ch. 1 LS

T or F: shareholders are the only stakeholder in a firm as they are the owners

False

the federal government taxes which of the following? a) corporate earnings and shareholder dividends b) corporate earnings but not shareholder dividends c) neither corporate earnings nor shareholder dividends d) shareholder dividends but not corporate earnings

a) corporate earnings and shareholder dividends

a general partnership has which of the following characteristics? a) it is difficult to transfer ownership b) large amounts of cash can be raised easily c) each owner has unlimited liability for all firm debts d) it is expensive to form

a) it is difficult to transfer ownership c) each owner has unlimited liability for all firm debts

which of the following are true of a sole proprietorship? a) it is the simplest type of business to form b) a proprietorship has a limited life c) a sole proprietor can issue stock to raise capital d) it is easy to transfer ownership

a) it is the simplest type of business to form b) a proprietorship has a limited life

an organization must prepare __________________ and bylaws when forming a corporation

articles of incorporation

which of the following is included in working capital? a) long-term debt b) accounts receivable c) accounts payable d) current (short-term) assets e) retained earnings

b) accounts receivable c) accounts payable d) current (short-term) assets

which of the following are important when considering a partnership? a) future dividend policy b) personal liability for firm debts c) fund raising limitations d) taxation of partnership income

b) personal liability for firm debts c) fund raising limitations d) taxation of partnership income

the rules used by a corporation to regulate its existence are known as ____________.

bylaws

Inventory is a : a) fixed asset b) current liability c) part of working capital d)current asset e) long-term liability

c) part of working capital d)current asset

the possible goal of profit maximization _________. (2 things)

can be achieved by cost-cutting and would probably be the most commonly sighted goal for a business

what term applies to the mixture of debt and equity maintained by a firm?

capital structure

what are the two basic classifications under which most potential financial goals fall?

controlling risk and earning or increasing profits

the need to monitor management actions is an example of an ___________ (direct/indirect) agency cost

direct

(T or F) the Sarbanes-Oxley Act provides incentives for companies to go public in US markets

false (due to the cost and regulation of Sarbanes-Oxley, many companies turn to foreign markets to go public)

a sole proprietorship is a business that ________.

is owned by one person

The life of a corporation _________________.

is unlimited

a corporation is a distinct _________ entity and as such can have a name and take advantage of the legal powers of natural persons

legal

businesses are motivated to organize as corporations because stockholders in a corporation have ________ liability for corporate debts

limited

in a limited partnership, a limited partner's liability for business debts is ___________.

limited to their cash contribution to the partnership

capital budgeting is concerned with planning and managing a firm's ________________.

long-term investments

how is ownership transferred in a corporation?

ownership is transferred by gifting or selling shares of stock

a business without separate legal authority formed by two or more people is known as a ________.

partnership

a limited liability company is taxed like a ________ and its owners have __________ liability.

partnership; limited

what is the term to describe an important mechanism used by unhappy stockholders to replace current management

proxy fight

corporations in other countries are often called: (2 things)

public limited companies & joint stock companies

because shareholders get paid last after all other obligations are satisfied, they are often called:

residual owners

the owners of a corporation are called ________.

stockholders

the liability of a shareholder in a corporation is limited to what?

the amount the shareholder invested in the corporation

what is the main goal of financial management?

to maximize current value per share of existing stock

Why is a corporation the most important form of business? (3 things)

1) corporations can sue and be sued 2) a corporation is a separate legal entity with the ability to acquire and exchange property 3) corporations can enter into contracts