Business Practice test 4

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The explosion of the BP oil rig and subsequent oil spill in the Gulf of Mexico was one of the worst disasters affecting the U.S. in this century. There was a tremendous loss of sea life. Commercial fishermen and other businesses suffered from the loss of trade. After the massive disaster and tragedy, Tony Hayward, then CEO of BP, offended many people when he was quoted in several newspapers as saying, "I would like my life back." Sadly, BP did not solicit this promotion. Marketers refer to this type of message as ____________, an unpaid form of promotion.


An online diary that looks like a Web page but is easier to create and update is called a(n):


In the seven step B2B selling process, the selection of potential customers is known as:


Companies can implement global marketing by developing a product and promotional strategy that:

can be implemented worldwide.

At a recent sporting event, a local beer distributor gave free beverage mugs to all adults with a paid admission. This is an example of:

Sales promotion is a promotional tool that stimulates consumer purchasing and dealer interest by the use of specially designed incentives to promote a business or a product.

Which of the following media enables firms to quickly change their advertising message?

An advantage of newspapers is that they normally come out daily and allow firms to place revised ads quickly.

"You never get a second chance to make a good first impression," captures the importance of the __________ step in the selling process.

The approach is the step in selling where the salesperson calls on the customer for the first time. The objective of this step is to give an impression of professionalism, create a rapport, build credibility, and start a relationship.

A good public relations program recognizes that the:

The second step in a good public relations program is to change policies and procedures that are not in the public interest.

After receiving poor service from her car insurance company, Wendy made her complaints public by placing them on the Internet. This is another form of:

Word of mouth can be positive or negative. Negative word of mouth can be quite destructive to a firm. Upset customers are getting on the Internet publishing their complaints and encouraging others to share their negative experiences.

Firms with a very limited advertising budget would be very unlikely to use ________ advertising.

A major disadvantage of television is its high cost.

The distribution method for audio and video programs via the Internet that lets users subscribe to a number of files or feeds is called a:


Advertising to wholesalers and retailers by manufacturers to encourage them to carry their products is called:

trade advertising.

Today’s public relations departments:

A good public relations program begins with listening to the public. Public relations starts with good marketing research when the firm evaluates public attitudes. is an online retailer of garden products. By allowing communication between gardeners and experts via its website, is using:

interactive promotion.

The LIFO method of inventory valuation bases the cost of goods sold on the cost of:

Most recent merchandise purchased by the firm.

Marshall McBride inherited $10,000 from his Great Aunt Martha. He invested $5,000 in a new, risky start-up venture, 10th Generation, Inc., and the other $5,000 in Major Chemicals, Inc, a well-known chemical company that’s been around for years. Today, his financial planner called to inform him that the Return on Equity on 10th Generation = 6.28%; and, Return on Equity on Major Chemicals = 10.50%. Which of the following facts is important information for Marshall McBride?

Risk is an important concern for investors. Investors are willing to accept higher risk, if they are rewarded with higher returns. In this particular situation, the riskier investment is producing lower returns. This should signal concern for the investor.

A firm’s ________ reports the profit or loss for the firm over a specified time period.

income statement

Accountant Alan Wingspan has just finished working on the balance sheet, income statement, and statement of cash flows for his company. The next step in the accounting cycle involves:

Analyzing the firm’s financial statements to evaluate the financial condition of the firm.

Revenue, minus cost of goods sold = ____________.

gross profit

While reviewing the books at his firm, Chad Cooper noticed discrepancies between how the firm recorded revenues last year and how it elected to record revenues during the recent quarter of the current year. As a recent business graduate, Chad felt confident that the changes needed clarification. To get another opinion, Chad suggested to the company’s controller that the firm solicit ______________.

An independent auditor is responsible for providing an unbiased opinion about the accuracy of a company’s financial statements and reporting procedures.

Your firm is a supplier to a major chain of discount stores. You have heard rumors that this chain of discount stores is in financial difficulty. Which financial ratios would indicate the discount store’s ability or inability to pay its short-term debts?

Liquidity ratios measure the company’s ability to pay its short-term debts.

Jim works in the accounting department at the Kansas Sunflower Corporation, where it is his job to record all transactions into journals. After completing this task, the next step in the accounting process is to:

All journal entries are posted to the ledger on a regular basis. This is the third step in the accounting cycle.

Sales receipts, purchase orders, and payroll records are all examples of accounting transactions that would be recorded by a(n):

Sales receipts, purchase orders, and payroll records are original transaction documents. Bookkeepers record the data from these documents into journals.

Which of the following agencies would have the greatest impact on the methods used to record, classify, summarize, and interpret accounting information for the State of Kentucky’s Department of Transportation?

Government Accounting Standards Board

A balance sheet lists assets in order of their ______________.

Liquidity, with the most liquid assets listed first

The accounting profession follows generally accepted accounting principles as defined by __________________.

the FASB (Financial Accounting Standards Board)

Kelley’s Kloset, LLC has applied for a business loan. Her prospective banker has requested information concerning the financial condition of her business. Which accounting discipline is responsible for providing accounting information to outside stakeholders?

The intended audience of financial accounting information and reports is people outside of the organization. This would include creditors, banks, owners, unions, and government units.

A loan backed by collateral represents a(n):

secured loan.

Which of the following companies is undercapitalized?

Undercapitalization is the problem of having insufficient start-up funds.

Lancer Wholesale Company wants to improve cash flow. Which of the following strategies would be most likely to help Lancer achieve this objective?

Businesses often provide cash or quantity discounts to buyers who pay their accounts by a certain date. By continually turning accounts receivable into cash, the firm is increasing cash flow.

Since commercial finance companies offer loans to higher risk customers than commercial banks, the interest rates they charge are usually ________ than rates charged by banks.


No matter the size of the business, finance is a critical activity for:

profit-seeking and nonprofit organizations.

The finance manager at AllSports Communication has asked his assistant, Ben, to prepare the ________ budget. Ben will gather as much information as possible by utilizing the firm’s other budgets and any documents that summarize proposed financial activities.

The master budget (also known as the operating budget) summarizes and ties together all the company’s other budgets.

The overall objective of financial planning is to:

optimize the firm’s profitability.

Maryland Nursery offers customers credit terms of 3/15 net 30. This gives customers a:

The terms 3/15, net 30 indicates that a 3% discount is offered to customers paying by the 15th day after the billing. No discount is offered to customers paying between the 16th and the 30th day after the billing.

Many small businesses rely on factoring as a source of short-term financing because:

Factoring is the sale of accounts receivables at a discount for cash. Since factoring involves a sale of an asset, the funds received are not a loan. Small businesses often find it difficult to obtain loans from bankers. These same firms often can obtain the needed funds from factors if their customers are judged to be creditworthy.

The interest paid on ________ represents a tax-deductible business expense.

Lenders usually require borrowers to pay interest on loans. Firms must also pay interest to their bondholders. Interest payments are deductible expenses on the firm’s income statement.

________ is a form of short-term financing. Businesses buy merchandise from their suppliers, but are not required to pay for their purchases until some future date.

Trade credit

The financial manager of Carolina Graphics negotiated a ________ with her bank that allows Carolina to borrow up to $50,000 without collateral. This arrangement eliminates the need to renegotiate the terms of the loan and complete new paper work each time Carolina borrows money. The preapproved short-term loan agreement is contingent upon the bank having the funds available.

A line of credit means that a bank will lend your business a given amount of unsecured short-term funds, provided that the bank has the funds readily available.

Which of the following statements about taxes is accurate?

Profitable businesses usually pay taxes.

The rationale behind offering customers credit is:

Permitting customers to pay with credit cards or on credit makes it easier for them to buy, and it also attracts new customers.

Investment bankers ________ new issues of bonds or stocks by purchasing, at a discount, the entire stock or bond issue of a firm and selling the issue to interested investors at a higher price.


Chipper’s Golf Resort has learned that Tiger Woods is interested in putting his name on golf course designs; however, in order for any golf course to be acceptable to him, it will cost a minimum of $20 million to build. Chipper’s owners want an international presence, and they believe that, "just the way golf club companies became publicly traded corporations, it may be time for golf courses to do the same." The plan is to begin to purchase real estate for four new golf resorts. Proceeding with their venture, the owners have calculated that they will need approximately $100 million. But putting together an IPO is another matter. After meeting with their investment banker, they believe that investors will be willing to pay $16/share for the IPO. As the ___________ for this issue, the investment bank requires 3% of the revenues generated by the sale. Chipper’s will need to issue _______ shares in order to have the $100 million they need to proceed with their plan.

underwriter; more than 6.250 million shares

Corporations that want to attract more investors by lowering the selling price of their common stock might consider declaring a:

A stock split will increase the number of shares outstanding. The price of the stock decreases proportionately to the size of the stock split. There is no immediate change in value for the stockholder.

An investor places a ________ order with a broker to buy a particular stock at a specific price, if and when that price becomes available.


Bonds offering a higher interest rate than other bonds of similar risk, will likely sell at a:


Reviewing the stock market performance between 2000 and 2002 reveals a:

significant decrease in value.

The new potato-bar restaurant chain, Hottie Potatee wants to raise an undisclosed amount of funds in order to expand the company-owned potato bar stores, internationally. This move will require the CFO (Chief Financial Officer) to:

The SEC (Securities & Exchange Commission) is the federal agency that oversees the financial markets and all firms who offer securities for trade.

Mark impresses his friends by stating that he just cast four votes in the election of the board of directors of Microsoft, indicating that Mark owns __________ stock in Microsoft.

Common stock represents ownership privileges that include the right to vote to elect the board of directors.

_____________ have a set dollar goal the fund manager wants to manage. Once the fund has reached that goal, it does not accept new investors.

Closed-end funds

After buying 100 shares of common stock in the It’s All Good Corporation for $20 per share, Popeye later sold the same shares for $25 per share. Popeye’s capital gain on the total transaction is:

A capital gain is the positive difference between the price at which Popeye bought the stock and the price at which he sold it. The capital gain per share is $5, ($25 – $20). Popeye’s total capital gain is $500, ($5 times 100 shares).

The risk associated with Firm A’s bond is greater than the risk of Firm B’s bond. All other things being equal, investors would be willing to pay ________ for Firm B’s bond.


A Bond’s face value is the same as its:


Which of the following accurately describes an advantage of selling bonds to raise long-term capital?

Interest is a tax-deductible expense.

Government bonds can vary in denomination, but most corporate bonds are issued in ___________.

$1000 denominations

Commercial banks, savings and loan associations, and credit unions:

Commercial banks, savings and loan associations, and credit unions are all depository institutions that accept deposits and make loans.

The Fed plans to raise the discount rate to 6%. This indicates that:

The discount rate is the interest rate the Fed charges for loans to member banks.

A(n) __________ accepts savings and checking account deposits and provides home mortgage loans.

savings and loan association

The problem with bartering is:

it is not an easy process, and often cumbersome to carry goods to the place of trade.

When Mr. Smith in Quince Orchard, MD uses a check to buy a tractor from Mr. Brown in Austin, TX, __________ different banks are involved in the transaction.

Mr. Brown would deposit the check in his local bank in TX. The local bank would then deposit the check in the Federal Reserve Bank in Dallas. The Federal Reserve Bank in Dallas sends the check to the Federal Reserve Bank in Richmond, which then forwards the check to Mr. Smith’s local bank in MD. Mr. Smith’s bank deducts the amount from his account and then the payment is sent back through the system until eventually Mr. Brown’s account is credited. Four banks are involved in the transaction.

Which of the following is included in the M-2 definition of the money supply but not the M-1 definition?

Savings account deposits are included in the M-2 definition of the money supply, but not the M-1 definition.

The Federal Reserve System consists of ________ Federal Reserve banks.


Which of the following statements best summarizes the difference between M-1 and M-2?

The M-2 definition includes everything in the M-1 definition, plus additional components such as money in savings accounts, money market accounts, and certificates of deposit.

When a customer purchases an item with a debit card:

the funds are automatically transferred from the customer’s account to the store’s account.

The strength of the U.S. dollar relative to other currencies depends mainly on:

the performance of the U.S. economy relative to other economies.

Which of the following can include an embedded radio-frequency antenna that allows the holder to access secure areas in buildings or buy gas with the swipe of a card?

smart cards

__________ occurs when goods are traded directly for other goods.


Which of the following accurately presents a major difference between Internet banks and traditional banks?

Internet banks have lower overhead costs.

The Fed requires that banks hold a percentage of their deposits in a vault. This percentage is the _________.

reserve requirement

The Fed bought several billion dollars worth of U.S. government securities. The purpose of this action is to:

stimulate the economy by increasing the amount of money in circulation.

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