Question 1

In a sole proprietorship, the profits earned by the business are

Accepted Answer

A)  taxed as income for the business, but exempt from the personal income tax paid by the owner. 
B)  taxed at the lowest corporate rate. 
C)  the property of the owner, except for taxes owed to the government. 
D)  tax-free if the appropriate exemption is filed with the local government. 
A)  taxed as income for the business, but exempt from the personal income tax paid by the owner. 
B)  taxed at the lowest corporate rate. 
C)  the property of the owner, except for taxes owed to the government. 
D)  tax-free if the appropriate exemption is filed with the local government.

Question 2

One disadvantage of ________ is the initial cost of formation.

Accepted Answer

A)  corporations 
B)  general partnerships 
C)  sole proprietorships 
D)  limited partnerships 
A)  corporations 
B)  general partnerships 
C)  sole proprietorships 
D)  limited partnerships

Question 3

Zach is a franchisee with Digger's Doggies, a chain of hotdog shops. He was doing well until several other Digger's Doggies franchisees got in trouble and were forced to close their shops. Soon afterward, Zach's business declined and was also forced to close. This is an example of

Accepted Answer

A)  an economic shakeout at work. 
B)  the coattail effect. 
C)  the law of diminishing returns. 
D)  management by exception. 
A)  an economic shakeout at work. 
B)  the coattail effect. 
C)  the law of diminishing returns. 
D)  management by exception.

Question 4

GloboTech, Inc., a large manufacturer of laptops, is considering a merger with ChipComm, a leading producer of microprocessors and other computer chips. GloboTech believes such a merger would give it a guaranteed source of needed components, and enable it to have better control over quality. If this merger occurs, it would be an example of a horizontal merger.

Accepted Answer

A) True 
 B)False

Question 5

Yoshi operates a shoe store as a sole proprietorship. However, he is in poor health and may be unable to continue running the business. If Yoshi becomes incapacitated, his business

Accepted Answer

A)  automatically continues under new management as a sole proprietorship. 
B)  automatically converts into a public corporation with stock sold to interested investors. 
C)  ceases to exist unless sold or taken over by Yoshi's heirs. 
D)  becomes the property of the most senior employee who wishes to continue operating the firm. 
A)  automatically continues under new management as a sole proprietorship. 
B)  automatically converts into a public corporation with stock sold to interested investors. 
C)  ceases to exist unless sold or taken over by Yoshi's heirs. 
D)  becomes the property of the most senior employee who wishes to continue operating the firm.

Question 6

It is not unusual for members of cooperatives to work for and help manage their cooperative.

Accepted Answer

A) True 
 B)False

Question 7

In rural areas electrical power is often sold by ________ that take advantage of the government's policy to sell them electricity at wholesale rates.

Accepted Answer

A)  franchises 
B)  limited partnerships 
C)  mutual funds 
D)  cooperatives 
A)  franchises 
B)  limited partnerships 
C)  mutual funds 
D)  cooperatives

Question 8

Starting a new business as a sole proprietorship

Accepted Answer

A)  requires retaining the services of an attorney. 
B)  is simple, but the proprietorship fee is very expensive in some states. 
C)  is usually simpler and less expensive than starting other forms of ownership. 
D)  is very similar to starting a business as a corporation. 
A)  requires retaining the services of an attorney. 
B)  is simple, but the proprietorship fee is very expensive in some states. 
C)  is usually simpler and less expensive than starting other forms of ownership. 
D)  is very similar to starting a business as a corporation.

Question 9

Attributes such as trust and integrity are not something you should get overly concerned about when selecting partners. This is a business decision, not a friendly game of golf.

Accepted Answer

A) True 
 B)False

Question 10

Sung owns a dog-walking business that she started in high school. Her first goal was to earn money after school and supplement her allowance. Now that she has finished college and maintains a long client list, she's planning on running the business full time. She keeps all the profits and has kept things simple by posting fliers on the bulletin boards at local stores. Sung's business is a(n)

Accepted Answer

A)  sole proprietorship. 
B)  franchise. 
C)  S corporation. 
D)  partnership. 
A)  sole proprietorship. 
B)  franchise. 
C)  S corporation. 
D)  partnership.

Question 11

Kooky Cookies Corporation purchased the Crazy Cookie Company. Although this was initially an acquisition, the merging of these two businesses was a ________ merger. Kooky Cookies went on to purchase several baking product companies. Joining forces with some of its suppliers would represent a ________ merger.

Accepted Answer

A)  conglomerate; horizontal 
B)  vertical; horizontal 
C)  horizontal; vertical 
D)  conglomerate; conglomerate 
A)  conglomerate; horizontal 
B)  vertical; horizontal 
C)  horizontal; vertical 
D)  conglomerate; conglomerate

Question 12

Peter recently invented a new workout program that uses indoor surfboards. His equipment can simulate surfing on waves and is a new favorite core workout in his community. As the founder of a fast growing business, you think his goal of incorporating, "to remain in steadfast control of the firm's operations for an indefinite number of years," is good strategy.

Accepted Answer

A) True 
 B)False

Question 13

Indira paid a substantial franchise fee to obtain a Precision Printers franchise in Columbus, Ohio. With the franchise fee behind her, Indira can use her creative talents to make her print shop different and more attractive than other Precision Printers stores in the Columbus area.

Accepted Answer

A) True 
 B)False

Question 14

If a sole proprietorship fails, the owner may lose whatever was invested in the business, and the owner's personal assets are also at risk.

Accepted Answer

A) True 
 B)False

Question 15

Franchisors sometimes pay reverse royalties to franchisees if it is evident that the franchisor's Internet sales have negatively impacted the profits of traditional bricks-and-mortar franchisee businesses.

Accepted Answer

A) True 
 B)False

Question 16

The coattail effect refers to the burden of corporate rules and regulations on franchisees.

Accepted Answer

A) True 
 B)False

Question 17

The strategy of a leveraged buyout is used when employee talent is at a minimum.

Accepted Answer

A) True 
 B)False

Question 18

The major differences between an S corporation and a limited liability company are limits on the number of owners and the citizenship status of individuals who are owners.

Accepted Answer

A) True 
 B)False

Question 19

One advantage of corporations is that the initial cost of organization is usually lower than for other forms of business ownership.

Accepted Answer

A) True 
 B)False

Question 20

A cooperative consists of people with similar needs who pool their resources for mutual gain.

Accepted Answer

A) True 
 B)False

Exam 5: How to Form a Business

In a sole proprietorship, the profits earned by the business are

One disadvantage of ________ is the initial cost of formation.

Zach is a franchisee with Digger's Doggies, a chain of hotdog shops. He was doing well until several other Digger's Doggies franchisees got in trouble and were forced to close their shops. Soon afterward, Zach's business declined and was also forced to close. This is an example of

Yoshi operates a shoe store as a sole proprietorship. However, he is in poor health and may be unable to continue running the business. If Yoshi becomes incapacitated, his business

It is not unusual for members of cooperatives to work for and help manage their cooperative.

In rural areas electrical power is often sold by ________ that take advantage of the government's policy to sell them electricity at wholesale rates.

Starting a new business as a sole proprietorship

Attributes such as trust and integrity are not something you should get overly concerned about when selecting partners. This is a business decision, not a friendly game of golf.

Indira paid a substantial franchise fee to obtain a Precision Printers franchise in Columbus, Ohio. With the franchise fee behind her, Indira can use her creative talents to make her print shop different and more attractive than other Precision Printers stores in the Columbus area.

If a sole proprietorship fails, the owner may lose whatever was invested in the business, and the owner's personal assets are also at risk.

Franchisors sometimes pay reverse royalties to franchisees if it is evident that the franchisor's Internet sales have negatively impacted the profits of traditional bricks-and-mortar franchisee businesses.

The coattail effect refers to the burden of corporate rules and regulations on franchisees.

The strategy of a leveraged buyout is used when employee talent is at a minimum.

The major differences between an S corporation and a limited liability company are limits on the number of owners and the citizenship status of individuals who are owners.

One advantage of corporations is that the initial cost of organization is usually lower than for other forms of business ownership.

A cooperative consists of people with similar needs who pool their resources for mutual gain.

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

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