Question 1

In order to establish a C corporation, it is a requirement that investors run the company, whereas in an S corporation, this is not the case.

Accepted Answer

A) True 
 B)False

Question 2

Midwest Auto Experts, Inc. sells franchises to prospective businesspersons who want to use the Midwest Auto Experts name and offer its products. In a franchise arrangement, Midwest Auto Experts would be the ________, and the buyer of the franchise is the ________.

Accepted Answer

A)  owner; limited partner 
B)  co-signer; co-signee 
C)  franchisor; franchisee 
D)  franchisee; franchisor 
A)  owner; limited partner 
B)  co-signer; co-signee 
C)  franchisor; franchisee 
D)  franchisee; franchisor

Question 3

Although it is a small company, Zorn Enterprises owns a large number of inexpensive rental housing units in Texas and Louisiana. Currently, the company is a chartered C corporation, but the owners are interested in switching to be an S corporation. After consulting a lawyer, they learned that Zorn Enterprises does not qualify to be designated as an S corporation. Which of the following characteristics of Zorn Enterprises would prevent it from becoming an S corporation?

Accepted Answer

A)  The firm has fewer than 75 stockholders. 
B)  The firm is chartered in one state, but owns property in another. 
C)  The firm has only one class of stock, all owned by U.S. citizens. 
D)  The firm receives more than 70 percent of its income from rents and other passive sources. 
A)  The firm has fewer than 75 stockholders. 
B)  The firm is chartered in one state, but owns property in another. 
C)  The firm has only one class of stock, all owned by U.S. citizens. 
D)  The firm receives more than 70 percent of its income from rents and other passive sources.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

A major objective of a leveraged buyout is to enable investors to gain control of a company by issuing new shares of ownership, thus minimizing the use of debt.

Accepted Answer

A) True 
 B)False

Question 6

A multinational corporation is a firm that operates in several countries.

Accepted Answer

A) True 
 B)False

Question 7

Most states have legal restrictions that prevent individuals from incorporating.

Accepted Answer

A) True 
 B)False

Question 8

The limited liability provided to limited partners means that they are not responsible for the debts of the business beyond

Accepted Answer

A)  the firm's total assets. 
B)  the amount they have invested in the company. 
C)  the percentage of profits they are entitled to earn. 
D)  their total personal assets. 
A)  the firm's total assets. 
B)  the amount they have invested in the company. 
C)  the percentage of profits they are entitled to earn. 
D)  their total personal assets.

Question 9

A ________ is two firms combining to form one company.

Accepted Answer

A)  joint tenancy 
B)  tenancy in common 
C)  merger 
D)  leveraged buyout 
A)  joint tenancy 
B)  tenancy in common 
C)  merger 
D)  leveraged buyout

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

One difference between partnerships and sole proprietorships is that partnerships

Accepted Answer

A)  take less effort to form. 
B)  are managed by an elected board of directors. 
C)  have the advantage of limited liability. 
D)  have a greater chance of long-term survival due to the accountability of each partner to the other. 
A)  take less effort to form. 
B)  are managed by an elected board of directors. 
C)  have the advantage of limited liability. 
D)  have a greater chance of long-term survival due to the accountability of each partner to the other.

Question 12

A general partner takes an active role in the management of the business.

Accepted Answer

A) True 
 B)False

Question 13

Being your own boss means

Accepted Answer

A)  reducing your working hours. 
B)  having the freedom to set your own working hours and taking lots of vacations, particularly when just beginning the business. 
C)  accepting accountability for the mistakes of the business. 
D)  having limited financial resources to throw into the business. 
A)  reducing your working hours. 
B)  having the freedom to set your own working hours and taking lots of vacations, particularly when just beginning the business. 
C)  accepting accountability for the mistakes of the business. 
D)  having limited financial resources to throw into the business.

Question 14

If a group of stockholders or management obtain all the stock of a previously publicly traded firm for themselves, this is referred to as

Accepted Answer

A)  capitalizing. 
B)  stock turning. 
C)  turning the equity. 
D)  taking the firm private. 
A)  capitalizing. 
B)  stock turning. 
C)  turning the equity. 
D)  taking the firm private.

Question 15

In a limited liability partnership, each partner's risk of losing personal assets is

Accepted Answer

A)  unlimited. 
B)  limited to losses that result from his/her own acts and omissions and the acts and omissions of those who work under his/her supervision. 
C)  determined entirely by the maximum loss provision established by the articles of co-partnership. 
D)  nonexistent. 
A)  unlimited. 
B)  limited to losses that result from his/her own acts and omissions and the acts and omissions of those who work under his/her supervision. 
C)  determined entirely by the maximum loss provision established by the articles of co-partnership. 
D)  nonexistent.

Question 16

If a corporation has after-tax profits of $360,000, and elects to distribute this amount in the form of dividends to its stockholders, these distributions are free and clear of taxes because the corporation paid taxes on this amount prior to distribution.

Accepted Answer

A) True 
 B)False

Question 17

Franchising is popular in the United States, but legal barriers have limited its popularity in foreign countries.

Accepted Answer

A) True 
 B)False

Question 18

When comparing general partnerships to sole proprietorships, an advantage of partnerships is that they

Accepted Answer

A)  are less risky, because each partner is responsible for only a specified fraction of the firm's debts. 
B)  are easier to terminate. 
C)  cost less to organize. 
D)  give the firm a stronger financial foundation. 
A)  are less risky, because each partner is responsible for only a specified fraction of the firm's debts. 
B)  are easier to terminate. 
C)  cost less to organize. 
D)  give the firm a stronger financial foundation.

Question 19

Carter is a stockholder in ExtremeTrax, Inc., a C corporation that designs and manufactures amusement park roller coasters. The company recently lost a major court decision and is being forced into bankruptcy. In fact, the damages being awarded are so large that, even if all company assets are sold and the proceeds are used to pay its debts, ExtremeTrax is likely to still owe money to its creditors. If ExtremeTrax goes bankrupt, Carter and the other stockholders will

Accepted Answer

A)  be personally responsible for all remaining debts. 
B)  lose their investment but nothing else. 
C)  be entitled to full reimbursement of any investment losses. 
D)  automatically qualify for federal reimbursement for any losses suffered by the firm. 
A)  be personally responsible for all remaining debts. 
B)  lose their investment but nothing else. 
C)  be entitled to full reimbursement of any investment losses. 
D)  automatically qualify for federal reimbursement for any losses suffered by the firm.

Question 20

When two or more people legally agree to become co-owners of a business, the form of business is called a partnership.

Accepted Answer

A) True 
 B)False

Exam 5: How to Form a Business

In order to establish a C corporation, it is a requirement that investors run the company, whereas in an S corporation, this is not the case.

Midwest Auto Experts, Inc. sells franchises to prospective businesspersons who want to use the Midwest Auto Experts name and offer its products. In a franchise arrangement, Midwest Auto Experts would be the ________, and the buyer of the franchise is the ________.

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

A major objective of a leveraged buyout is to enable investors to gain control of a company by issuing new shares of ownership, thus minimizing the use of debt.

A multinational corporation is a firm that operates in several countries.

Most states have legal restrictions that prevent individuals from incorporating.

The limited liability provided to limited partners means that they are not responsible for the debts of the business beyond

A ________ is two firms combining to form one company.

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

One difference between partnerships and sole proprietorships is that partnerships

A general partner takes an active role in the management of the business.

Being your own boss means

If a group of stockholders or management obtain all the stock of a previously publicly traded firm for themselves, this is referred to as

In a limited liability partnership, each partner's risk of losing personal assets is

If a corporation has after-tax profits of $360,000, and elects to distribute this amount in the form of dividends to its stockholders, these distributions are free and clear of taxes because the corporation paid taxes on this amount prior to distribution.

Franchising is popular in the United States, but legal barriers have limited its popularity in foreign countries.

When comparing general partnerships to sole proprietorships, an advantage of partnerships is that they

When two or more people legally agree to become co-owners of a business, the form of business is called a partnership.

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 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

Working Within the Legal Environment

Using Technology to Manage Information

Managing Risk

Managing Personal Finances

Filters

Midwest Auto Experts, Inc. sells franchises to prospective businesspersons who want to use the Midwest Auto Experts name and offer its products. In a franchise arrangement, Midwest Auto Experts would be the , and the buyer of the franchise is the .