Question 1

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 2

Stockholders in a corporation entrust control over the company's daily operations to managers selected by the board of directors to run the company.

Accepted Answer

A) True 
 B)False

Question 3

Travis has agreed to invest $16,000 in a partnership with his sister and brother-in-law. He does not intend to actively work in the partnership, nor does he wish to risk any of his own assets other than the $16,000 he initially invests. The partnership has agreed to permit him to share in the profits. As an expert on forms of business ownership, you know that Travis is a in this partnership.

Accepted Answer

A) General partner 
B)  Preferred stockholder 
C)  Secondary partner 
D) Limited partner

Question 4

When one of the owners of a corporation dies, the corporation legally ceases to exist.

Accepted Answer

A) True 
 B)False

Question 5

If a corporation distributes after-tax profits to its stockholders in the form of dividends, the government considers these distributions as part of each stockholder's personal income. Stockholders pay taxes on these distributions.

Accepted Answer

A) True 
 B)False

Question 6

One way to eliminate some of the risk of your partners making costly mistakes that could jeopardize your personal assets is to set- up a:

Accepted Answer

A) Master Limited Partnership. 
B)  Sole proprietorship. 
C)  Limit the amount of time each can actively spend in the business. 
D) Limited Liability Partnership.

Question 7

are companies that are similar to S Corporations but are not restricted with similar eligibility requirements.

Accepted Answer

A) Regulated equity companies 
B)  Corporate cooperatives 
C) Limited liability companies 
D) Private drawing companies

Question 8

Joshua wants to run his own business. A friend suggested that an inexpensive way to get started is to buy a franchise, where he will have the freedom to run it exactly as he sees fit. As a recent student of business, you concur with this advice.

Accepted Answer

A) True 
 B)False

Question 9

Modern Screen Entertainment, Inc., recently bought Star Power Pictures, Inc., for an undisclosed amount of money. It now owns all of Star Power Picture's properties and obligations. This is an example of a(n):

Accepted Answer

A) Merger. 
B)  Combination. 
C)  Expropriation. 
D) Acquisition.

Question 10

A is a form of business that is owned, and usually managed, by one person.

Accepted Answer

A) closed corporation 
B)  subchapter S corporation 
C) sole proprietorship 
D) limited partnership

Question 11

The owners of California Canines, a firm that designs and manufactures coats, sweaters, jackets, and rainwear for dogs want to organize as an LLC. Two members are college students and two others are thirty something couples with young children. This is good strategy because each member can choose to commit to limited or unlimited liability.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is the most accurate? A foreign corporation:

Accepted Answer

A) Does business in one or more states, but is chartered in another state. 
B)  Is 50% owned by individuals or companies from another nation. 
C)  Is headquartered in another nation. 
D) Is the same thing as a multinational corporation.

Question 13

The S corporation is likely to be less popular in the future because:

Accepted Answer

A)  Congress repealed the limited liability protection of S corporations and limited them to companies with earnings of less than $3 million
per year. 
B)  Limited liability companies, which do not have the restrictive eligibility requirements of S corporations and offer greater flexibility in the
choice of tax treatment, are now legal in all 50 states. 
C)  Many states significantly increased the annual fee that S corporations must pay to maintain their tax status, thus eliminating the financial
advantages of this form of ownership. 
D)  S corporations have been made illegal in several states as a reaction to widespread abuse of the special benefits available to this type of
business.

Question 14

A good reason why partners should spell-out the details of their partnership arrangements in writing is:

Accepted Answer

A) The partnership is not a legally recognized business unless they do so. 
B) A written agreement will help reduce misunderstandings and disagreements among the partners. 
C)  Putting the agreement in writing will limit the liability of each partner to a specified level. 
D) Doing so will make it easier to convert the business to a corporation at a later date.

Question 15

In the Spotlight on Small Business box, titled, "Pick Your Partners Wisely", the writer suggests that potential partners discuss the types of skills that each brings to the business. Partners with complimentary skills may enhance the business.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is an advantage of a partnership?

Accepted Answer

A) Ease of starting and ending the business 
B)  Unlimited liability 
C) Shared management and pooled skills 
D) Little time commitment

Question 17

The income generated by S-Corporations:

Accepted Answer

A) Passes through to its owners, and each is taxed individually for this income. 
B)  Is provided to non-profit organizations, so it is considered a tax-free source of funds. 
C)  Is taxed separately from its owners. 
D) Must be reinvested in the business. Owners should not expect dividends.

Question 18

One result of taking a firm private is:

Accepted Answer

A) The firm's stock is no longer available for purchase on the open market. 
B)  Managers lose some control as the number of stockholders increases. 
C)  The public image of the firm will suffer. 
D) The firm will have access to more capital.

Question 19

A disadvantage of corporations is that an owner must get the approval of all other owners before selling his or her interest in the firm to another investor.

Accepted Answer

A) True 
 B)False

Question 20

In a franchise arrangement, ownership remains in the hands of the franchisor.

Accepted Answer

A) True 
 B)False

Exam 5: How to Form a Business

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

Stockholders in a corporation entrust control over the company's daily operations to managers selected by the board of directors to run the company.

When one of the owners of a corporation dies, the corporation legally ceases to exist.

If a corporation distributes after-tax profits to its stockholders in the form of dividends, the government considers these distributions as part of each stockholder's personal income. Stockholders pay taxes on these distributions.

One way to eliminate some of the risk of your partners making costly mistakes that could jeopardize your personal assets is to set- up a:

are companies that are similar to S Corporations but are not restricted with similar eligibility requirements.

Joshua wants to run his own business. A friend suggested that an inexpensive way to get started is to buy a franchise, where he will have the freedom to run it exactly as he sees fit. As a recent student of business, you concur with this advice.

Modern Screen Entertainment, Inc., recently bought Star Power Pictures, Inc., for an undisclosed amount of money. It now owns all of Star Power Picture's properties and obligations. This is an example of a(n) :

A is a form of business that is owned, and usually managed, by one person.

Which of the following statements is the most accurate? A foreign corporation:

The S corporation is likely to be less popular in the future because:

A good reason why partners should spell-out the details of their partnership arrangements in writing is:

In the Spotlight on Small Business box, titled, "Pick Your Partners Wisely", the writer suggests that potential partners discuss the types of skills that each brings to the business. Partners with complimentary skills may enhance the business.

Which of the following is an advantage of a partnership?

The income generated by S-Corporations:

One result of taking a firm private is:

A disadvantage of corporations is that an owner must get the approval of all other owners before selling his or her interest in the firm to another investor.

In a franchise arrangement, ownership remains in the hands of the franchisor.