Question 1

Taking a firm private involves converting a firm from a corporation to a general partnership.

Accepted Answer

A) True 
 B)False

Question 2

A few years back,your friends who are horse fanatics inherited several acres of land that they turned into a retirement haven for racehorses.Peaceful Pastures was recently incorporated as a limited liability company.The members are re-evaluating this form of ownership.Unlike an S-corporation,they now pay self-employment taxes on all company profits - not just on the salaries they pay themselves.

Accepted Answer

A) True 
 B)False

Question 3

One reason franchises have become so popular is that this arrangement provides the franchisee with:

Accepted Answer

A)  A nationally recognized name and product. 
B)  A low cost way to start a business. 
C)  Limited liability. 
D)  The right to retain all profits earned by their franchise. 
A)  A nationally recognized name and product. 
B)  A low cost way to start a business. 
C)  Limited liability. 
D)  The right to retain all profits earned by their franchise.

Question 4

In a general partnership,all partners are entitled to an equal share of the firm's profits.

Accepted Answer

A) True 
 B)False

Question 5

One reason that companies participate in mergers and acquisitions is:

Accepted Answer

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. 
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.

Question 6

In recent years,foreign firms were reluctant to merge with or acquire American corporations.

Accepted Answer

A) True 
 B)False

Question 7

To qualify as an S corporation,a company must:

Accepted Answer

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. 
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.

Question 8

When entering into a new partnership,a good strategy is to:

Accepted Answer

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. 
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.

Question 9

A domestic corporation does business in the state in which it's chartered.

Accepted Answer

A) True 
 B)False

Question 10

Stockholders in a corporation normally exert a significant degree of control over the company's daily operations.

Accepted Answer

A) True 
 B)False

Question 11

A disadvantage of corporations is that their charters are only valid for 99 years,so corporations are less permanent than other types of businesses.

Accepted Answer

A) True 
 B)False

Question 12

Double taxation means that a corporation pays twice the amount of taxes as a sole proprietorship or partnership.

Accepted Answer

A) True 
 B)False

Question 13

Jocelyn belongs to a food cooperative in her community.As a member,she can expect to have a vote in the election of the cooperative's board of directors.

Accepted Answer

A) True 
 B)False

Question 14

A horizontal merger refers to a merger between two companies in the same industry,and serving the same markets.

Accepted Answer

A) True 
 B)False

Question 15

Javier is the sole proprietor of a golf shop.Because he is a sole proprietor,any profit Javier's business earns is:

Accepted Answer

A)  Totally tax-free. 
B)  Taxed only as Javier's personal income. 
C)  Taxed twice,once as business income,then again as Javier's personal income. 
D)  Taxed only if and when it is distributed to investors. 
A)  Totally tax-free. 
B)  Taxed only as Javier's personal income. 
C)  Taxed twice,once as business income,then again as Javier's personal income. 
D)  Taxed only if and when it is distributed to investors.

Question 16

Due to several years of poor performance,Scrappy's Metal Fabrication,Inc. ,is closing.Through the use of debt financing,workers plan to purchase the company's stock from current shareholders,in order to buy the firm,improve company performance,and save jobs.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not a disclosure that should be part of a partnership agreement?

Accepted Answer

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. 
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.

Question 18

Double taxation is a phenomenon that occurs with corporations that pay dividends.Which of the following scenarios is an accurate example of double taxation?

Accepted Answer

A)  If Idle Time Gaming,Inc. ,distributes 20% of its net profit after taxes to its stockholders;these funds will be taxed again,when each individual stockholder claims his/her portion as earnings. 
B)  By law,Idle Time Gaming,Inc. ,is permitted to tax its executive employees twice on their earnings,and then pass those funds on to its stockholders in the form of dividends. 
C)  Due to the fact that it is a corporation,the accountants of Idle Time Gaming,Inc. ,calculate 35% of the company's earnings,multiply it by 2,and then distribute that amount to the federal government each year for taxes. 
D)  If Idle Time Gaming,Inc. ,fails to pay its taxes on time during any given year,it must pay the current year and the delinquent year,in order to stay in business,similar to being taxed two times. 
A)  If Idle Time Gaming,Inc. ,distributes 20% of its net profit after taxes to its stockholders;these funds will be taxed again,when each individual stockholder claims his/her portion as earnings. 
B)  By law,Idle Time Gaming,Inc. ,is permitted to tax its executive employees twice on their earnings,and then pass those funds on to its stockholders in the form of dividends. 
C)  Due to the fact that it is a corporation,the accountants of Idle Time Gaming,Inc. ,calculate 35% of the company's earnings,multiply it by 2,and then distribute that amount to the federal government each year for taxes. 
D)  If Idle Time Gaming,Inc. ,fails to pay its taxes on time during any given year,it must pay the current year and the delinquent year,in order to stay in business,similar to being taxed two times.

Question 19

The owners of a limited liability company (LLC)must pay self-employment taxes on any profits they earn,even if they did not obtain a salary from the company.

Accepted Answer

A) True 
 B)False

Question 20

What is a C corporation? What are the major advantages and disadvantages of this form of business ownership?

Accepted Answer

The C corporation is a state-chartered l

Exam 5: How to Form a Business

Taking a firm private involves converting a firm from a corporation to a general partnership.

One reason franchises have become so popular is that this arrangement provides the franchisee with:

In a general partnership,all partners are entitled to an equal share of the firm's profits.

One reason that companies participate in mergers and acquisitions is:

In recent years,foreign firms were reluctant to merge with or acquire American corporations.

To qualify as an S corporation,a company must:

When entering into a new partnership,a good strategy is to:

A domestic corporation does business in the state in which it's chartered.

Stockholders in a corporation normally exert a significant degree of control over the company's daily operations.

A disadvantage of corporations is that their charters are only valid for 99 years,so corporations are less permanent than other types of businesses.

Double taxation means that a corporation pays twice the amount of taxes as a sole proprietorship or partnership.

Jocelyn belongs to a food cooperative in her community.As a member,she can expect to have a vote in the election of the cooperative's board of directors.

A horizontal merger refers to a merger between two companies in the same industry,and serving the same markets.

Javier is the sole proprietor of a golf shop.Because he is a sole proprietor,any profit Javier's business earns is:

Due to several years of poor performance,Scrappy's Metal Fabrication,Inc. ,is closing.Through the use of debt financing,workers plan to purchase the company's stock from current shareholders,in order to buy the firm,improve company performance,and save jobs.

Which of the following is not a disclosure that should be part of a partnership agreement?

Double taxation is a phenomenon that occurs with corporations that pay dividends.Which of the following scenarios is an accurate example of double taxation?

The owners of a limited liability company (LLC)must pay self-employment taxes on any profits they earn,even if they did not obtain a salary from the company.

What is a C corporation? What are the major advantages and disadvantages of this form of business ownership?

Taking Risks and Making Profits Within the Dynamic Business Environment

Understanding How Economics Affects Business

Doing Business in Global Markets

Demanding Ethical and Socially Responsible Behavior

Entrepreneurship and Starting a Small Business

Management and Leadership

Adapting Organizations to Todays Markets

Production and Operations Management

Motivating Employees

Human Resource Management: Finding and Keeping the Best Employees

Dealing With Employee-Management Issues and Relationships

Marketing: Helping Buyers Buy

Developing and Pricing Goods and Services

Distributing Products

Using Effective Promotions

Understanding Accounting and Financial Information

Financial Management

Using Securities Markets for Financing and Investing Opportunities

Money, Financial Institutions, and the Federal Reserve

Appendix A: Using Technology to Manage Information

Appendix B: Managing Risk

Filters