Chapter 4 SLO 1

Ricardo and his wife are retiring from their accounting firm, set up as a general partnership, after 35 years in business. Their business debts total $25,000. Their total personal liability for all owners is ____________ BlueFish Consulting is closing due to the death of the CEO and majority owner, Archer Dacey. The corporation has business debts totaling $430,000. The total personal liability for all owners is______________ Kara Lewis, owner of Kara's Cupcakes, is closing the business due to lack of sales. Business debts and legal obligations for the corporation totals $125,000. The total personal liability for Kara is _____________________ Wei Tung owns a sole proprietorship that provides web design services. The business is being sued by Hunter's former employer claiming he violated a non-compete clause. Wei will have to close his business dues to the lawsuit. Total business debts and legal obligations total $1,000,000. Wei's personal liability is_________________ Fred and Larry's BBQ restaurant is closing due to the death of Larry. The LLC's total business debts and legal obligations are $50,000. The total personal liability for all owners is_________________

1. $25000 2. $0 3. $0 4. $1,000,000 5. $0

John plans to open a landscaping business. Use the drop down menu to select the key consideration being evaluated. 1 a. John doesn't want any partners in the business and wants to make all the decisions. 2 b. John wants to have 100% of the profits and is OK if they are taxed at his personal income tax rate. 3 c. It's a low-risk business, so John isn't worried about getting sued or owing anyone large amounts of money. 4 d. John wants to minimize the amount of paperwork required to start and operate this business because he's running it solo.

1. Business ownership and control 2. Taxation and treatment of profits 3. Legal and financial liability 4. Ease of startup and admistration

Susan and Sofia are doctors who are opening a medical practice. Use the drop down menu to select the key consideration being evaluated. a. They will run the practice together and share in the day-to-day decision-making. . They are concerned about potential litigation by patients for malpractice and want to make sure they can protect their personal assets. c. Since Susan will be offering medical services and managing the administrative side of the business, they have decided that Susan will get 65% of the profits. d. They would like setup to be easy and will outline their management plan in a written agreement.

1. Business ownership and control 2. legal and finacial liability 3. taxation and treatment of profits 4. ease of startup and afministration

A 1 separate entity by law that has most of the legal rights of a real person. 2 b. A form of ownership that combines the benefits of corporations and partnerships without some of the disadvantages. 3 c. The association of two or more persons to act as co-owners of a business for profit. 4 d. A business that is owned (and usually operated) by one person.

1. Corporation 2. LLC 3. Partnership 4. Sole propretorship

1. PJ Juenger owns a landscaping company with his brother-in-law, Greg. Last year they made $150,000 in profits. PJ and Greg will report the profits on their individual tax returns. 2. Acme Co. made a profit of $585,000. The profit will be taxed at the company tax rate and after-tax profit will be distributed to the owners, who will pay dividend tax on their share of profits. 3. Stearns, Newman, & Ericson Law Firm made a profit of $750,000. That profit will be distributed equally among the owners who will pay taxes on their share of the profits on their individual tax returns. 4. Youngstown Steel made a profit of $1,250,000. That profit will be taxed at Youngstown Steel's company tax rate. They will then reinvest those profits back into the business.

1. Pass-Through 2. Corporate 3. Pass-Through 4. Corporate

Ezekiel is starting a mobile app company along with several founding members. Use the drop down menu to select the key consideration being evaluated. a. They will have a legal team and fully understand that managing their aggressive growth strategy and number of owners will require much administration b. They hope to bring in investors as the company grows and want to be able to sell their own shares of the company as it becomes more valuable. c. They plan to acquire a lot of financing to fund the business and don't want to be liable for these debts if the business does not turn a profit. d. They want the profits to be divided by each person's percentage of ownership and realize those profits will be taxed at the dividends rate when distributed.

1. ease of startup and administration 2. business ownership and control 3. Legal and financial liability 4.Taxation and treatment of profits

Based on the scenarios, use the drop-down menu to select the best form of business ownership for the situation 1 a. Diego owns a small bicycle shop in his home town. He does not employ any workers. 2 b. Tiffany has an award-winning cookie recipe and would like to open a mail-order cookie business. Her sister, Lynne, would like to invest money and join the business. Eventually, they would like to pass on the business to their children and will explicitly state those details in their agreement. 3 c. A group of educators have decided to open a tutoring and learning center with initial funds provided by a government grant. Future financial investments will be required in order to continue running the center as well as opening new locations. 4 d. Kelvin and Maggie have just graduated from college and would like to open a photography studio in Seattle. They will share the costs of startup and split the profits evenly. Kelvin sees this as temporary as he has plans to eventually be a photojournalist in London or New York and Maggie thinks she may like to move to Los Angeles in the future. 5 e. Antonio is currently a contractor for a hardware store. He wants to be able to make his own decisions regarding which type of contracting work he performs. Antonio would like to open his own business and provide a variety of handyman services in the area.

1. sole proprietorship 2. partnership 3. corporation 4. partnership 5. sole proprietorship

Sharon and David are dermatologists who have created a skin care line to help with blemishes and wrinkles. They'd like to go into business selling their products. They want the personal asset protection of a corporation but don't want the regulations and increased paperwork associated with a corporation. Which form of business ownership would best suit their needs? a. Limited-liability company (LLC) b. Limited partnership c. General partnership d. Joint venture e. Sole proprietorship

a. Limited-liability company (LLC)

The stock of Zebra Corporation is owned by three people. John owns 40%, Sam owns 35%, and Mitchell owns 25%. However, Mitchell does at least 50% of the work, and John is a passive owner who does no work at all. If the company earns a profit of $100,000 and decides to distribute it all to the owners, how much would John get? a. $0 b. $40,000 c. $25,000 d. $35,000 e. It depends on the provisions of the partnership agreement.

b. $40,000

judy, Betty, and Bob want to limit liability for their business debts, but they want to avoid double taxation. Which type of business ownership would you recommend? a. General partnership b. LLC c. Not-for-profit corporation d. Sole proprietorship e. Regular corporation

b. LLC

A corporation that is taxed as a partnership, where the corporation's income is taxed only as the personal income of its stockholders, is called: a. a limited partnership. b. an S-corporation. c. a limited-liability company (LLC). d. a C corporation. e. a nonprofit organization.

b. an S-corporation.

Edward would like a form of business that is a separate legal entity, with most of the legal rights of a real person. He should form a: a. licensing agreement. b. corporation. c. joint venture. d. sole proprietorship. e. partnership.

b. corporation.

Charlene and Phil would like a form of business that combines the benefits of a corporation and a partnership while avoiding some of the restrictions associated with those forms of ownership. They should form a(n): a. sole proprietorship. b. limited-liability company (LLC). c. joint venture. d. syndicate. e. conglomerate.

b. limited-liability company (LLC).

If a corporation makes $100,000 in profit, how will that profit be taxed if the money is all distributed to the owners? a. $100,000 will be taxed at the individual tax rate of each owner. b. $100,000 will be taxed at the corporate rate; then those after-tax profits will be taxed again at the corporate rate when distributed to each owner. c. $100,000 will be taxed at the corporate rate; then those after-tax profits will be taxed again as dividends when distributed to each owner. d. $100,000 will be taxed at the corporate rate only. e. Corporations don't pay taxes as a company, but "pass through" the profits to owners.

b. $100,000 will be taxed at the corporate rate; then those after-tax profits will be taxed again at the corporate rate when distributed to each owner. wrong

Twenty young entrepreneurs decide they want to start a dating service; however, they do not want to be held personally liable for losses of the company and they want to avoid double taxation. Which type of business organization would best fit their needs? a. Limited cooperative b. Corporation c. LLC d. Closed corporation e. Partnership

b. Corporation wrong

Big Box Corporation has two owners who share the work equally. Susie owns 80% of the company stock, and Sheryl owns 20% of the company stock. Susie invested 60% of the money required to start the business. If the company makes $100,000 profit this year and decides to distribute it all to the owners, how much will Susie get? a. $100,000 b. $0 c. $80,000 d. $20,000 e. $60,000

c. $80,000

Lisa and John own a partnership that provides rental equipment for parties and special occasions. Which of the following is true about the way Lisa and John would handle company profits? a. Automatically split the profits, with 50% for Lisa and 50% for John. b. Divide the profits according to each person's investment in the business. c. Do nothing because partnerships require that profits remain in the business. d. Distribute the profits according to the terms of the partnership agreement. e. Split the profits according to how many hours each person worked.

d. Distribute the profits according to the terms of the partnership agreement.

Which form of business is the easiest to start? a. Partnership b. Entrepreneurship c. Corporation d. S corporation e. Sole proprietorship

d. S corporation wrong

The form of business organization that experiences double taxation is the: a. sole proprietorship. b. venture company. c. partnership. d. corporation. e. syndicated partnership.

d. corporation.

Karen Howard loves to cook and receives unqualified praise whenever she prepares a meal for someone. Encouraged by these compliments and eager to put her culinary talents to good use, Karen decides to open a small neighborhood restaurant. Because she plans to maintain complete ownership and control of the business, she will most likely organize it as a: a. corporation. b. cooperative. c. general partnership. d. sole proprietorship. e. limited partnership.

d. sole proprietorship.

Santino would like to start selling his homemade salsas and sauces. He figures his start-upstart-up costs will be low, and he has money saved, so he decides to start his business on his own and sell his products at a local farmer's market. This is likely an example of a(n): a. joint venture. b. partnership. c. corporation. d. sole proprietorship. e. LLC.

d. sole proprietorship.

Tasha's T-Shirts Inc. made $500,000 profit last year. That profit will be taxed at the company's tax rate. Tasha will then reinvest those after-tax profits back into the business rather than distributing them to the shareholders. How will these after-tax profits be taxed? a. After-tax profits must be distributed to shareholders; Tasha cannot reinvest them back into the business. b. After-tax profits are not taxed if they are not distributed to shareholders. c. After-tax profits are taxed at the corporate tax rate. d. After-tax profits are taxed at each shareholder's individual tax rate. e. After-tax profits are taxed at the pass-through taxation rate.

e. After-tax profits are taxed at the pass-through taxation rate. wrong

Juan and Carl have a small medical practice that operates as a partnership. Juan does 70% of the work and Carl does 30%. However, Carl invested 60% of the money required to start the business. If the company makes $100,000 in profit this year, how much will each partner receive? a. Juan will receive $70,000; Carl will receive $30,000. b. Juan will receive $50,000; Carl will receive $50,000. c. Juan will receive $40,000; Carl will receive $60,000. d. Juan will receive $60,000; Carl will receive $40,000. e. Profits will be shared in the proportion specified in the partnership agreement.

e. Profits will be shared in the proportion specified in the partnership agreement.

Jill's coffee shop made $250,000 profit last year. Jill and her partner will report their share of profits on their individual tax return. This is called: a. pass-through taxation. b. flat taxation. c. unlimited taxation. d. corporate taxation. e. double taxation

e. corporate taxation wrong

Thomas wants to make money, so he starts his own business as a sole proprietor. He likes this form of business because: a. he has to split the profits with only one other person. b. profit is guaranteed because he will be the only owner. c. he has to pay small dividends to the other owners. d. it will provide a steady income for him. e. he will get to keep all of the profits the business makes.

e. he will get to keep all of the profits the business makes

A voluntary association of two or more people acting as co-owners of a business is known as a: a. corporation. b. syndicate. c. sole proprietorship. d. conglomerate. e. partnership.

e. partnership.

Which of the following statements about corporations is true? a. Both profits and dividends are taxed at corporate tax rates. b. Corporations utilize pass-through taxation. c. Corporations must distribute all profits at the end of each year. d. Corporate tax rates are always higher than individual tax rates. e. Corporations can deduct certain business expenses that other forms of business can't, which could lower the amount of money subject to taxes.

e. Corporations can deduct certain business expenses that other forms of business can't, which could lower the amount of money subject to taxes.