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Economy > Test 6 > Flashcards

Test 6 Flashcards

0
Q

Proprietorship

A

A business owned by one person

  • The business’s income is taxed as personal income to the owner
  • The owner has unlimited personal liability
  • The owner is personally responsible for the business’s debt or any other obligations
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1
Q

Types of Businesses or Business Organizations

A
  1. Proprietorship
  2. Limited Partnership
  3. General Partnership
  4. Corporation
  5. S Corporation
  6. LLC
  7. Not-For-Profit Corporation
  8. Public/Government Owned Corporation
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2
Q

Limited Partnership

A

There is a general partner and a silent/limited partner

  • The general partner has unlimited personal liability
  • The limited partner’s liability is limited to the amount of money they have invested
  • Business’s income is taxed as personal income to the owner
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3
Q

General Partnership

A

A business owned by two or more people

  • Each owner has unlimited personal liability
  • The business’s income is taxed as personal income to the owner
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4
Q

Corporation

A

A business that has a legal existence separate from it’s owners

  • The Corporation itself pays income tax as it’s own personal income
  • Stockholder’s liability is limited to the amount invested
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5
Q

Stockholders

A

Owners of a Corporation

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6
Q

Two Options Companies Have With Profit

A
  1. Invest in itself

2. Pay out dividends to stockholders

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7
Q

Dividends

A

Profit is divided among the owners

If you receive dividends you have to report it in your personal income tax

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8
Q

Capital Gains Tax

A

A tax on capital gains, the profits that an investor realizes when he or she sells the capital asset for a price that is higher than the purchase price

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9
Q

S Corporation

A

Small business

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10
Q

How To Qualify as a S Corporation

A
  1. Have no more than 35 shareholders
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11
Q

LLC

A

Limited Liability Corporation

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12
Q

Limited Liability Corporation

A

Small Corporation with Limited Liability

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13
Q

Not-For-Profit Corporation

A

A business that does not seek to earn a profit

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14
Q

Public/Government Owned Corporation

A

A business created to provide services that private enterprise is unable or unwilling to offer

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15
Q

Franchise

A

A license to operate an individually owned business as if it were part of a large chain

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16
Q

Cooporatives/Co-op

A

An association of individuals or companies organized to perform business functions for its members

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17
Q

How Are Corporations Organized?

A
  1. Governing document
  2. Stockholders
  3. Bonds
  4. Board of Directors
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18
Q

Governing document includes what

A
  1. Charter

2. Bylaws

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19
Q

Charter

A

License issued by the state

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20
Q

Two Types of Stockholders

A
  1. Preferred Stockholders

2. Common Stockholders

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21
Q

Bylaws

A

Set of rules by which a corporation operates

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22
Q

Preferred Stockholders

A

They have preference over common stockholders with regard to dividends
They are paid first
Get paid a set rate

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23
Q

Common Stockholders

A

They are Residual claimants (receive the income that is left over after the Preferred Stockholders are paid)
Could get paid more or less
Potential to earn more

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24
Q

Bonds

A

Represent credit

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25
Q

Board of Directors

A

In a Corporation, members of the Board of Directors are chosen by the Shareholders and get paid
In a Non-Profit Corporation they are not elected

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26
Q

What are the Board of Directors responsibilities?

A
  1. They choose the President or CEO of the company
  2. Make decisions about expansion, development, and dividends
  3. Producing annual report (which is available to all shareholders)
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27
Q

Proxy

A

Written authorization allowing the Directors to vote shares as instructed
(at the Annual Shareholders Meeting when shareholders don’t show up)

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28
Q

What is a businesses responsibility to the to the consumers?

A
  1. Product Quality
  2. Product Packaging
  3. Product Labeling
  4. Consumer Safety (must warn consumers about potential problems)
  5. Environmental Sensitivity
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29
Q

Why is product packaging important?

A
  1. Protects the product
  2. Provides information about the product
  3. Enhances the appearance of the product
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30
Q

Why is product labeling important?

A
  1. It’s informational

2. Gives testing labels

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31
Q

What is the goal of a business?

A

Make money

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32
Q

What are a businesses major expenses?

A
  1. Wages and Salaries
  2. Research and Development
  3. Marketing
  4. Health Insurance
  5. Upgrading of Tools and Facilities
33
Q

Where does the businesses money come from?

A
  1. Internal Funds
  2. External Funds
    (Most of the money comes from borrowing)
34
Q

Internal Funds

A

Funds that come from the sale of products and services

35
Q

External Funds

A

Funds that come from borrowing, selling stock, and reducing expenses

36
Q

Types of Borrowing

A
  1. Short Term Loan

2. Long Term Loan

37
Q

Short Term Loan

A

Usually paid back in a year

Used to finance the everyday cost of doing business

38
Q

Trade Credit

A

Where you charge purchases and pay for them at a later date

You can also borrow money from a bank

39
Q

Commercial Paper

A

Can sell it to investers
Like a IOU or Bond
Pay it back with interest

40
Q

Long Term Loans

A

Paid back in a year or more

41
Q

Common Sources for Long Term Loans

A
  1. Retaining you earnings

2. Borrow the money (through mortgage or selling bonds)

42
Q

Who regulates the Stock Market

A

The Federal Government

43
Q

Securities and Exchange Commission (SEC)

A

Principle agency who regulates the stock market

44
Q

Prospectus

A

A report that contains information about the company

45
Q

Motto for investing and meaning

A

Caveat Emptor

Buyer beware

46
Q

How is stock offered to the public for sale?

A

There is usually a Middleman (underwriter) who advances money to the corporation and then sell the companies stock to the public

47
Q

Securities Exchanges

A

A market where brokers meet to buy and sell stocks and bonds

48
Q

Over-the-Counter Market

A

Consists of brokerage firms from around the country that buy the securities of smaller unlisted firms and then sells them to the public

49
Q

Two Types of Shareholders

A
  1. Investors

2. Speculators

50
Q

Investors

A

They buy stock in order to share the profits for a long time

51
Q

How do investors make money?

A
  1. Dividends

2. Capital Gains

52
Q

Speculators

A

They buy and sell in order to make a fast profit

53
Q

Two Types of Speculators

A
  1. Bulls

2. Bear

54
Q

Bulls

A

They hope to profit by correctly predicting an increase in the value of the stock (“Buy-long”)

55
Q

Bear

A

They hope to profit by correctly predicting a decrease in the value of a stock (“Sell-short”)

56
Q

How do you determine the health of a business?

A
  1. Balance Sheet

2. Income Statement

57
Q

Balance Sheet

A

Summarizes the corporations

  1. Assets
  2. Liability
  3. Net worth
58
Q

Assets

A

Things that the company owns

59
Q

Liability

A

Things the company owes

60
Q

Net worth

A

The difference between liability and assets

61
Q

Account Receivable

A

Sums owed to the company by customers

62
Q

Inventories

A

Merchandise that the company owns

63
Q

Accounts Payable

A

Money that the company owes to its suppliers

64
Q

Notes Payable

A

Short term loans owed by the corporation

65
Q

Mortgage

A

Long term loan

66
Q

Net Worth (Under Balance Sheet)

A

Portion of a companies assets belonging to its owners after its obligations have been met

67
Q

Income Statement can also be called what?

A

Profit and Law Statement

68
Q

Income Statement

A

Shows how much money the corporation has made over a certain amount of time

69
Q

Mutual Fund

A

A corporation that sells stock and uses the proceeds to invest or speculate in the Securities Market

70
Q

How does a Mutual Fund work?

A

Lots of people put their money together to invest into lots of companies

71
Q

Implicit Costs

A

Costs that don’t require an actual monetary payment

72
Q

Explicit Costs

A

Costs that do require an actual monetary payment

73
Q

Opportunity Costs

A

What a resource could have earned had it been employed in an alternative use

74
Q

Fixed Costs

A

Costs that do not change as the level of production increases

75
Q

Variable Costs

A

Costs that do change as the level of production increases

76
Q

Total Costs

A

= Fixed Costs + Variable Costs per unit x Quantity

77
Q

Marginal Costs

A

The addition to total cost resulting from the production and sale of one additional unit of output

78
Q

Average Fixed Cost

A

= Fixed Cost/Quantity Produced

79
Q

Average Variable Cost

A

= Total Variable Cost/# of units produced

80
Q

Average Total Cost

A

= Average Fixed Cost + Average Variable Cost

Economy (8 decks)

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