Ch. 5

Which of the following statements about S corporations is most accurate? Select one: a. The major attraction of S corporations is that they avoid the problem of double taxation. b. S Corporations are similar to C corporations, except that the majority of owners are foreign investors. c. Any corporation willing to pay the necessary fees and fill out the required paperwork can become an S Corporation. d. Only large corporations with operations in more than one state can qualify to be classified as S corporations.

a. The major attraction of S corporations is that they avoid the problem of double taxation.

Any debts or damages incurred by a firm organized as a sole proprietorshipare: Select one: a. The responsibility of the owner. b. Limited to the amount the owner has invested in the firm. c. Paid for out of a reserve contingency fund that sole proprietors are required by law to set up. d. Normally covered by liability insurance.

a. The responsibility of the owner.

Which of the following statements about the operation of a corporation is correct? Select one: a. A corporation receives its charter from a state government. b. A corporate charter automatically expires in 99 years and must be renewed if the corporation wants to remain in business. c. Owners of a corporation have unlimited liability for any claims against their company d. A corporation tends to be much easier to set up than a sole proprietorship or partnership.

a. A corporation receives its charter from a state government.

One reason limited liability companies have become so popular is that they: Select one: a. Can be taxed either as a corporation or as a partnership, so owners can choose the tax treatment that is most advantageous for their situation. b. Allow owners to sell their interests in the company without requiring approval from other owners. c. Have unlimited life. d. Permit owners to avoid paying self-employment taxes on the company's profits.

a. Can be taxed either as a corporation or as a partnership, so owners can choose the tax treatment that is most advantageous for their situation.

In a cooperative, members/customers: Select one: a. Democratically control their businesses by electing a board of directors. b. are known as limited partners c. Each have unlimited liability for the debts of the firm. d. Take turns serving on the board that manages the company.

a. Democratically control their businesses by electing a board of directors.

Compared to partnerships and sole proprietorships, a major advantage of the C(conventional) corporation as a form of business ownership is that it: Select one: a. Has the ability to raise more money. b. Is easier and less expensive to form. c. Qualifies for simplified tax treatment d. Creates unlimited liability for its owners.

a. Has the ability to raise more money.

The income generated by S-Corporations: Select one: a. Passes through to its owners, and each is taxed individually for this income. b. Is provided to non-profit organizations, so it is considered a tax-free source of funds. c. Is taxed separately from its owners. d. Must be reinvested in the business. Owners should not expect dividends.

a. Passes through to its owners, and each is taxed individually for this income.

Earnings of C (conventional) corporations can be: Select one: a. Taxed twice if they are distributed as dividends to stockholders. b. Taxed at twice the going rate of a partnership or sole proprietorship. c. Taxed by the federal government, but exempt from state taxes if the corporation owns any facilities within that state. d. Taxed the same as a partnership.

a. Taxed twice if they are distributed as dividends to stockholders.

Compared to a sole proprietorship, which of the following is considered an advantage of a general partnership? Select one: a. ability to pool financial resources b. unlimited liability for all owners c. division of profits among owners d. ease and flexibility in transferring shares of ownership to others

a. ability to pool financial resources

____________comprise about 20% of all businesses but account for about 80% of U.S. business receipts. Select one: a. corporations b. partnerships c. sole proprietorships d. limited liability companies

a. corporations

The__________ is usually the easiest form of business to start and end. Select one: a. sole proprietorship b. limited partnership c. corporation d. general partnership

a. sole proprietorship

Which of the following statements about buying a franchise is most accurate? Select one: a. One of the advantages of buying a franchise is that franchisors are so closely regulated that there is virtually no chance for scams to succeed. b. Before purchasing a franchise, the buyer should carefully evaluate the franchise, the franchisor, his or her own situation, and the nature of the market. c. Franchise agreements are simple to evaluate, since federal law requires that all such agreements must be written in plain English with all fees and terms clearly explained. d. Buying a franchise is the simplest and least expensive way to set up a business, since the franchisor has already worked out all of the details for setting up and running the business

b. Before purchasing a franchise, the buyer should carefully evaluate the franchise, the franchisor, his or her own situation, and the nature of the market.

One disadvantage of a limited liability company is that it: Select one: a. Requires all earnings of the business be taxed at the corporate rate. b. Has a limited life span. c. Requires the owners to divide up profits and losses in a fixed proportion. d. Has a more restrictive ownership requirement than S corporations.

b. Has a limited life span.

To qualify as an S corporation, a company must: Select one: a. Have no more than 50 shareholders. b. Have shareholders who are individuals or estates, and, qualify as permanent residents of the U.S. c. Have a different class of stock for each owner. d. Have not more than 5 percent of income derived from passive sources.

b. Have shareholders who are individuals or estates, and, qualify as permanent residents of the U.S.

The S corporation is likely to be less popular in the future because: Select one: a. Congress repealed the limited liability protection of S corporations and limited them to companies with earnings of less than $3 million per year b. Limited liability companies, which do not have the restrictive eligibility requirements of S corporations c. Many states significantly increased the annual fee that S corporations must pay to maintain their tax status, thus eliminating the financial advantages of this form of ownership d. S corporations have been made illegal in several states as a reaction to widespread abuse of the special benefits available to this type of business

b. Limited liability companies, which do not have the restrictive eligibility requirements of S corporations

When entering into a new partnership, a good strategy is to: Select one: a. Avoid putting their agreement in writing since this would limit the flexibility of the partnership. b. Put the partnership agreement in writing. c. Plan to incorporate as soon as possible. d. Agree to put the first year's profits back into the partnership.

b. Put the partnership agreement in writing.

Two important considerations when choosing a form of business ownership is: Select one: a. Number of employees and banking access. b. Taxes and liabilities c. liabilities and assets d. Number of small businesses vs. Large businesses currently formed and percentage of profits that each form brings to the nation's GDP

b. Taxes and liabilities

The limited liability provided to limited partners means that they are not responsible for the debts of the business beyond: Select one: a. The firm's total assets. b. The amount they have invested in the company. c. The percentage of profits they are entitled to earn. d. Their total personal assets

b. The amount they have invested in the company.

Incorrect Mark 0.0 out of 0.5 Not flaggedFlag question Question text Which of the following is not a disclosure that should be part of a partnership agreement? Select one: a. The way profits will be divided among partners. b. The list of personal assets of each partner. c. The specific responsibilities of each partner. d. The salaries and drawing accounts of each partner.

b. The list of personal assets of each partner.

One of the major disadvantages of a sole proprietorship is the: Select one: a. Possibility of disagreements between owners. b. Unlimited liability the owner has for the debts of the firm. c. Fact that any income earned by this type of business is taxed twice. d. High cost of starting or ending the company.

b. Unlimited liability the owner has for the debts of the firm.

The strategy of investors who are attempting a leveraged buyout is: Select one: a. Shape up the company for quick resale. b. Use debt to finance the buyout of the firm's stockholders and gain control of the firm themselves. c. Secure ownership of all of the existing stock in a company by issuing and selling large amounts of new stock. d. Use investment tax credits from the government to acquire all of the physical assets owned by the firm.

b. Use debt to finance the buyout of the firm's stockholders and gain control of the firm themselves.

Three types of corporate mergers are: Select one: a. Economic, geographic, and financial. b. Vertical, horizontal, and conglomerate. c. Flexible, differentiated, and conditional. d. Explicit, implicit, and intrinsic.

b. Vertical, horizontal, and conglomerate.

A___________ is an arrangement whereby someone with proven idea for a business sells the rights to use the business model, to sell a product or service to others in a given territory. Select one: a. conditional grant b. franchise agreement c. trade contract d. extended ownership agreement

b. franchise agreement

A person who buys the right to use a business name and sell a product within a given territory is called a Select one: a. stockholder b. franchisee c. limited partner d. venture capitalist

b. franchisee

The board of directors for a corporation is elected by its: Select one: a. creditors b. stockholders c. managers d. employees

b. stockholders

Which of the following statements about partnerships is most accurate? Select one: a. A partnership is a corporation with fewer than 100 owners. b. A major advantage of a partnership is that it offers all owners limited liability c. A major drawback of a partnership is that it is difficult to terminate. d. Partnerships are taxed at the lowest corporate tax rate.

c. A major drawback of a partnership is that it is difficult to terminate.

The difference between a merger and an acquisition is: Select one: a. A merger does not combine the assets and liabilities of firms, whereas an acquisition combines assets and liabilities. b. A merger combines the assets of the two firms, but each company continues to assume its own liabilities, whereas an acquisition is a total buyout of one firm by another. c. A merger is the joining of resources of two companies, whereas an acquisition is a buyout of one firm by the other. The new company concerns itself with merging of resources. d. A merger is always something smaller tagging onto something larger, like a merging lane onto an interstate, whereas an acquisition is two firms that are relatively the same size agreeing to continue as one - more like two major interstates that come together and travel as one for several miles.

c. A merger is the joining of resources of two companies, whereas an acquisition is a buyout of one firm by the other. The new company concerns itself with merging of resources.

"Double taxation" means: Select one: a. If stockholders decide to sell their shares, they are subject to paying twice the amount of taxes on any capital gains. b. As the owner of the company, you pay twice the amount in employment taxes on yourself, as you do on your employees. c. Corporations pay taxes on their profits. If they distribute after-tax profits to the stockholders, the stockholders also pay taxes on the distribution. d. If the corporation doubles its profits from the previous year, the firm's tax rate (the percentage it pays in taxes) will also double.

c. Corporations pay taxes on their profits. If they distribute after-tax profits to the stockholders, the stockholders also pay taxes on the distribution.

A significant disadvantage of owning a sole proprietorship is the: Select one: a. Possibility of limited liability. b. Heavy tax liability that must be assumed. c. Overwhelming time commitment often required of the owner d. Lack of incentives to motivate the owner.

c. Overwhelming time commitment often required of the owner

One reason that companies participate in mergers and acquisitions is: Select one: a. To do the same thing as the competition because it makes for a highly leveraged company. b. To convert a sole proprietorship into a partnership. c. To expand within their own field or enter new markets. d. To take the first step toward a join venture.

c. To expand within their own field or enter new markets.

The reason a professional such as a lawyer or doctor would incorporate his/her business is Select one: a. To be assured that another professional firm would not take over and make decisions - similar to a hostile takeover. b. To comply with the law because insurance companies require that they be corporations. c. To protect his/her other assets with limited liability. d. To protect his/her assets with unlimited liability.

c. To protect his/her other assets with limited liability.

A separation between ownership and management is most likely to occur in a: Select one: a. sole proprietorship b. general partnership c. corporation d. limited liability partnership

c. corporation

The form of business ownership best suited to raising large amounts of money for expansion is the: Select one: a. Sole proprietorship. b. partnership c. corporation d. cooperative

c. corporation

The form of business ownership that usually requires the most detailed recordkeeping is the: Select one: a. sole proprietorship b. general partnership c. corporation d. limited liability partnership

c. corporation

Ina partnership, a(n) __________ partner (owner) actively manages the company and has unlimited liability for claims against the firm Select one: a. unlimited b. limited c. general d. associate

c. general

____________are companies that are similar to S Corporations but are not restricted with similar eligibility requirements Select one: a. Sole proprietorship b. limited partnership c. limited liability companies d. franchises

c. limited liability companies

A major advantage of S corporations is that they: Select one: a. Can have more stockholders than a C corporation. b. Can operate in foreign nations as if they were domestic corporations. c. Require less paperwork to set up than a C corporation does. d. Avoid the problem of double taxation associated with conventional corporations.

d. Avoid the problem of double taxation associated with conventional corporations.

Which of the following is an attractive benefit of a corporation? Select one: a. Corporations can enjoy double taxation. b. Unlike limited partnerships, all owners of corporations are passive investors. c. Corporations can protect its owners with unlimited liability. d. Corporations can attract employees by offering stock options

d. Corporations can attract employees by offering stock options

Which of the following is normally considered a disadvantage of the corporate form of business? Select one: a. Unlimited liability of owners. b. Difficult transfer of ownership. c. Limited life. d. Double taxation of earnings

d. Double taxation of earnings

A(n)_________ occurs when one company buys the property and obligations of another company. Select one: a. cooperative b. hostile takeover c. leverage buyout d. acquisition

d. acquisition

A franchise can be formed: Select one: a. only as a general partnership b. only as a corporation c. either corporation or partnership, but never sole proprietorship d. can be corporation, partnership or sole proprietorship

d. can be corporation, partnership or sole proprietorship

An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing is: Select one: a. golden parachute b. strike c. downsize d. leveraged buyout

d. leveraged buyout

Which of the following is an advantage of the corporate form of business when compared to sole proprietorships and partnerships? Select one: a. ease of formation b. lower taxes c. simplified paper work d. limited liabilities of owners

d. limited liabilities of owners

One way to eliminate some of the risk of your partners making costly mistakes that could jeopardize your personal assets is to set-up a: Select one: a. Master limited partnership b. sole proprietorship c. limit the amount of time each can actively spend in the business d. limited liability partnership

d. limited liability partnership

The__________ is the most common form of business ownership. Select one: a. partnership b. corporation c. joint venture d. sole proprietorship

d. sole proprietorship

An owner of a corporation is known as: Select one: a. general partner b. limited partner c. stakeholder d. stockholder

d. stockholder

If a group of stockholders or management obtain all the stock of a previously publicly traded firm for themselves, this is referred to as: Select one: a. capitalizing b. stock turning c. turning the equity d. taking the firm private

d. taking the firm private