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1. A business's legal form of organization has no effect on how much taxes it pays.
True
False
False
False
False
5. A sole proprietorship has limited sources of funds, which may affect the growth of the
business.
True
False
6. In the U.S., men are twice as likely as women to start their own business.
True
False
7. If you want to go into business for yourself, the easiest way is with a sole
proprietorship.
True
False
False
A.
B.
C.
D.
E.
as partnerships.
as the owner's personal income.
as shareholders.
as corporations.
depending on the kind of sole proprietorship formed.
10. One of the most popular and easiest to establish forms of business in the United
States is the
A.
B.
C.
D.
E.
partnership.
sole proprietorship.
corporation.
joint venture.
cooperative.
11. About three-quarters of all businesses in the United States are sole proprietorships,
and they account for 10 percent of total business income. We may conclude that
A.
B.
C.
D.
E.
12. Which of the following is not a source of funds for a sole proprietorship?
A.
B.
C.
D.
E.
Bank loans
Family members
Personal funds
Selling stock or issuing bonds
Small Business Administration
A.
B.
C.
D.
E.
ease of formation.
secrecy.
unlimited liability.
control of the business.
limited government regulation.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A.
B.
C.
D.
E.
15. Ruji has realized that she does not like working for others. She wants to open a
business in which she will have maximum control and the least interference from
government regulation. Which business form might be best for her to use?
A.
B.
C.
D.
E.
Joint venture
Cooperative
Corporation
Partnership
Sole proprietorship
A.
B.
C.
D.
E.
taxed twice.
not taxable.
taxed as personal income.
taxed too high.
audited less often than others.
17. Barber shops, dog kennels, and independent grocery stores are typically
A.
B.
C.
D.
E.
franchises.
nonprofit agencies.
sole proprietorships.
partnerships.
limited liability partnerships.
18. Which of the following requires owners to perform many functions and possess
diverse skills to make decisions?
A.
B.
C.
D.
E.
Corporation
Partnership
Sole proprietorship
Cooperative
Holding company
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A.
B.
C.
D.
E.
Taxation
Fund sources
Liability
Continuity
Secrecy
20. Which of the following forms of business ownership is directly limited by the life of its
owner?
A.
B.
C.
D.
E.
Sole proprietorships
Limited partnerships
Corporations
Holding companies
Subsidiaries
A.
B.
C.
D.
E.
Essay Questions
22. What are the advantages of sole proprietorships over other forms of business
organization?
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
23. Why is taxation considered both an advantage and a disadvantage of the sole
proprietorship organizational form?
False
26. A limited partnership always has at least one general partner, who assumes
unlimited liability.
True
False
27. In a partnership, if the goals of one partner change, the result may be friction and
even legal disputes.
True
False
False
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
False
30. In a general partnership, each partner is liable only for the debts he or she incurs.
True
False
False
A.
B.
C.
D.
E.
A.
B.
C.
D.
E.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
35. Anand has been asked to join a new partnership that is developing wind energy
technologies. Because the business is high risk, he does not want to be liable for the
firm's debts if the project should fail. He could still participate as a
A.
B.
C.
D.
E.
general partner.
limited partner.
silent partner.
working partner.
contributor.
36. Which form of business organization is the least used in the U.S.?
A.
B.
C.
D.
E.
S-corporation
Franchise
Sole proprietorship
Corporation
Partnership
37. The legal documents that identify the basic agreements between partners are called
A.
B.
C.
D.
E.
proposals of partnership.
a partnership charter.
agreements of partnership.
articles of partnership.
a partnership contract.
38. Articles of partnership are required by many states for businesses that have two or
more co-owners. The issues covered usually include all of the following except
A.
B.
C.
D.
E.
A.
B.
C.
D.
E.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
40. The decision-making process in a partnership tends to be faster when the partnership
is
A.
B.
C.
D.
E.
multifaceted.
small.
foreign.
domestic.
large.
A.
B.
C.
D.
E.
Unlimited liability
Life of partnership
Selling a partnership
Limited funding sources
Ease of formation
A.
B.
C.
D.
E.
Essay Questions
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
44. How does the taxation of partnerships work? How is this different than with a
corporation?
45. Why is it more difficult to value a partnership share than a share of stock in a
corporation, for example?
46. Define the partnership form of business organization. What are its advantages?
47. While corporations account for the majority of businesses in the United States, they
represent a small percentage of profits.
True
False
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
False
False
False
51. Taking a company public means announcing its creation to the public.
True
False
52. The biggest advantage of the corporate form of ownership may be the limited liability
of its owners.
True
False
53. Preferred stockholders receive dividends before common stockholders and have
principle voting rights as well.
True
False
54. A corporation doing business outside the state in which it is chartered is known as
a(n)
A.
B.
C.
D.
E.
private corporation.
multi-state corporation.
domestic corporation.
alien corporation.
foreign corporation.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A.
B.
C.
D.
E.
tax-free dividends.
interest.
retained earnings.
dividends.
bribes.
56. In creating a corporation, once the articles of incorporation are filed with the
appropriate state office, the state may then issue a corporate
A.
B.
C.
D.
E.
chapter.
contract.
charter.
collaboration.
commentary.
A.
B.
C.
D.
E.
private.
quasi-private.
public.
quasi-public.
private-public.
59. Which stockholders usually have the right to vote and control the board of directors?
A.
B.
C.
D.
E.
Preferred
Common
Cumulative preferred
Preemptive
Favorite
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
60. The right of common stockholders to have the opportunity to purchase new shares of
stock is called a
A.
B.
C.
D.
E.
A.
B.
C.
D.
E.
A.
B.
C.
D.
E.
single taxation.
limited liability.
ease of formation.
lack of bureaucracy.
double taxation.
63. The type of ownership that has the ability to raise capital most easily is a
A.
B.
C.
D.
E.
public corporation.
private corporation.
sole proprietorship.
general partnership.
limited partnership.
64. Which of the following organizational forms is most expensive to set up?
A.
B.
C.
D.
E.
Sole proprietorship
Limited partnership
General partnership
Cooperative
Corporation
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
65. Which of the following forms of business organization restricts the number and type
of shareholder?
A.
B.
C.
D.
E.
Sole proprietorship
Co-op
Limited liability company
S-corporation
Partnership
66. The organizational form that many consider to be a blend of the best characteristics
of corporations, partnerships, and sole proprietorships is the
A.
B.
C.
D.
E.
joint venture.
cooperative.
C corporation.
S corporation.
limited liability company.
A.
B.
C.
D.
E.
stock sale.
stock certificate.
stock split.
dividend restructuring.
proxy.
A.
B.
C.
D.
E.
reduced regulations.
cooperation among farmers or ranchers.
unlimited liability.
large investments.
small investments.
A.
B.
C.
D.
E.
limited liability.
lower frequency of taxation.
perpetual life of organization.
ease of transfer of ownership.
external funding sources.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
70. The group of individuals elected by the stockholders to oversee the general operation
of a corporation are known as the
A.
B.
C.
D.
E.
middle managers.
top managers.
board of directors.
shareholders.
owners.
Essay Questions
71. What is a limited liability company (LLC), and why do some consider it the best form
of business ownership?
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
73. A conglomerate merger results when two firms in unrelated industries merge.
True
False
False
75. When firms that make and sell similar products to the same customers merge, it is
known as a horizontal merger.
True
False
76. A merger occurs when one company buys another by buying its stock.
True
False
False
False
79. The government usually will scrutinize high-profile mergers and acquisitions to
ensure that they are not creating monopolies.
True
False
A.
B.
C.
D.
E.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
81. When firms that make and sell similar products to the same customers merge, it is
known as a
A.
B.
C.
D.
E.
horizontal merger.
vertical merger.
acquisition.
hostile takeover.
poison pill.
82. When a firm is facing a hostile takeover attempt, it may issue a poison pill, which is
A.
B.
C.
D.
E.
merger.
acquisition.
tender offer.
leveraged buyout.
white knight.
84. When a company offers to buy some or all of another company's stock at a premium
price, it is a(n)
A.
B.
C.
D.
E.
acquisition.
leveraged buyout.
merger.
hostile offer.
tender offer.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
85. When a group of investors borrows money to buy a company or division, using the
company's assets to guarantee the loan, it is called a(n)
A.
B.
C.
D.
E.
acquisition.
merger.
leveraged buyout.
tender offer.
poison pill.
86. Big City Financial is attempting to avoid a hostile takeover by a corporate raider by
allowing stockholders to buy more shares of stock at prices lower than current market
value. Which of the following methods is being used to avoid the takeover?
A.
B.
C.
D.
E.
A leveraged buyout
A tender offer
A white knight
A poison pill
Shark repellant
87. When companies operating at different, but related, levels of an industry merge, it is
known as a(n)
A.
B.
C.
D.
E.
vertical merger.
horizontal merger.
acquisition.
leveraged buyout.
diagonal merger.
A.
A mythical hero in fairy tales
B. An attempt to fend off a hostile takeover by selling stock at below market value
C. An attempt to fend off a hostile takeover by requiring the deal be approved by a
large majority of shareholders
D. A more acceptable firm that is willing to acquire the firm threatened by hostile
takeover
E. A group of investors that has borrowed money to acquire a firm
Essay Questions
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
89. What is a vertical merger and why would a firm attempt one? What are the benefits?
90. What is a leveraged buyout? What are some of the advantages of mergers and
acquisitions?
91. Bryan thinks their plant resale company should be a corporation because
A.
it is cheaper.
B.
all good businesses are corporations.
C. they would have limited liability and seem larger.
D. the other forms of corporation are not valid in their case.
E. Bryan does not think the company should be a corporation.
92. Thomas thinks that organizing as a partnership would be best because
A.
it is the most complicated to form.
B. they are a small company and do not need to be a corporation.
C.
it gives them limited liability.
D. it would allow them to rely on their own financial resources and talents.
E. they would have an easier time selling the business later.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Essay Questions
93. What are some of the advantages and disadvantages of Thomas and Bryan forming a
corporation?
94. What are the advantages and disadvantages of their forming a partnership?
95. Which organizational form do you think would be best for Thomas and Bryan's
company and why?
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
1.
A business's legal form of organization has no effect on how much taxes it pays.
FALSE
A business's legal form of ownership affects how it operates, how much taxes it
pays, and how much control its owners have.
2.
3.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
4.
5.
A sole proprietorship has limited sources of funds, which may affect the growth of
the business.
TRUE
The few sources of money available to the sole proprietorship are a bank, family,
friends, the Small Business Administration, and his or her personal funds.
6.
In the U.S., men are twice as likely as women to start their own business.
TRUE
Sole proprietorships constitute three-quarters of all businesses in the U.S., and
men are twice as likely as women to start their own business.
4-21
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
7.
If you want to go into business for yourself, the easiest way is with a sole
proprietorship.
TRUE
Forming a sole proprietorship is easy and inexpensive because of the simple
management structure, the low cost of permits, and the lack of lawyer
involvement.
8.
9.
A.
B.
C.
D.
E.
as partnerships.
as the owner's personal income.
as shareholders.
as corporations.
depending on the kind of sole proprietorship formed.
Profits from sole proprietorships are considered personal income and are taxed at
individual tax rates.
Blooms: Remember
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship
form of organization.
Level of Difficulty: 1 Easy
Topic: Sole Proprietorships
10.
One of the most popular and easiest to establish forms of business in the United
States is the
A.
B.
C.
D.
E.
partnership.
sole proprietorship.
corporation.
joint venture.
cooperative.
11.
About three-quarters of all businesses in the United States are sole proprietorships,
and they account for 10 percent of total business income. We may conclude that
A.
B.
C.
D.
E.
If 72 percent of all businesses are sole proprietorships, we can conclude that many
are in existence. If sole proprietorships only contribute 10 percent of total business
income, we can conclude that is a small percentage of total income.
AACSB: Analytic
Blooms: Understand
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship
form of organization.
Level of Difficulty: 3 Hard
Topic: Sole Proprietorships
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
12.
A.
B.
C.
D.
E.
Bank loans
Family members
Personal funds
Selling stock or issuing bonds
Small Business Administration
The few sources of money available to the sole proprietorship are banks, family,
friends, the Small Business Administration, and his or her personal funds. Selling
stock or issuing bonds is only applicable to corporations.
13.
A.
B.
C.
D.
E.
ease of formation.
secrecy.
unlimited liability.
control of the business.
limited government regulation.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
14.
A.
B.
C.
D.
E.
A sole proprietorship is easy and inexpensive to form; it has the greatest degree of
secrecy; all profits belong to the owner; it has complete control; it has the most
freedom from government regulation; the owner pays one income tax; and the
business can be easily dissolved.
15.
Ruji has realized that she does not like working for others. She wants to open a
business in which she will have maximum control and the least interference from
government regulation. Which business form might be best for her to use?
A.
B.
C.
D.
E.
Joint venture
Cooperative
Corporation
Partnership
Sole proprietorship
A sole proprietorship is easy and inexpensive to form; it has the greatest degree of
secrecy; all profits belong to the owner; it has complete control; it has the most
freedom from government regulation; the owner pays one income tax; and the
business can be easily dissolved.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
16.
A.
B.
C.
D.
E.
taxed twice.
not taxable.
taxed as personal income.
taxed too high.
audited less often than others.
Profits from the sole proprietorship are considered personal income to the sole
proprietor and are taxed at individual tax rates.
17.
Barber shops, dog kennels, and independent grocery stores are typically
A.
B.
C.
D.
E.
franchises.
nonprofit agencies.
sole proprietorships.
partnerships.
limited liability partnerships.
Sole proprietorships are small businesses such as restaurants, barber shops, flower
shops, dog kennels, and independent grocery stores.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
18.
Which of the following requires owners to perform many functions and possess
diverse skills to make decisions?
A.
B.
C.
D.
E.
Corporation
Partnership
Sole proprietorship
Cooperative
Holding company
The sole proprietor must be able to perform many functions and possess skills in
diverse fields such as management, marketing, accounting, finance, bookkeeping,
and personnel.
19.
A.
B.
C.
D.
E.
Taxation
Fund sources
Liability
Continuity
Secrecy
Under current tax rates, small corporations with income less than $75,000 pay a
lower marginal tax rate than a sole proprietorship; however, sole proprietorships
avoid the double taxation that occurs with corporations.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
20.
Which of the following forms of business ownership is directly limited by the life of
its owner?
A.
B.
C.
D.
E.
Sole proprietorships
Limited partnerships
Corporations
Holding companies
Subsidiaries
The life expectancy of a sole proprietorship is directly related to that of the owner
and his or her ability to work.
21.
A.
B.
C.
D.
E.
A sole proprietorship is easy and inexpensive to form; it has the greatest degree of
secrecy; all profits belong to the owner; it has complete control; it has the most
freedom from government regulation; the owner pays one income tax; and the
business can be easily dissolved.
Essay Questions
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2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
22.
What are the advantages of sole proprietorships over other forms of business
organization?
The advantages of sole proprietorships are: ease and cost of formation; high
degree of secrecy; all profits belong exclusively to the owner; high degree of
flexibility and control of the business; most freedom from government regulation;
profits are considered personal income and are taxed at individual tax rates; and a
sole proprietorship can be dissolved easily.
23.
Taxation is an advantage because owners of sole proprietors only have to pay one
tax at the owner's individual tax rate. However, this advantage can become a
disadvantage for businesses earning less than $75,000 because owners will pay a
higher marginal tax rate than do small corporations. This is one reason that some
people opt to incorporate.
24.
Sole proprietorships are owned and operated by one individual and are the most
popular form of business organization in the United States. Examples include most
restaurants, barber shops, flower shops, financial advisors, child care providers,
and independent grocery stores.
25.
26.
A limited partnership always has at least one general partner, who assumes
unlimited liability.
TRUE
A limited partnership has at least one general partner, who assumes unlimited
liability, and at least one limited partner, whose liability is limited to his or her
investment in the business.
27.
In a partnership, if the goals of one partner change, the result may be friction and
even legal disputes.
TRUE
If there is a change in goals of one partner and not the other, it may cause friction
and many partner disputes wind up in court or mediation.
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of
the partnership form of organization.
Level of Difficulty: 2 Medium
Topic: Partnerships
28.
29.
30.
In a general partnership, each partner is liable only for the debts he or she incurs.
FALSE
In a general partnership, each partner has unlimited liability for the debts of the
business.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
31.
32.
A.
B.
C.
D.
E.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
33.
A.
B.
C.
D.
E.
Limited partnerships exist for risky investment projects where the chance of loss is
great.
34.
A.
B.
C.
D.
E.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
35.
Anand has been asked to join a new partnership that is developing wind energy
technologies. Because the business is high risk, he does not want to be liable for
the firm's debts if the project should fail. He could still participate as a
A.
B.
C.
D.
E.
general partner.
limited partner.
silent partner.
working partner.
contributor.
A limited partner's liability is limited to his or her initial investment in the business.
Limited partnerships are most often used for risky investments where the chance
for loss is great.
36.
A.
B.
C.
D.
E.
S-corporation
Franchise
Sole proprietorship
Corporation
Partnership
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
37.
The legal documents that identify the basic agreements between partners are
called
A.
B.
C.
D.
E.
proposals of partnership.
a partnership charter.
agreements of partnership.
articles of partnership.
a partnership contract.
Articles of partnership are legal documents that usually specify the money or
assets that each partner has contributed, each partner's role, how the profits and
losses will be divided, and how a partner may leave the partnership.
38.
Articles of partnership are required by many states for businesses that have two or
more co-owners. The issues covered usually include all of the following except
A.
B.
C.
D.
E.
Articles of partnership are legal documents that usually specify the money or
assets that each partner has contributed, each partner's role, how the profits and
losses will be divided and how a partner may leave the partnership. Stock is not
issued in a partnership.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
39.
A.
B.
C.
D.
E.
When a business has several partners, it has the benefit of pooled financial
resources.
40.
A.
B.
C.
D.
E.
multifaceted.
small.
foreign.
domestic.
large.
Small partnerships can react quickly to changes in the business environment than
can large partnerships and corporations.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
41.
A.
B.
C.
D.
E.
Unlimited liability
Life of partnership
Selling a partnership
Limited funding sources
Ease of formation
42.
A.
B.
C.
D.
E.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
43.
A.
B.
C.
D.
E.
Partners must report their share of profits on their individual tax returns and pay
taxes at the income tax rate for individuals.
Essay Questions
44.
How does the taxation of partnerships work? How is this different than with a
corporation?
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
45.
Because no public value is placed on the business (such as the current trading
price of a corporation's stock), potential partners do not know what one
partnership share is worth. Moreover, because partnership shares cannot be
bought and sold easily in public markets, potential owners may not want to tie up
their money in assets that cannot be readily sold on short notice.
46.
Define the partnership form of business organization. What are its advantages?
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
47.
While corporations account for the majority of businesses in the United States,
they represent a small percentage of profits.
FALSE
Corporations account for the majority of U.S. sales and income, although there are
many more sole proprietorships than there are corporations.
48.
49.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
50.
51.
52.
The biggest advantage of the corporate form of ownership may be the limited
liability of its owners.
TRUE
The biggest advantage of a corporation is limited liability because the
corporation's assets and liabilities are separate from its owners'.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
53.
54.
A.
B.
C.
D.
E.
private corporation.
multi-state corporation.
domestic corporation.
alien corporation.
foreign corporation.
A foreign corporation does business outside the state in which it was chartered.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
55.
A.
B.
C.
D.
E.
tax-free dividends.
interest.
retained earnings.
dividends.
bribes.
Dividends are profits of a corporation that are distributed in the form of cash
payments to stockholders.
56.
In creating a corporation, once the articles of incorporation are filed with the
appropriate state office, the state may then issue a corporate
A.
B.
C.
D.
E.
chapter.
contract.
charter.
collaboration.
commentary.
The state issues a corporate charter to the company based on the information of
the articles of incorporation.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
57.
A.
B.
C.
D.
E.
A private corporation is owned by one person or a few people who are closely
involved in managing the business and own all of the corporation's stock; none of
the firm's stock is traded in public markets.
58.
A.
B.
C.
D.
E.
private.
quasi-private.
public.
quasi-public.
private-public.
Quasi-public corporations are owned by the federal, state, or local government and
focus on providing a public service rather than earning a profit. Examples include
NASA and the U.S. Postal Service.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
59.
Which stockholders usually have the right to vote and control the board of
directors?
A.
B.
C.
D.
E.
Preferred
Common
Cumulative preferred
Preemptive
Favorite
Common stockholders are the voting owners of a corporation because they are
usually entitled to one vote per share of common stock and they elect the board of
directors.
60.
The right of common stockholders to have the opportunity to purchase new shares
of stock is called a
A.
B.
C.
D.
E.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
61.
A.
B.
C.
D.
E.
Preferred stockholders receive profits, in the form of dividends, before any other
stockholder of a corporation.
62.
A.
B.
C.
D.
E.
single taxation.
limited liability.
ease of formation.
lack of bureaucracy.
double taxation.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
63.
The type of ownership that has the ability to raise capital most easily is a
A.
B.
C.
D.
E.
public corporation.
private corporation.
sole proprietorship.
general partnership.
limited partnership.
The public corporation finds it easiest to raise money because it can issue stocks
or bonds when it needs to raise capital.
64.
A.
B.
C.
D.
E.
Sole proprietorship
Limited partnership
General partnership
Cooperative
Corporation
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
65.
Which of the following forms of business organization restricts the number and
type of shareholder?
A.
B.
C.
D.
E.
Sole proprietorship
Co-op
Limited liability company
S-corporation
Partnership
66.
A.
B.
C.
D.
E.
joint venture.
cooperative.
C corporation.
S corporation.
limited liability company.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
67.
A.
B.
C.
D.
E.
stock sale.
stock certificate.
stock split.
dividend restructuring.
proxy.
68.
A.
B.
C.
D.
E.
reduced regulations.
cooperation among farmers or ranchers.
unlimited liability.
large investments.
small investments.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
69.
A.
B.
C.
D.
E.
limited liability.
lower frequency of taxation.
perpetual life of organization.
ease of transfer of ownership.
external funding sources.
70.
A.
B.
C.
D.
E.
middle managers.
top managers.
board of directors.
shareholders.
owners.
Essay Questions
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2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
71.
What is a limited liability company (LLC), and why do some consider it the best
form of business ownership?
72.
While common stockholders usually have voting rights and share in profits,
preferred stockholders have no vote in the election of the board of directors but
get a preference in the distribution of the company's profits. Preferred stockholders
have first claim to profits, usually paid at a fixed percentage of the initial issuing
price.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
73.
74.
75.
When firms that make and sell similar products to the same customers merge, it is
known as a horizontal merger.
TRUE
A horizontal merger occurs when firms that make and sell similar products to the
same customers merge.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
76.
A merger occurs when one company buys another by buying its stock.
FALSE
A merger occurs when two companies, usually corporations, combine to form
another company.
77.
78.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
79.
80.
A.
B.
C.
D.
E.
Companies large and small achieve growth and improve profitability by expanding
their operations, often by developing and selling new products or selling current
products to new groups of customers in different geographic areas.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
81.
When firms that make and sell similar products to the same customers merge, it is
known as a
A.
B.
C.
D.
E.
horizontal merger.
vertical merger.
acquisition.
hostile takeover.
poison pill.
When firms that make and sell similar products to the same customers merge, it is
known as a horizontal merger; these are often subject to especially intense
scrutiny by federal regulators.
82.
When a firm is facing a hostile takeover attempt, it may issue a poison pill, which
is
A.
when it fires its board of directors for incompetence.
B. when the firm allows stockholders to buy up shares of stock at lower than
market value.
C. when the executive suite quits en masse before a takeover.
D.
a term for plummeting stock values.
E. a letter that expresses dismay at the maneuver sent to the company
attempting the takeover.
A poison pill occurs when the firm allows stockholders to buy up shares of stock at
lower than market value in order to fend off a hostile takeover.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
83.
A.
B.
C.
D.
E.
merger.
acquisition.
tender offer.
leveraged buyout.
white knight.
84.
A.
B.
C.
D.
E.
acquisition.
leveraged buyout.
merger.
hostile offer.
tender offer.
A tender offer is when a company offers to buy some or all of another company's
stock at a premium price.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
85.
When a group of investors borrows money to buy a company or division, using the
company's assets to guarantee the loan, it is called a(n)
A.
B.
C.
D.
E.
acquisition.
merger.
leveraged buyout.
tender offer.
poison pill.
A leveraged buyout (LBO) is a group of investors that borrows money from banks
and other institutions to acquire a company (or a division of one) using the assets
of the purchased company to guarantee repayment of the loan.
86.
A.
B.
C.
D.
E.
A leveraged buyout
A tender offer
A white knight
A poison pill
Shark repellant
A poison pill allows stockholders to buy more shares of stock at prices lower than
current market value to deter a hostile takeover.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
87.
A.
B.
C.
D.
E.
vertical merger.
horizontal merger.
acquisition.
leveraged buyout.
diagonal merger.
Vertical mergers usually occur when one corporation merges with one of its
customers or suppliers.
88.
A.
A mythical hero in fairy tales
B. An attempt to fend off a hostile takeover by selling stock at below market value
C. An attempt to fend off a hostile takeover by requiring the deal be approved by a
large majority of shareholders
D. A more acceptable firm that is willing to acquire the firm threatened by hostile
takeover
E. A group of investors that has borrowed money to acquire a firm
A white knight is a firm that is willing to acquire a threatened firm in order to save
it from hostile takeover.
Essay Questions
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
89.
What is a vertical merger and why would a firm attempt one? What are the
benefits?
90.
What is a leveraged buyout? What are some of the advantages of mergers and
acquisitions?
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
91.
A.
B.
C.
D.
E.
it is cheaper.
all good businesses are corporations.
they would have limited liability and seem larger.
the other forms of corporation are not valid in their case.
Bryan does not think the company should be a corporation.
Bryan thinks that organizing as a corporation would be best because it gives them
the image of being a larger corporation, as well as limited liability.
AACSB: Analytic
Blooms: Apply
Learning Objective: 04-05 Propose an appropriate organizational form for a startup business.
Level of Difficulty: 1 Easy
Topic: Solve the Dilemma
92.
A.
it is the most complicated to form.
B. they are a small company and do not need to be a corporation.
C.
it gives them limited liability.
D. it would allow them to rely on their own financial resources and talents.
E. they would have an easier time selling the business later.
Thomas thinks that the partnership would be easier to start and would allow them
to best utilize their talents and financial resources.
AACSB: Analytic
Blooms: Apply
Learning Objective: 04-05 Propose an appropriate organizational form for a startup business.
Level of Difficulty: 1 Easy
Topic: Solve the Dilemma
Essay Questions
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
93.
What are some of the advantages and disadvantages of Thomas and Bryan
forming a corporation?
The major advantages of Thomas and Bryan forming a corporation are the limited
liability provided by this form of organization and the ease of the potential for
future expansion. External financing is readily available for corporations.
The main disadvantages of forming a corporation are the double taxation imposed
on Bryan and Thomas, the cost of creating the corporation, and the expenses
associated with the procedures involved in the disclosure of information.
AACSB: Analytic
Blooms: Apply
Learning Objective: 04-05 Propose an appropriate organizational form for a startup business.
Level of Difficulty: 2 Medium
Topic: Solve the Dilemma
94.
AACSB: Analytic
Blooms: Apply
Learning Objective: 04-05 Propose an appropriate organizational form for a startup business.
Level of Difficulty: 2 Medium
Topic: Solve the Dilemma
95.
Which organizational form do you think would be best for Thomas and Bryan's
company and why?
Students' answers will vary because there is no absolute answer. The final decision
will depend on the past business experience of Thomas and Bryan, their degree of
financial stability, and their expectations in terms of growth. However they
respond, students should defend their answers.
AACSB: Analytic
Blooms: Analyze
Learning Objective: 04-05 Propose an appropriate organizational form for a startup business.
Level of Difficulty: 2 Medium
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