Business Stuff

Question 1

Personal Balance Sheet items are listed at

Answer 1

FMV

Question 2

Corporate Balance Sheet items are listed at

Answer 2

the lower of:
1. cost
2. FMV

Question 3

Order of assets list on balance sheet

Answer 3

Most to least liquid on the left

Question 4

Time period of a balance sheet vs a statement of cash flows

Answer 4

Balance sheet - snapshot in time
CF statement - period of time

Question 5

Purpose of a balance sheet

Answer 5

statement of financial position

Question 6

Purpose of a cash flow statement

Answer 6

shows cash movements

Question 7

Balance sheet start and end points

Answer 7

Cash balance to retained earnings

Question 8

Cash flow start and end points

Answer 8

Net income to cash balance

Question 9

Balance sheet measures

Answer 9

Assets, liabilities, and shareholder equity

Question 10

Cash flow statement measures

Answer 10

increases/decreases in cash

Question 11

Purpose of a cross-purchase agreement

Answer 11

A method to completely transfer business interests among partners/owners using life insurance policies

Question 12

Disadvantages of cross-purchase agreements

Answer 12

1. Younger owners will pay more in premiums (for the other partner)
2. Difficult to implement with a higher number of owners (more policies - n x (n-1))

Question 13

Advantages of cross-purchase agreements

Answer 13

1. Simple for small number of owners
2. Tax-free benefit
3. Increase in basis**

Question 14

Purpose of an entity purchase agreement

Answer 14

A method to completely transfer business interest back to the business using life insurance

Question 15

Advantages of entity purchase agreements

Answer 15

1. Businesses with multiple partners
2. Death benefit is tax-free to the business
3. Business pays the premiums

Question 16

Disadvantages of entity purchase agreements

Answer 16

1. No increase in basis
2. Surviving owners will have substantially more gain (due to lack of step-up)

Question 17

Number of policies required in an entity purchase agreement

Answer 17

Same as the number of partners

Question 18

Number of policies required in a cross purchase agreement

Answer 18

Number of partners x (number of partners - 1)

Question 19

Purpose of a wait and see agreement

Answer 19

A method to transfer business interests that offers flexibility to the partners and the business as they purchase business interests

Question 20

Steps for a wait & see agreement

Answer 20

1. Business has the option to purchase
2. Surviving partners have the option to purchase
3. Business is required to purchase

Question 21

Design of a buy-sell agreement using “wait and see”

Answer 21

Any option:
1. Entity Purchase
2. Cross-Purchase
3. Hybrid