of the firm's profitability over time.
A) balance sheet; income statement
B) income statement; balance sheet
C) statement of cash flows; income statement
D) balance sheet; statement of cash flows
Answer: A
Diff: 2 Page Ref: 391-393
AACSB: Analytic Skills
Learning Obj.: 2

4) Which of the following associations is correct?
A) Balance sheet - cost of goods sold
B) Income statement - owner's equity
C) Current assets - inventory
D) Long-term liabilities - accounts payable
Answer: C
Diff: 2 Page Ref: 392
AACSB: Analytic Skills
Learning Obj.: 2



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,5) The first section of a balance sheet lists:
A) assets.
B) liabilities.
C) claims creditors have against the firm's assets payable within one year.
D) the owner's equity in terms of initial capital invested and retained earnings.
Answer: A
Diff: 1 Page Ref: 392, Figure 11.1
AACSB: Analytic Skills
Learning Obj.: 2

6) Which of the following items would not be listed as a current asset in a company's financial
reports?
A) Cash
B) Accounts receivable
C) Fixtures
D) Inventory
Answer: C
Diff: 2 Page Ref: 392, Figure 11.1
AACSB: Analytic Skills
Learning Obj.: 2

7) ________ are those items of value the business owns; ________ are those things the business
owes.
A) Assets; liabilities
B) Liabilities; assets
C) Ratios; equities
D) Equities; liabilities
Answer: A
Diff: 1 Page Ref: 392
AACSB: Analytic Skills
Learning Obj.: 2

8) Cost of goods sold is located on which financial statement?
A) Income statement
B) Balance sheet
C) Statement of cash flows
D) All of the above
Answer: A
Diff: 2 Page Ref: 393, Figure 11.2
AACSB: Analytic Skills
Learning Obj.: 2




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,9) Which of the following is not true regarding the components of the income statement?
A) Cost of goods sold represents the total cost, excluding shipping, of the merchandise sold
during the accounting period.
B) Gross profit margin is calculated by dividing gross profit by net sales revenue.
C) Operating expenses include those costs that contribute directly to the manufacture and
distribution of goods.
D) A and B above
Answer: A
Diff: 3 Page Ref: 393
AACSB: Analytic Skills
Learning Obj.: 2

10) The statement of cash flows:
A) compares costs and expenses against a firm's net profits.
B) is built on the basic accounting equation: Assets = Liabilities + Capital.
C) shows what assets the business owns and what claims creditors and owners have against those
assets.
D) shows changes in working capital by listing sources and uses of funds.
Answer: D
Diff: 2 Page Ref: 395
AACSB: Analytic Skills
Learning Obj.: 2

11) On a company's statement of cash flows, depreciation is:
A) the difference between the total sources available to the owner and the total uses of those
assets.
B) listed as a source of funds because it is a noncash expense, already deducted as a cost of doing
business.
C) the owner's total investment at the company's inception plus retained earnings.
D) creditors' total claims against the firm's assets.
Answer: B
Diff: 2 Page Ref: 395
AACSB: Analytic Skills
Learning Obj.: 2

12) Creating projected (pro forma) financial statements would allow a business owner to answer
which of the following questions?
A) What profit can my business expect to achieve?
B) What sales level must my business reach if our targeted profit is × dollars?
C) What fixed and variable expenses can my business expect to incur at our targeted sales level?
D) All of the above
Answer: D
Diff: 1 Page Ref: 396
AACSB: Analytic Skills
Learning Obj.: 3



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, 13) On a projected income statement, a business owner's target income is:
A) the sum of a reasonable salary for the time spent running the business and a normal return on
the amount invested in it.
B) the income at which the company's total revenues and its total expenses are equal.
C) the income that will produce a 10 percent return on the owner's financial investment in the
business.
D) the income that the owner could earn working for someone else.
Answer: A
Diff: 2 Page Ref: 396-397
AACSB: Analytic Skills
Learning Obj.: 3

14) You are to prepare a projected income statement for a proposed business venture. Your
desired income is $28,000 and you have the following published statistics:
Costs of goods sold = 56.9 percent of net sales
Operating expenses = 37.1 percent of net sales
Gross profit margin = 43.1 percent of net sales
This information indicates the net sales on your pro forma "P & L" (income statement) would be:
A) $466,667.
B) $491,228.
C) $500,000.
D) None of the above
Answer: A
Diff: 2 Page Ref: 397-398
AACSB: Analytic Skills
Learning Obj.: 3

15) Gaither Mack is preparing projected financial statements to include in the business plan he is
preparing for the launch of a specialty retail store. Using published financial statistics, Mack
finds that the typical net profit margin for a store like his is 7.3 percent. If Mack's target income
for his first year of operation is $32,000, what level of sales must he achieve to reach it?
A) $233,600
B) $438,356
C) $2,966,400
D) Cannot be determined from the information provided
Answer: B
Diff: 2 Page Ref: 388-398
AACSB: Analytic Skills
Learning Obj.: 3




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