MBA 5100- Exam 1 questions and
answers
Manufacturing business✔✔buys raw materials, uses labor and machinery to
transform them into finished products, and sells the finished products to individuals
or other businesses
Merchandising business✔✔buys finished products made by other businesses and
resells them to individuals or other businesses
Service business✔✔provides intangible services, rather than tangible products
Manufacturing (cars and trucks)✔✔General Motors is what type of business
Merchandising✔✔Walmart is what type of business
Service✔✔Delta Airlines is what type of business
Merchandise inventory✔✔On a merchandising firm's balance sheet, what is included
under current assets?
Inventories: raw materials, work in process, and finished goods✔✔On a
manufacturing firms balance sheet, what is included under current assets?
Raw materials (manufacturers inventory accounts)✔✔Materials waiting to be
processed
Work in process (manufacturers inventory accounts)✔✔Materials partially completed
or in the process of being completed
Finished goods (manufacturers inventory accounts)✔✔Completed products awaiting
sale
Service revenues - cost of services sold✔✔Service firm's gross margin equation
Cost of services sold: Service firm✔✔Cost of billable hours
Sales revenue - cost of goods sold✔✔Merchandising firm's gross margin equation
Cost of goods sold: Merchandising firm✔✔Costs incurred to purchase the goods
sold
Sales revenue - cost of goods sold✔✔Manufacturing firm's gross margin equation
Cost of goods sold: Manufacturing firm✔✔Costs incurred to manufacture finished
product
, False✔✔True or False: Service companies have work-in process and finished goods
inventory, wherein costs are stored before being transferred to cost of goods sold
account
Sole Proprietorship✔✔a business owned and managed by a single individual
Partnership✔✔a business owned by two or more people
True✔✔True or false: In all 50 states, Partnerships are automatically dissolved upon
death of a partner
Corporations✔✔Ownership divided into units, called "shares of capital" or "common
stock"
True (elect board of directors, who hire management team)✔✔True or False:
Shareholders of publicly traded companies do not manage day-to-day operations
Limited Liability Company✔✔Business that combines the attributes of a partnership
and a corporation
Partnerships get taxed as personal tax rate, instead of corporate tax rate
Partnerships only have one level of taxation, while corporations get taxed twice
(once at entity level, again when distributed to stockholders)✔✔Why would a LLC
elect to be taxed as a partnership?
Ease: Simple
Legal liability: No limit (No shield between personal assets and business assets)
Taxation: Nontaxable (considered accounting fiction)
Limited life: Yes
Capital access: Limited✔✔Proprietorship: Ease of formation, legal liability, taxation,
life, and capital access
Ease: Simple
Legal liability: No limit
Taxation: Nontaxable (considered accounting fiction)
Limited life: Yes
Capital access: Average✔✔Partnership: Ease of formation, legal liability, taxation,
limited life, and capital access
Ease: Complex
Legal liability: Limited
Taxation: Nontaxable
Limited life: No
Capital access: Extensive✔✔Corporation: Ease of formation, legal liability, taxation,
life, and capital access
answers
Manufacturing business✔✔buys raw materials, uses labor and machinery to
transform them into finished products, and sells the finished products to individuals
or other businesses
Merchandising business✔✔buys finished products made by other businesses and
resells them to individuals or other businesses
Service business✔✔provides intangible services, rather than tangible products
Manufacturing (cars and trucks)✔✔General Motors is what type of business
Merchandising✔✔Walmart is what type of business
Service✔✔Delta Airlines is what type of business
Merchandise inventory✔✔On a merchandising firm's balance sheet, what is included
under current assets?
Inventories: raw materials, work in process, and finished goods✔✔On a
manufacturing firms balance sheet, what is included under current assets?
Raw materials (manufacturers inventory accounts)✔✔Materials waiting to be
processed
Work in process (manufacturers inventory accounts)✔✔Materials partially completed
or in the process of being completed
Finished goods (manufacturers inventory accounts)✔✔Completed products awaiting
sale
Service revenues - cost of services sold✔✔Service firm's gross margin equation
Cost of services sold: Service firm✔✔Cost of billable hours
Sales revenue - cost of goods sold✔✔Merchandising firm's gross margin equation
Cost of goods sold: Merchandising firm✔✔Costs incurred to purchase the goods
sold
Sales revenue - cost of goods sold✔✔Manufacturing firm's gross margin equation
Cost of goods sold: Manufacturing firm✔✔Costs incurred to manufacture finished
product
, False✔✔True or False: Service companies have work-in process and finished goods
inventory, wherein costs are stored before being transferred to cost of goods sold
account
Sole Proprietorship✔✔a business owned and managed by a single individual
Partnership✔✔a business owned by two or more people
True✔✔True or false: In all 50 states, Partnerships are automatically dissolved upon
death of a partner
Corporations✔✔Ownership divided into units, called "shares of capital" or "common
stock"
True (elect board of directors, who hire management team)✔✔True or False:
Shareholders of publicly traded companies do not manage day-to-day operations
Limited Liability Company✔✔Business that combines the attributes of a partnership
and a corporation
Partnerships get taxed as personal tax rate, instead of corporate tax rate
Partnerships only have one level of taxation, while corporations get taxed twice
(once at entity level, again when distributed to stockholders)✔✔Why would a LLC
elect to be taxed as a partnership?
Ease: Simple
Legal liability: No limit (No shield between personal assets and business assets)
Taxation: Nontaxable (considered accounting fiction)
Limited life: Yes
Capital access: Limited✔✔Proprietorship: Ease of formation, legal liability, taxation,
life, and capital access
Ease: Simple
Legal liability: No limit
Taxation: Nontaxable (considered accounting fiction)
Limited life: Yes
Capital access: Average✔✔Partnership: Ease of formation, legal liability, taxation,
limited life, and capital access
Ease: Complex
Legal liability: Limited
Taxation: Nontaxable
Limited life: No
Capital access: Extensive✔✔Corporation: Ease of formation, legal liability, taxation,
life, and capital access
