Question

Describe how the managerial finance function is related to economics and accounting.
Q2. Describe the legal forms of business organization.
Q3. Discuss business taxes and their importance in financial decisions.
Q4. Complete the 2012 balance sheet for O’Keefe Industries using the information that follows it.
O’Keefe Industries Balance Sheet December 31, 2012
Assets                                                                                                Liabilities and Stockholders’ Equity
Cash                                $33,720                                                                                Accounts payable $130,000 Marketable securities 27,000                                                                            Notes payable ________ Accounts receivable _______                                                                           Accruals                22,000                           Inventories _______                                                                                       Total current liabilities ________ Total current assets _______                                                                  Long-term debt ________
Net fixed assets _______                                                                     Stockholders’ equity $500,000
Total assets ………………$                                                             Total liabilities and stockholders’ equity $------
The following financial data for 2012 are also available:
1. Sales totaled $1,800,000.
2. The gross profit margin was 29%.
3. Inventory turnover was 4.0.
4. There are 365 days in the year.
5. The average collection period was 42 days.
6. The current ratio was 1.61.
7. The total asset turnover ratio was 1.22.
8. The debt ratio was 70%.
Q4) Liquidity management Bauman Company’s total current assets, total current liabilities, and inventory for each of the past 4 years follow:
Item 2009 2010 2011 2012
Total current assets $16,950 $21,900 $22,500 $27,000
Total current liabilities $9000 $12600 $12600 $17400
Inventory 6000 6900 6900 7200

a. Calculate the firm’s current and quick ratios for each year. Compare the resulting time series for these measures of liquidity.
b. Comment on the firm’s liquidity over the 2009–2010 period.
Q5) Inventory management Wilkins Manufacturing has annual sales of $4 million and a gross profit margin of 40%. Its end-of-quarter inventories are  
Quarter Inventory
1 $400000
2 800,000

3 1,200,000

4 200,000


a). Find the average quarterly inventory and use it to calculate the firm’s inventory turnover and the average age of inventory.
b). Assuming that the company is in an industry with an average inventory turnover of 2.0, how would you evaluate the activity of Wilkins’ inventory?

Answer 1

Q2, Following are legal forms of business organization:

1. Sole Proprietorship

A sole proprietorship is a business owned by only one person. It is easy to set-up and is the least costly among all forms of ownership.

The owner faces unlimited liability; meaning, the creditors of the business may go after the personal assets of the owner if the business cannot pay them.

The sole proprietorship form is usually adopted by small business entities.

2. Partnership

A partnership is a business owned by two or more persons who contribute resources into the entity. The partners divide the profits of the business among themselves.

In general partnerships, all partners have unlimited liability. In limited partnerships, creditors cannot go after the personal assets of the limited partners.

3. Corporation

A corporation is a business organization that has a separate legal personality from its owners. Ownership in a stock corporation is represented by shares of stock.

The owners (stockholders) enjoy limited liability but have limited involvement in the company's operations. The board of directors, an elected group from the stockholders, controls the activities of the corporation.

In addition to those basic forms of business ownership, these are some other types of organizations that are common today:

4. Limited Liability Company

Limited liability companies (LLCs) in the USA, are hybrid forms of business that have characteristics of both a corporation and a partnership. An LLC is not incorporated; hence, it is not considered a corporation.

Nonetheless, the owners enjoy limited liability like in a corporation. An LLC may elect to be taxed as a sole proprietorship, a partnership, or a corporation.

5. Cooperative

A cooperative is a business organization owned by a group of individuals and is operated for their mutual benefit. The persons making up the group are called members. Cooperatives may be incorporated or unincorporated.

Some examples of cooperatives are: water and electricity (utility) cooperatives, cooperative banking, credit unions, and housing cooperatives.