Question

1. Why is a mission statement important to a firm?

It is updated annually whenever management wants to pursue a new idea to communicate the plan to investors.

It is a necessary part of loan applications.

Managers should support the mission with appropriate operating plans.

It gives investors insight into the risk/expected return trade-off for the firm.

2. In what ways does a limited partnership differ from a corporation?

Limited liability of owners

Taxation

Ease of start-up

Some owners do not participate in the day-to-day operations of the firm

3. Which of the following suffers from double taxation of dividends?

General partnership

Limited partnership

Corporation

Limited liability company

4. Which of the following is usually not found in the annual report?

Income statement

Statement of cash flows

Disclosure of the names of major customers

Discussion of current and future business opportunities

5. The main difference between the accounting and a financial perspective of a firm’s operations is that the financial perspective does which of the following?

Focuses on cash flows

Is historical in nature

Tracks assets and depreciates them over time according to set techniques

Focuses on firm profits

6. What combination of income statements and balance sheets is needed to create the statement of cash flows?

Two most recent balance sheets and most recent income statement

Most recent balance sheet and income statement

Two most recent income statements and most recent balance sheet

Two most recent income statements and two most recent balance sheets

Answer 1

1]

A mission statement important to a firm because managers should support the mission with appropriate operating plans.

It is not updated manually, is not a necessary part of loan applications, and does not give investors insight into the risk/expected return trade-off for the firm.

2]

The ways in which a limited partnership differs from a corporation are :

Limited liability of owners - Corporation shareholders have limited liability, whereas general partners in a limited partnership have unlimited liabilityy

Taxation - The taxation of a limited partnership differs from a corporation

Ease of startup - A limited partnership is relatively easy to start up compared to a corporation

Some owners do not participate in the day-to-day operations of the firm - This is common to both limited partnerships and corporations. In corporations, the board manages the firm and all shareholders do not participate in the day-to-day operations. In limited partnerships, the general partner participates in the day-to-day operations whereas the limited partner does not

3]

Corporation suffers from double taxation of dividends because the income is taxed in the hands of the company, and the dividends are again taxed in the hands of shareholders.

An LLC does not suffer from double taxation because the LLC is not a separate taxpayer.

Partnerships do not suffer from double taxation because the share of profit is exempt in the hands of the partners

4]

Disclosure of the names of major customers - This is not usually found in an annual report