Question 1

Which of the following is an attractive benefit of a corporation?

Accepted Answer

A)   Corporations can enjoy double taxation.
B)   Unlike limited partnerships, all owners of corporations are passive investors.
C)   Corporations can protect their owners with unlimited liability.
D)   Corporations can attract employees by offering stock options.

Question 2

________ is by far the most popular target for American franchisors seeking to establish franchises in other countries.

Accepted Answer

A)   Canada
B)   Mexico
C)   Great Britain
D)   Japan

Question 3

A comparison of the three major forms of business ownership shows that sole proprietorships are usually the most difficult type of business to establish.

Accepted Answer

A) True 
 B)False

Question 4

A major objective of limited liability partnerships (LLPs) is to limit each partner's personal liability to the consequences of their own acts and those of people under their supervision.

Accepted Answer

A) True 
 B)False

Question 5

Limited partnerships are just like general partnerships, except that they are partners for a limited time period.

Accepted Answer

A) True 
 B)False

Question 6

A partner (owner)  who invests money in a business does not take an active role in managing the operation, and is only subject to losing the funds he/she invested is known as a(n)  ________ partner.

Accepted Answer

A)   implied
B)   limited
C)   partial
D)   corporate

Question 7

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

Question 8

The difference between a merger and an acquisition is

Accepted Answer

A)   a merger does not combine the assets and liabilities of firms, whereas an acquisition combines assets and liabilities.
B)   a merger combines the assets of the two firms, but each company continues to assume its own liabilities, whereas an acquisition is a total buyout of one firm by another.
C)   a merger is the joining of resources of two companies, whereas an acquisition is a buyout of one firm by the other. The new company concerns itself with merging of resources.
D)   a merger is always something smaller tagging onto something larger, like a merging lane onto an interstate, whereas an acquisition is two firms that are relatively the same size agreeing to continue as one, more like two major interstates that come together and travel as one for several miles.

Question 9

An acquisition is when one company buys the property and obligations of another company.

Accepted Answer

A) True 
 B)False

Question 10

An evaluation of franchising would conclude that this type of arrangement

Accepted Answer

A)   has become the dominant form of business organization in the United States because it has many advantages and almost no disadvantages.
B)   appeals to people who want to own a business, but are not comfortable starting a company from scratch.
C)   has a much higher risk of failure than independent companies.
D)   has little chance of success outside the United States because many foreign countries do not allow such arrangements.

Question 11

A major advantage of sole proprietorships is that an owner has limited liability for the debts of his or her business.

Accepted Answer

A) True 
 B)False

Question 12

A major advantage of S corporations is that they

Accepted Answer

A)   can have more stockholders than a C corporation.
B)   can operate in foreign nations as if they were domestic corporations.
C)   require less paperwork to set up than a C corporation does.
D)   avoid the problem of double taxation associated with conventional corporations.

Question 13

One of the major disadvantages of a sole proprietorship is the

Accepted Answer

A)   possibility of disagreements between owners.
B)   unlimited liability the owner has for the debts of the firm.
C)   fact that any income earned by this type of business is taxed twice.
D)   high cost of starting or ending the company.

Question 14

A separation between ownership and management is most likely to occur in a

Accepted Answer

A)   sole proprietorship.
B)   general partnership.
C)   corporation.
D)   limited liability partnership.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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.

Question 17

Motor Masters is a conventional corporation with 516 stockholders. A number of the stockholders are citizens of Canada and others are citizens of Mexico, though most are American. Due to its size and diversity in ownership, you would recommend that Motor Masters change to an S corporation.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements about S corporations is most accurate?

Accepted Answer

A)   The major attraction of S corporations is that they avoid the problem of double taxation.
B)   S corporations are similar to C corporations, except that the majority of owners are foreign investors.
C)   Any corporation willing to pay the necessary fees and fill out the required paperwork can become an S corporation.
D)   Only large corporations with operations in more than one state can qualify to be classified as S corporations.

Question 19

An advantage of corporations is their ability to attract good talent by offering stock options and other employee benefits.

Accepted Answer

A) True 
 B)False

Question 20

Huang has agreed to become a partner in his cousin's waste management business. Since he provided 30 percent of the money to start the company and built an air-conditioned garage, he is entitled to 30 percent of any profits the company earns during its first year of operation.

Accepted Answer

A) True 
 B)False

Exam 5: How to Form a Business

A comparison of the three major forms of business ownership shows that sole proprietorships are usually the most difficult type of business to establish.

Correct AnswerverifiedShow Answer

A partner (owner) who invests money in a business does not take an active role in managing the operation, and is only subject to losing the funds he/she invested is known as a(n) ________ partner.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

One of the major disadvantages of a sole proprietorship is the

Correct AnswerverifiedShow Answer

________ is by far the most popular target for American franchisors seeking to establish franchises in other countries.

Correct AnswerverifiedShow Answer

A separation between ownership and management is most likely to occur in a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Limited partnerships are just like general partnerships, except that they are partners for a limited time period.

Correct AnswerverifiedShow Answer

Which of the following is an attractive benefit of a corporation?

Correct AnswerverifiedShow Answer

A major objective of limited liability partnerships (LLPs) is to limit each partner's personal liability to the consequences of their own acts and those of people under their supervision.

Correct AnswerverifiedShow Answer

An acquisition is when one company buys the property and obligations of another company.

Correct AnswerverifiedShow Answer

Motor Masters is a conventional corporation with 516 stockholders. A number of the stockholders are citizens of Canada and others are citizens of Mexico, though most are American. Due to its size and diversity in ownership, you would recommend that Motor Masters change to an S corporation.

Correct AnswerverifiedShow Answer

Huang has agreed to become a partner in his cousin's waste management business. Since he provided 30 percent of the money to start the company and built an air-conditioned garage, he is entitled to 30 percent of any profits the company earns during its first year of operation.

Correct AnswerverifiedShow Answer

The difference between a merger and an acquisition is

Correct AnswerverifiedShow Answer

A major advantage of sole proprietorships is that an owner has limited liability for the debts of his or her business.

Correct AnswerverifiedShow Answer

Which of the following statements about S corporations is most accurate?

Correct AnswerverifiedShow Answer

A major advantage of S corporations is that they

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An advantage of corporations is their ability to attract good talent by offering stock options and other employee benefits.

Correct AnswerverifiedShow Answer

An evaluation of franchising would conclude that this type of arrangement

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified