CHAPTER 4 PRACTICE TEST

Not all corporations are large. In recent years, about 24 percent of corporations have reported less than _____ in total sales revenue.

$25,000

Sole proprietorships make up over _____ of all businesses.

70%

Burger King, McDonald's, Wendy's, and Hardee's are examples of

Business Franchising

His Eminence Lord Tommy Bushwacker the Third, Duke of Tammany Hall, is the sole proprietor of a ship building concern. As he reaches the end of his days and considers his considerable legacy to his children, his mind touches upon those things he wishes to pass on for their benefit after his death. His lawyer is advising him to do what?

Convert the sole proprietorship to a Limited Liability Company and list it in his will as passing to his heirs.

As an artificial person, a(n) _____ can legally engage in almost any business activity a natural person can, including owning property, entering into binding contracts, and initiate legal actions.

Corporation

I.B. Glowen is an engineer who works in nuclear power plants. He is considering starting his own engineering company. Over the last couple of months he has spent considerable time researching different business ownership options. Due to the type of work performed by his new company, Glowen is most concerned with unlimited liability. If this is the case, which business model would you recommend?

Corporation

Based on data gathered from the U.S. Census Bureau, _____ are less common than _____ but they tend to be larger and more profitable than _____.

Corporations; sole proprietorships; sole proprietorships

A corporation is the most common type of business organization in the United States.

False

In terms of total net income by form of ownership, the sole proprietorship is the largest form of business ownership, partnerships follow, and corporations are the smallest form.

False

In terms of total number of businesses by form of ownership, corporations are more common than sole proprietorships.

False

In terms of total sales income, all corporations are large.

False

One advantage of a general corporation is that it is easy and inexpensive to form.

False

One advantage of a general partnership is that partners maintain unlimited liability for any debts the company incurs.

False

One advantage of a sole proprietorship is that as a separate legal entity, the owner is not personally responsible for the debt and obligations of the company.

False

The general partnership is the dominant form of business ownership, with the vast majority of large business organizations using this form of ownership.

False

Which statement is true about limited liability companies (LLCs)?

LLCs are taxed like partnerships, and each member's income is accounted for with his or her personal income tax.

Which of the following is NOT an accurate statement about a sole proprietorship?

Legally, the business is considered separate and distinct from its owner.

A sole proprietorship is a business that is owned, and usually managed, by a single individual.

True

As business entities, corporations may engage in virtually any business activity a natural person can, including buying and selling property, and entering into binding contracts.

True

Choice of ownership determines the degree to which each owner has personal liability for the firm's debts and the sources of funds available to the firm to finance future expansion.

True

Corporate bylaws are the basic rules governing how a corporation is organized and how it conducts its business.

True

Despite the fact that partnerships in the U.S. were over 3 million in 2007, sole proprietorships still out number them eight to one.

True

Most sole proprietorships are small businesses with net incomes that lag far behind those of partnerships and corporations.

True

Owners of sole proprietorships are personally responsible for any debts incurred by their business.

True

Hans is considering forming a company that specializes in international consultations. He wants to serve as a liaison between domestic and Chinese toy distributors, offering the U.S. firms access to lower cost labor and offering the Chinese firms access to one of the largest markets in the world. In addition, he will need to capitalize the operation by offering shares of common stock. Which business entity should he choose?

a corporation

In most states, the document that owners must file in order to form a corporation is referred to as the

articles of incorporation.

All of the following are disadvantages of sole proprietorships EXCEPT

double taxation of earnings.

While sole proprietorships have recently generated a combined revenue figure of over $1 trillion, they do not:

generate the level of net income seen in partnerships and corporations

A key advantage of a sole proprietorship is that _____

it is easy and inexpensive to form this type of business.

A _____ maintains limited liability but offers more flexibility in terms of tax treatment than other forms of business ownership.

limited liability company

The _____is a relatively new and increasingly popular form of business ownership that is like a corporation in some ways and like a partnership in others.

limited liability company

Stockholders are _____ of a corporation. They have the right to vote on issues affecting the operation of the business.

owners

Good friends, Bernie and Latasha, both studied accounting in college. Recently, they decided to work together as co-owners of a small accounting firm. This is an example of a(n) _____.

partnership

From the standpoint of an owner, a major advantage of the sole proprietorship is the:

retention of control.

Suzanne Limley was just elected to the board of directors at United Bank Corporation. As a board member, she is expected to represent the interests of ______.

shareholders

Basil Pappas spent his youth working in the restaurants of several of his close relatives. Now, he wants to venture into his own business and has decided that he will open his own restaurant. Basil needs more money than he can come up with on his own, so he plans to ask his two brothers to put up some money in exchange for a share of ownership. Such an arrangement means that the company CANNOT be formed as a

sole proprietorship

Historically, the three basic forms of business ownership in the United States have been the:

sole proprietorship, partnership, and corporation.

The majority of businesses today are formed as

sole proprietorships

All of the following are duties of a company's board of directors EXCEPT

take an active role in the daily operations.

Which of the following is a disadvantage of a sole proprietorship?

the owner is personally liable for the debts of the firm.

The most effective way to form a general partnership is

to develop a written partnership agreement.

Susan Boyle is the owner of a piano tuning business. As a sole proprietor, any profit she earns is

treated as personal income of Susan Boyle.