Question 1

What is a limited liability company (LLC)? How does it compare to an S corporation? What are the major advantages and disadvantages of an LLC?

Accepted Answer

A limited liability company (LLC) is a r

Question 2

A limited partner is an owner who assumes no management responsibility and has no liability for losses beyond the amount invested.

Accepted Answer

A) True 
 B)False

Question 3

Hole-In-One Golf Company announced plans to purchase the property and assume the obligations of Champion Golf, Inc., one of its major competitors. Hole-In-One Golf Company's plans are an example of a merger.

Accepted Answer

A) True 
 B)False

Question 4

Originally, food cooperatives were formed to provide better prices for farmers. These groups now cooperatively buy farm equipment and other products, and realize economies of scale by banding together for these things.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is an attractive benefit of a corporation?

Accepted Answer

A)  Corporations can enjoy double taxation. 
B)  Unlike limited partnerships, all owners of corporations are passive investors. 
C)  Corporations can protect their owners with unlimited liability. 
D)  Corporations can attract employees by offering stock options. 
A)  Corporations can enjoy double taxation. 
B)  Unlike limited partnerships, all owners of corporations are passive investors. 
C)  Corporations can protect their owners with unlimited liability. 
D)  Corporations can attract employees by offering stock options.

Question 6

An advantage of forming a sole proprietorship is that it allows the owner to have more time for leisure activities.

Accepted Answer

A) True 
 B)False

Question 7

A major advantage of sole proprietorships is that an owner has limited liability for the debts of his or her business.

Accepted Answer

A) True 
 B)False

Question 8

A difficulty that sole proprietors try to overcome is the fact that they have trouble competing with large firms for expert talent. Large firms can usually pay better and offer fringe benefits that are unaffordable to the sole proprietor.

Accepted Answer

A) True 
 B)False

Question 9

Randy and Mandy plan to pool their money and musical talents to form a general partnership and begin booking weekend gigs. One of the first things Randy and Mandy should do is:

Accepted Answer

A)  seal the deal with at least five clubs where they can book three months' worth of gigs. 
B)  consult an attorney and put their agreement in writing. 
C)  pay the partnership formation fee to their state's commerce commission. 
D)  file the limited liability paperwork at the courthouse in the county in which their partnership will be formed. 
A)  seal the deal with at least five clubs where they can book three months' worth of gigs. 
B)  consult an attorney and put their agreement in writing. 
C)  pay the partnership formation fee to their state's commerce commission. 
D)  file the limited liability paperwork at the courthouse in the county in which their partnership will be formed.

Question 10

One of the major disadvantages of a sole proprietorship is the:

Accepted Answer

A)  possibility of disagreements between owners. 
B)  unlimited liability the owner has for the debts of the firm. 
C)  fact that any income earned by this type of business is taxed twice. 
D)  high cost of starting or ending the company. 
A)  possibility of disagreements between owners. 
B)  unlimited liability the owner has for the debts of the firm. 
C)  fact that any income earned by this type of business is taxed twice. 
D)  high cost of starting or ending the company.

Question 11

A disadvantage of farm cooperatives is that they are subject to higher tax rates than corporations.

Accepted Answer

A) True 
 B)False

Question 12

According to the Uniform Partnership Act, the three key elements of any general partnership are (1) common ownership, (2) shared profits and losses, and (3) the right to participate in managing the operations of the business.

Accepted Answer

A) True 
 B)False

Question 13

The organizational structure of a corporation permits:

Accepted Answer

A)  the company management to elect the Board of Directors. 
B)  stockholders to elect the Board of Directors. 
C)  stockholders to elect the officers and management team. 
D)  employees (by committee) to elect the officers of the company. 
A)  the company management to elect the Board of Directors. 
B)  stockholders to elect the Board of Directors. 
C)  stockholders to elect the officers and management team. 
D)  employees (by committee) to elect the officers of the company.

Question 14

A leveraged buyout is an attempt by top management to gain control of a company by issuing a large amount of new stock.

Accepted Answer

A) True 
 B)False

Question 15

One of the major disadvantages of a partnership is that profits must be divided equally.

Accepted Answer

A) True 
 B)False

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 statements about S corporations is most accurate?

Accepted Answer

A)  The major attraction of S corporations is that they avoid the problem of double taxation. 
B)  S Corporations are similar to C corporations, except that the majority of owners are foreign investors. 
C)  Any corporation willing to pay the necessary fees and fill out the required paperwork can become an S Corporation. 
D)  Only large corporations with operations in more than one state can qualify to be classified as S corporations. 
A)  The major attraction of S corporations is that they avoid the problem of double taxation. 
B)  S Corporations are similar to C corporations, except that the majority of owners are foreign investors. 
C)  Any corporation willing to pay the necessary fees and fill out the required paperwork can become an S Corporation. 
D)  Only large corporations with operations in more than one state can qualify to be classified as S corporations.

Question 18

Finley is a limited partner in Gettout & Associates. Heywood U. Gettout, one of the general partners in the company, must temporarily leave the company to attend to some personal matters. Heywood has asked Finley to perform his managerial duties while he is gone. As a limited partner, Finley:

Accepted Answer

A)  can fill in as a manager whenever necessary, as long as it is for only a limited time. 
B)  can make managerial decisions as long as they do not involve the payment of money. 
C)  cannot participate in the management of the partnership. 
D)  can manage the firm as long as he gets approval from the company's other general partners. 
A)  can fill in as a manager whenever necessary, as long as it is for only a limited time. 
B)  can make managerial decisions as long as they do not involve the payment of money. 
C)  cannot participate in the management of the partnership. 
D)  can manage the firm as long as he gets approval from the company's other general partners.

Question 19

Greg plans to open up three Hottie PataF1F1F1S1?F1F1F10tee franchises in the greater Denver area. He just informed you that he plans to negotiate with the franchisor to eliminate the Big Potato Head that graces the roof of these restaurants. Greg is likely to learn that:

Accepted Answer

A)  the parent company will give him a start-up cost break for the same amount that it would have to pay for three of these signs. 
B)  he is making a smart decision because it is not the sign that will bring customers to his potato bar. It is the wide-selection of toppings and six different ways he will cook potatoes. 
C)  it is nonnegotiable due to company rules. 
D)  his failure rate will not increase or decrease because franchises traditionally have low failure rates. 
A)  the parent company will give him a start-up cost break for the same amount that it would have to pay for three of these signs. 
B)  he is making a smart decision because it is not the sign that will bring customers to his potato bar. It is the wide-selection of toppings and six different ways he will cook potatoes. 
C)  it is nonnegotiable due to company rules. 
D)  his failure rate will not increase or decrease because franchises traditionally have low failure rates.

Question 20

A well-known franchised food chain was brought to its knees when several customers got sick from tainted beef. Although the food chain recovered due to its quick and consistent action, several franchisees sued the parent company for loss of sales. The franchisees experienced the coattail effects of the bad publicity this event received.

Accepted Answer

A) True 
 B)False

Exam 5: How to Form a Business

What is a limited liability company (LLC)? How does it compare to an S corporation? What are the major advantages and disadvantages of an LLC?

A limited partner is an owner who assumes no management responsibility and has no liability for losses beyond the amount invested.

Hole-In-One Golf Company announced plans to purchase the property and assume the obligations of Champion Golf, Inc., one of its major competitors. Hole-In-One Golf Company's plans are an example of a merger.

Originally, food cooperatives were formed to provide better prices for farmers. These groups now cooperatively buy farm equipment and other products, and realize economies of scale by banding together for these things.

Which of the following is an attractive benefit of a corporation?

An advantage of forming a sole proprietorship is that it allows the owner to have more time for leisure activities.

A major advantage of sole proprietorships is that an owner has limited liability for the debts of his or her business.

A difficulty that sole proprietors try to overcome is the fact that they have trouble competing with large firms for expert talent. Large firms can usually pay better and offer fringe benefits that are unaffordable to the sole proprietor.

Randy and Mandy plan to pool their money and musical talents to form a general partnership and begin booking weekend gigs. One of the first things Randy and Mandy should do is:

One of the major disadvantages of a sole proprietorship is the:

A disadvantage of farm cooperatives is that they are subject to higher tax rates than corporations.

According to the Uniform Partnership Act, the three key elements of any general partnership are (1) common ownership, (2) shared profits and losses, and (3) the right to participate in managing the operations of the business.

The organizational structure of a corporation permits:

A leveraged buyout is an attempt by top management to gain control of a company by issuing a large amount of new stock.

One of the major disadvantages of a partnership is that profits must be divided equally.

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 statements about S corporations is most accurate?

Finley is a limited partner in Gettout & Associates. Heywood U. Gettout, one of the general partners in the company, must temporarily leave the company to attend to some personal matters. Heywood has asked Finley to perform his managerial duties while he is gone. As a limited partner, Finley:

Greg plans to open up three Hottie Pata?tee franchises in the greater Denver area. He just informed you that he plans to negotiate with the franchisor to eliminate the Big Potato Head that graces the roof of these restaurants. Greg is likely to learn that:

Taking Risks and Making Profits Within the Dynamic Business Environment

Understanding Economics and How It Affects Business

Doing Business in Global Markets

Demanding Ethical and Socially Responsible Behavior

Entrepreneurship and Starting a Small Business

Management and Leadership

Structuring Organizations for Todays Challenges

Production and Operations Management

Motivating Employees

Human Resource Management: Finding and Keeping the Best Employees

Dealing With Union and Employeemanagement Issues

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

Managing the Marketing Mix: Product, Price, Place and Promotion

Extension: Working Within the Legal Environment

Extension: Using Technology to Manage Information

Extension: Managing Risk

Extension: Managing Personal Finances

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