Question 1

Melanie, Elliot, and Caleb agreed to partner in a small home rehab business. Initially, they were enthusiastic and eager workers. That is until their first project took more work than Melanie initially estimated, Elliot wanted morning meetings and long lunch hours, and Caleb decided to go on vacation even though the home was not complete and ready to sell. As Figure 5.2 indicates,

Accepted Answer

A)  it's smart to begin the partnership with honest communication of what each partner expects to give and get from the partnership. 
B)  it's smart to organize the business as a limited liability company to reduce the financial risks that put pressure on members of the partnership. 
C)  it's smart to designate one of the partners as the primary partner with final authority to call all the shots. 
D)  it's smart to enter into partnerships with people who have similar educational and cultural backgrounds and similar personalities.

Question 2

A drawback of sole proprietorships is that they usually have limited access to additional financial resources.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A)  merger. 
B)  combination. 
C)  expropriation. 
D)  acquisition.

Question 4

Corporations are easy to start and easy to terminate.

Accepted Answer

A) True 
 B)False

Question 5

To many businesspeople, one of the major attractions of a sole proprietorship is

Accepted Answer

A)  the ability to obtain additional financial resources. 
B)  the protection of limited liability. 
C)  an unlimited lifespan. 
D)  the chance to be their own boss.

Question 6

Stockholders in a corporation normally exert a significant degree of control over the company's daily operations.

Accepted Answer

A) True 
 B)False

Question 7

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 8

A significant disadvantage of owning a sole proprietorship is the

Accepted Answer

A)  possibility of limited liability. 
B)  heavy tax liability that must be assumed. 
C)  overwhelming time commitment often required of the owner. 
D)  lack of incentives to motivate the owner.

Question 9

If a franchisee decides he wants out of the business, he is free to close up shop or sell the business, just as if he were a sole proprietor or partnership outside of a franchise arrangement.

Accepted Answer

A) True 
 B)False

Question 10

A nonprofit corporation does not seek personal profit for its owners.

Accepted Answer

A) True 
 B)False

Question 11

Kevin is a major stockholder in Professional Transmission Services (PTS), a nationwide network of transmission repair shops founded in 1975 by his father. Currently, PTS stock is sold on the open market, but Kevin has talked to several relatives about his desire to get all of the PTS stock back in his family's hands. Kevin is interested in ________.

Accepted Answer

A)  taking the firm private 
B)  a hostile takeover of the firm 
C)  converting the firm to a general partnership 
D)  forming a master limited partnership

Question 12

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 13

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 14

The ownership of Dogs of Denver, a small company that designs and manufactures coats, sweaters, jackets, and rainwear for dogs, wants to organize as an LLC. All the owners are under forty and two are expecting children by the end of the year. This is good strategy because each member can choose to commit to limited or unlimited liability.

Accepted Answer

A) True 
 B)False

Question 15

The form of business ownership best suited to raising large amounts of money for expansion is the

Accepted Answer

A)  sole proprietorship. 
B)  partnership. 
C)  corporation. 
D)  cooperative.

Question 16

The purpose of a farm cooperative is to

Accepted Answer

A)  give members more economic power as a group than they would have as individuals. 
B)  give each farm an equal share in the running of the cooperative. 
C)  equalize the members' standard of living. 
D)  allow socialism a foothold in the U.S.

Question 17

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

Question 18

A quasi-public corporation is a corporation chartered by the government as an approved monopoly to perform services to the general public.

Accepted Answer

A) True 
 B)False

Question 19

Partnerships are the most common form of business ownership.

Accepted Answer

A) True 
 B)False

Question 20

The first step in starting a sole proprietorship is to fill out a proprietorship charter application form and file it with the state government.

Accepted Answer

A) True 
 B)False

Exam 5: How to Form a Business

A drawback of sole proprietorships is that they usually have limited access to additional financial resources.

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

Corporations are easy to start and easy to terminate.

To many businesspeople, one of the major attractions of a sole proprietorship is

Stockholders in a corporation normally exert a significant degree of control over the company's daily operations.

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.

A significant disadvantage of owning a sole proprietorship is the

If a franchisee decides he wants out of the business, he is free to close up shop or sell the business, just as if he were a sole proprietor or partnership outside of a franchise arrangement.

A nonprofit corporation does not seek personal profit for its owners.

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

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.

The form of business ownership best suited to raising large amounts of money for expansion is the

The purpose of a farm cooperative is to

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

A quasi-public corporation is a corporation chartered by the government as an approved monopoly to perform services to the general public.

Partnerships are the most common form of business ownership.

The first step in starting a sole proprietorship is to fill out a proprietorship charter application form and file it with the state government.