1 Shareholders in the company (corporation) form of business are personally responsible for none of the liabilities of the company (corporation) unless they have provided a personal guarantee A B False True The financial accounts of a service business usually NOT include which of the following accounts? A B C D Fixed assets Prepaid expenses Accounts payable (trade creditors) Cost of goods sold E Notes payable A major difference between the company (corporation) and partnership forms of business organisation is that none of the shareholders in a company (corporation) are personally responsible for business liabilities, as general partners are in a partnership A False B True Credit enhancements (security, guarantees, etc.) normally not vary based on a borrower's legal structure A True B False In a period of declining sales, profits, and cash flow, a service provider, such as a software developer, would likely have the greatest borrowing need to finance which of the following? A B C D Investments New fixed assets until they are used up in producing products Inventory (stock) until it is converted to sales and cash General operations until the business returns to a more positive financial position E A change in company ownership The financial accounts of a sole trader present withdrawals taken during the year in the operating expenses of the business A True B False If assets are defined as everything that supports the production process or results from it, then the shorter the asset conversion cycle, the greater the level of financing a business normally requires A False B True Which of the following is typically NOT considered an acceptable borrowing cause? A Finance the range of assets required to support rapid growth B C Finance survival until the company can be turned around Finance inventory (stock) until it is converted to sales and cash D Pay down subordinated debt The short-term financing gap can be expressed mathematically as… A B C trade debtors in days plus inventory (stock) in days less trade creditors in days trade debtors in days plus trade creditors in days less inventory (stock) in days inventory (stock) in days less trade creditors in days D trade creditors in days plus inventory (stock) in days less trade debtors in days 10 In a period of rapid economic growth, a manufacturer would likely have the greatest borrowing need to finance which of the following? (select all that apply) A B C D Trade debtors until they are collected in cash Inventory, stock, until it is converted to sales and cash A change in company ownership Finance fixed assets until they are used up in producing product E Survival until the company can be turned around 11 Other things being equal, the… A B C shorter a firm's trading cycle, the greater the amount of suppliers' credit or bank financing it will need longer a firm's trading cycle, the smaller the amount of suppliers' credit or bank financing it will need longer a firm's trading cycle, the greater the amount of suppliers' credit or bank financing it will need D shorter a firm's trading cycle, the greater the amount of term debt it will need 12 Long-term debt repayment depends primarily upon… A B C rapid turnover of inventory (stock) timely collection of accounts receivable (trade debtors) ongoing profitability D holding back payment of trade creditors as long as they'll allow 13 Which of the following accounts would typically be proportionally larger on a manufacturer's financial statements than on those of a retailer? (select all that apply) A B C D E Accounts payable (trade creditors) Income tax provision Work in process inventory (stock) Cost of goods sold Accounts receivable (trade debtors) 14 The trading cycle can be defined as the time it takes to convert the purchase of inventory (stock) into a sale and convert the sale to cash A True B False 15 Wholesalers not typically add tangible value to products before they sell them A B 15/15 True False