C708 Unit 2, Module 2 Quiz

Which answer best describes a characteristic of a corporation?

Being a separate taxable entity from its owners, having an elected board of directors, and shareholders that are generally not personally liable for the business's obligations and liabilities are all characteristics of a corporation.

Which answer is a factor that contributes to the conflict of interest between a company's bondholders and its shareholders?

Shareholders generally want the company to pursue riskier projects; bondholders do not. Shareholders are only paid if the company makes a profit, bondholders are paid regardless. Shareholders have a vote in how the company conducts its business; bondholders generally do not.

Which answer is not a characteristic of a sole proprietorship?

The owner must file a separate tax return for the business. There is no separation between the taxes of the sole proprietorship and the taxes of the owner. Instead, all business profits are treated as the income of the owner.

Which answer is a legal characteristic of a general partnership?

There must be at least two business owners. A partnership is an arrangement by which two or more persons agree to share in all assets, profits, and financial and legal liabilities of a business.

Which answer is not a true statement regarding the valuation process?

Valuation is a forward-looking process, so historical data is unimportant.