Deck 3: Business Structures

Question 1

A company has which of these sets of characteristics?

A) Difficulty raising funds, owners have full control.
B) Owners have shared control and unlimited liability.
C) Separate legal entity and owners have limited liability.
D) Simple to set up and mutual agency.

Answer 1

C

Question 2

What is the most likely business structure for a small house painting service that is operated by its owner?

A) Trust.
B) Partnership.
C) Sole trader.
D) Company.

Answer 2

C

Question 3

'For-profit' business structures differ in terms of:

A) equity structure.
B) owner liability.
C) taxation.
D) all of the above.

Answer 3

D

Question 4

A sole trader business owner:

A) is personally liable for all debts incurred by the business.
B) is taxed as an individual on the business income.
C) is not bound by the formal requirements of accounting standards.
D) all of the above.

Question 5

The focus of business entities is either:

A) services.
B) trading.
C) manufacturing.
D) all of the above.

Question 6

If the partnership agreement does not contain profit sharing arrangements,then the Partnership Act states that profits and losses must be shared:

A) according to the amount of work performed by each partner.
B) in proportion to the capital contribution of each partner.
C) based on the capital, skills and workload contributed by each partner.
D) equally between all partners.

Question 7

Which of the following characteristics of a company business structure is true?

A) Owners have limited liability.
B) Easy to set up.
C) Not a separate legal entity.
D) Owners pay individual tax on company profits.

Question 8

Which of the following does not apply to a partnership business?

A) Minimal costs to establish.
B) Pays taxation separately to that of the owners.
C) An annual tax return must be prepared.
D) An ABN must be applied for.

Question 9

An advantage of operating as a sole trader is:

A) the owner claims all the profits if the business is sold.
B) the business is limited by the skill, time and investment of the owner.
C) the business is not a separate legal entity.
D) the owner has unlimited liability.

Question 10

A partnership has the following characteristics:

A) easy transfer of ownership and no personal liability.
B) harder to raise funds and gives the owner full control.
C) shared control, increased skills and resources.
D) separate taxation requirements and substantial government regulation.

Question 11

A disadvantage of a partnership is that of 'mutual agency' which means:

A) each partner has limited liability for the debts incurred on a contract entered into by any other partner.
B) each partner must contribute the same capital and skills to the partnership.
C) each partner has the right to enter into contracts on behalf of the partnership.
D) only the partner with the highest cash contribution has the right to enter into contracts on behalf of the partnership.

Question 12

The advantage of a partnership over a sole trader business structure is:

A) limited liability.
B) not required to prepare financial statements in accordance with accounting standards.
C) mutual agency.
D) greater access to skills and resources.

Question 13

The four types of business structures of 'for-profit' entities are:

A) Sole trader, partnership, multi-national, joint venture.
B) Trust, company, sole trader, partnership.
C) Company, partnership, trust, joint venture.
D) Consolidated, trust, partnership, company.

Question 14

Limited liability for a company applies to the:

A) shareholders.
B) executive directors.
C) all members of the board of directors.
D) managers.

Question 15

A disadvantage of being a sole trader is:

A) may pay higher taxes on business income.
B) having a business that is inexpensive to start up and wind down.
C) having very little government regulation.
D) having total autonomy over business decisions.

Question 16

A company must be registered with which regulatory authority?

A) Corporations Act.
B) CPA Australia.
C) Australian Securities and Investments Commission.
D) Australian Securities Exchange.

Question 17

When setting up a partnership each partner can contribute:

A) talent.
B) knowledge.
C) capital.
D) all of the above.

Question 18

A sole trader form of business organisation:

A) consists of one individual who controls and manages the business.
B) must have at least two owners.
C) combines the records of the business with the personal records of the owner.
D) is classified as a separate legal entity.

Question 19

A business that is not a separate legal entity,where any claims for business debts can be made against the owner's personal assets,is a:

A) trust.
B) sole trader.
C) proprietary company.
D) joint venture.

Question 20

The profit for a partnership must be distributed:

A) according to the partnership agreement.
B) equally among the partners.
C) according to the workload contribution of each partner.
D) according to the capital contributions of each partner.

Question 21

Dividends paid to shareholders:

A) increase expenses.
B) decrease retained earnings.
C) increase assets.
D) decrease income.

Question 22

The form of business structure most likely to be used where assets are held for the benefit of other parties is a:

A) company.
B) trust.
C) sole trader.
D) partnership.

Question 23

Which of the following business entities is not required to prepare a tax return?

A) partnership.
B) trust.
C) company.
D) sole trader.

Question 24

A family trust is a trust:

A) which holds a collection of assets on behalf of various non-family members.
B) from which income is distributed to the family members according to their respective unit holdings in the trust.
C) that has a variety of investments in equity, property and cash management.
D) which provides the trustee with discretion, according to the trust deed, over who receives distributions from the trust.

Question 25

Which of the following is not a characteristic of a unit trust?

A) Income is distributed to the parties according to their respective unit holdings in the trust.
B) Holds a collection of assets on behalf of various members rather than only family members.
C) Provides the trustee with discretion, according to the trust deed, over who receives distributions from the trust.
D) Usually concentrates on a particular investment such as equity, property or cash management.

Question 26

Which of the following statements is true for a public company?

A) It must follow the requirements of the Corporations Act.
B) It may be a company limited by guarantee.
C) It can issue either ordinary or

Question 27

A disadvantage of a trust is:

A) minimal government regulation.
B) difficult and expensive to set up.
C) a complex legal structure.
D) tax minimisation.

Question 28

A public company with its share capital limited by guarantee is a popular business structure for which type of entity?

A) Not-for-profit charity.
B) Mining company.
C) Investment company.
D) Any of the above.

Question 29

Individuals who pay tax on the income distributed to them may have received that income from a:

A) sole trader.
B) partnership.
C) trust.
D) all of the above.

Question 30

An advantage of the company form of business is that:

A) it has a limited life.
B) its owners have a say in the day-to-day operations of the company.
C) it has the ability to raise large amounts of capital.
D) it is cheap and easy to establish.

Question 31

Which of the following is a disadvantage of the company form of business?

A) It has an unlimited life.
B) It must comply with the Corporations Act 2001 and other legislation.
C) Its shareholders have limited liability for debts incurred by the business.
D) It has the ability to raise large amounts of capital.

Question 32

The difference between the financial statements of a sole trader and a partnership is:

A) sole trader financial statements must be prepared according to the AASB accounting standards.
B) partnership capital has more than one account.
C) partnership financial statements are simpler to prepare.
D) there is no difference.

Question 33

Which of the following statements is not true for a 'no-liability' company?

A) If the company becomes insolvent shareholders are still required to pay any outstanding amounts owed on their shares.
B) In Australia, no-liability companies are solely mining companies.
C) The shareholders are not liable for the outstanding debts of the company.
D) The company's operations are of a risky nature.

Question 34

HRM Consulting Pty Ltd started the year with total assets of $80 000 and total liabilities of $40 000.During the year the business earned $150 000 in income and incurred $95 000 in expenses.Dividends of $20 000 were paid during the year.HRM's profit for the period was:

A) $55 000
B) $40 000
C) $30 000
D) $35 000

Question 35

Retained earnings at the end of the period are equal to:

A) assets minus dividends.
B) retained earnings at the beginning of the period plus profit earned for the period.
C) retained earnings at the beginning of the period plus profit earned for the period minus dividends.
D) retained earnings at the beginning of the period plus profit earned for the period minus expenses.

Question 36

Which of the following describes a type of public company?

A) Share capital that is limited by shares.
B) Unlimited share capital.
C) Share capital that is limited by guarantee.
D) All of the above.

Question 37

Which financial statement must be prepared before others can be completed?

A) Statement of cash flows.
B) Balance sheet.
C) Income statement.
D) Statement of financial position.

Question 38

Which of the following is not true for a private company?

A) The company name includes the words 'Pty Ltd'.
B) It is relatively easy to set up.
C) It can have up to 50 shareholders.
D) It is a common form of business structure for large-sized entities.

Question 39

Private companies in Australia are permitted to have how many shareholders?

A) A maximum of two.
B) At least two but no more than one hundred.
C) At least one but no more than fifty.
D) At least one but no more than twenty.

Question 40

Which of the following would be a disadvantage of a private company going public?

A) Potential loss of ownership and control.
B) Greater disclosure requirements for financial reports.
C) Costs associated with issuing shares.
D) All options are disadvantages.

Question 41

It is recommended that business partners draw up a written partnership ____________ to record details such as the contributions made by each partner.

Question 42

An expense that would not appear in a partnership income statement is:

A) interest expense.
B) depreciation expense.
C) income tax expense.
D) advertising expense.

Question 43

In Australia a discretionary trust is also known as a _____________ trust.

Question 44

Under the new differential reporting regime,the reduction in requirements for disclosing entities that are not publicly accountable would include which of the following?

A) Disclosures relating to financial statement presentation.
B) Disclosures relating to the usage of financial instruments.
C) Disclosures relating to income tax.
D) All of the above.

Question 45

An individual who manages and controls a business is known as a ___________
___________.

Question 46

HRM Consulting Pty Ltd started the year with total assets of $80 000 and total liabilities of $40 000.During the year the business earned $150 000 in income and incurred $95 000 in expenses.Dividends of $20 000 were paid during the year.Equity at the end of the period was:

A) $40 000
B) $45 000
C) $75 000
D) $20 000

Question 47

__________ __________ is when each partner has the right to enter into,and be bound by,any partnership contract.

Question 48

A major (advantage/disadvantage)____________________ of a sole trader is the set up costs.

Question 49

A retained earnings account would be found in which type of entity's financial statements?

A) Sole Trader.
B) Partnership.
C) Company.
D) All of the above.

Question 50

The main (advantage/disadvantage)_________________ of a company is that its shareholders have limited liability for the business' debts.

Question 51

The owners of a company are known as ______________.

Question 52

A company is a separate _______________ entity to the owners of the business.

Question 53

If total liabilities increased by $35 000 and equity increased by $15 000 over a period,then total assets must have changed by?

A) $50 000 decrease.
B) $20 000 increase.
C) $20 000 decrease.
D) $50 000 increase.

Question 54

Gym classes and excavation of building sites are examples of _________________ services.

Question 55

Which financial statement is concerned with an entity at a point in time?

A) Statement of financial position.
B) Statement of cash flows.
C) Profit and loss statement.
D) Comprehensive income statement.

Question 56

A partnership with four partners would have how many capital accounts in the equity section of the balance sheet?

A) One.
B) Two.
C) Four.
D) Eight.

Question 57

Manufacturing entities are involved in the conversion of raw materials into _____________ _____________.

Question 58

The Reduced Disclosure Requirements implemented by the AASB in 2013 enable:

A) tier 1 entities to reduce the volume of disclosure notes to the financial statements.
B) all entities to reduce the number of financial statements produced.
C) tier 2 entities to reduce the volume of disclosure notes to the financial statements.
D) all entities to reduce the volume of disclosure notes to the financial statements.

Question 59

If total liabilities increased by $15 000 and equity decreased by $10 000 over a period,then total assets must have changed by?

A) $15 000 increase.
B) $25 000 increase.
C) $5 000 decrease.
D) $5 000 increase.

Question 60

The full implementation of differential reporting came into effect on:

A) 1 July 2013.
B) 1 January 2014.
C) 1 July 2014.
D) 1 January 2015.

Question 61

The financial report that details the income and expenses of a business is called the _____________ statement.

Question 62

In a unit trust,income is distributed to the parties according to their respective _____________ holdings in that trust.

Question 63

The financial report that details assets,liabilities and equity is the ________________ ________________.

Question 64

_____________ _____________ represent a company's profits that have been held in the business and not paid out as dividends

Question 65

The AASB's modified reporting requirements for Tier 1 and Tier 2 disclosing entities is known as ________________ ________________.

Question 66

A major advantage of trusts is that they ________________ tax payments.

Question 67

Disclosing entities that are classified as tier 2 use the ________________ disclosure requirements when preparing general purpose financial statements.