Вы находитесь на странице: 1из 8

CIB Ch 5 Spring 2012 Key

1. (p. 114) The __________ is the most common form of business ownership.
A. partnership
B. corporation
C. joint venture
D. sole proprietorship

2. (p. 115) A ___________ is a form of business that is owned, and usually managed, by one person.
A. closed corporation
B. subchapter S corporation
C. sole proprietorship
D. limited partnership

3. (p. 115) To many businesspeople, one of the major attractions of a sole proprietorship is:
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.

4. (p. 115) The __________ is usually the easiest form of business to start and end.
A. sole proprietorship
B. limited partnership
C. corporation
D. cooperative

5. (p. 116) One of the major disadvantages of a sole proprietorship is the:

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.

6. (p. 115) Starting a new business as a sole proprietorship:

A. Requires retaining the services of an attorney.
B. Is simple, but the proprietorship fee is very expensive in some states.
C. Is usually simpler and less expensive than starting other forms of ownership.
D. Is very similar to starting a business as a corporation.

7. (p. 115) In a sole proprietorship, the profits earned by the business are:
A. Taxed as income for the business, but is exempt from the personal income tax paid by the owner.
B. Taxed at the lowest corporate rate.
C. The property of the owner, except for taxes owed to the government.
D. Tax-free if the appropriate exemption is filed with the local government.

8. (p. 116) A significant disadvantage of owning a sole proprietorship is the:

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.

9. (p. 116) Unlimited liability means:

A. When you own your own business you are responsible for all the business debts.
B. You are only liable for the money you invest in the business.
C. As a franchisee your franchisor is responsible for the debts of the franchise.
D. You are liable for whatever advertising promises your firm makes.

10. (p. 116) Any debts or damages incurred by a firm organized as a sole proprietorship are:
A. The responsibility of the owner.
B. Limited to the amount the owner has invested in the firm.
C. Paid for out of a reserve contingency fund that sole proprietors are required by law to set up.
D. Normally covered by liability insurance.

11. (p. 117) Joe Jackson operates a sole proprietorship, but he is in poor health and may be unable to continue
running the business. If Joe becomes incapacitated, his business:
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 Joe's heirs.
D. Becomes the property of the most senior employee who wishes to continue operating the firm.

12. (p. 115-116) Halle wants to start a business. She has two goals. First, given her limited personal wealth and
eagerness to get started, she wants to get her business up and running with the least possible hassle and expense.
Second, she wants to minimize her personal risk in the event that her company experiences difficulties. If Halle
chooses a sole proprietorship, she would:
A. Achieve both goals since this form of ownership is both the easiest to form and the least risky.
B. Meet her first goal since sole proprietorships are easy and inexpensive to form. However, she would expose
herself to personal risk because owners of sole proprietorships have unlimited liability.
C. Not achieve either goal since proprietorships are both costly to set up and subject to unlimited liability.
D. Achieve her second goal, since the owners of sole proprietorships are legally protected from losing more
than the amount they invest in their company. However, she would find that the start-up costs would be higher
than if she had incorporated her business.

13. (p. 117) In a partnership, a(n) __________ partner (owner) actively manages the company and has unlimited
liability for claims against the firm.
A. unlimited
B. limited
C. general
D. associate

14. (p. 117) 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.
A. Implied partner.

B. Limited partner.
C. Partial partner.
D. Corporate partner.

15. (p. 118) Compared to a sole proprietorship, which of the following is considered an advantage of a general
A. ability to pool financial resources
B. unlimited liability for all owners
C. division of profits among owners
D. ease and flexibility in transferring shares of ownership to others

16. (p. 118) Which of the following is an advantage of a partnership?

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

17. (p. 119) A good reason why partners should spell-out the details of their partnership arrangements in writing
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.

18. (p. 117) Maya plans to open a shop specializing in foods and cultural items from the Middle East. She wants
to be the firm's only general partner, but she is trying to get several friends to participate as limited partners.
Apparently Maya wants to:
A. Limit her personal liability to the amount she personally invests in the company.
B. Keep all of the firm's profits.
C. Obtain a strong financial base for the firm while maintaining personal control over the firm's management.
D. Meet the legal requirements of the Uniform Partnership Act.

19. (p. 117) Zach and Mac own an auto repair business which they operate as co-owners. Both take an active
role in the management of the business, and each accepts unlimited liability. Zach and Mac operate as a
A. joint venture
B. general partnership
C. limited partnership
D. cooperative

20. (p. 119) Jamie and Maria invested all their savings in a small pizzeria they opened outside the University of
Western Kentucky. They operated the business as a general partnership. After 11 months, the business went
broke and Jamie and Maria were left with outstanding bills of $37,500, which was more than their initial
investment in the company. Jamie and Maria can:
A. Lose their personal assets as the result of their company's financial problems.
B. Lose only the funds they originally invested in their company.

C. Lose only the total value of the assets actually used to operate the business.
D. Avoid any liability for these debts since a partnership is considered to be a business entity that is separate
and distinct from the partners who own it.

21. (p. 121) A(n) ___________________ is a state-chartered legal entity with authority to act and to have
liability separate from its owners.
A. limited partnership
B. conventional corporation
C. unlimited partnership
D. nonprofit organization

22. (p. 121) An owner of a corporation is known as a(n):

A. General partner.
B. Limited partner.
C. Director.
D. Stockholder.

23. (p. 121) Which of the following is an advantage of the corporate form of business when compared to sole
proprietorships and partnerships?
A. Ease of formation
B. Lower taxes
C. Simplified paperwork
D. Limited liability of owners

24. (p. 121) Compared to partnerships and sole proprietorships, a major advantage of the C (conventional)
corporation as a form of business ownership is that it:
A. Has the ability to raise more money.
B. Is easier and less expensive to form.
C. Qualifies for simplified tax treatment.
D. Creates unlimited liability for its owners.

25. (p. 124) Which of the following is normally considered a disadvantage of the corporate form of business?
A. Unlimited liability of owners.
B. Difficult transfer of ownership.
C. Limited life.
D. Double taxation of earnings.

26. (p. 123) The board of directors for a corporation is elected by its:
A. Creditors.
B. Stockholders.
C. Managers.
D. Employees.

27. (p. 123) A separation between ownership and management is most likely to occur in a:
A. Sole proprietorship.

B. General partnership.
C. Corporation.
D. Limited liability partnership.

28. (p. 124) Earnings of C (conventional) corporations can be:

A. Taxed twice if they are distributed as dividends to stockholders.
B. Taxed at twice the going rate of a partnership or sole proprietorship.
C. Taxed by the federal government, but they are exempt from state taxes if the corporation owns any facilities
within that state.
D. Taxed the same as a partnership.

29. (p. 123) Which of the following is an attractive benefit of a corporation?

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

30. (p. 124) "Double taxation" means:

A. If stockholders decide to sell their shares, they are subject to paying twice the amount of taxes on any capital
B. As the owner of the company, you pay twice the amount in employment taxes on yourself, as you do on your
C. Corporations pay taxes on their profits. If they distribute after-tax profits to the stockholders, the
stockholders also pay taxes on the distribution.
D. If the corporation doubles its profits from the previous year, the firm's tax rate (the percentage it pays in
taxes) will also double.

31. (p. 121) Maria recently purchased 100 shares of stock in Idle Time Gaming, Inc. Maria is
a(n)_____________ of this company.
A. owner
B. manager
C. creditor
D. partner

32. (p. 121) Dane is a stockholder in SmallWorld, Inc., a C-corporation that manufactures amusement park
rides. The company recently lost a major court decision and will probably be forced into bankruptcy. In fact, the
damages awarded are so great that, even if all company assets are sold and the proceeds are used to pay its
debts, SmallWorld is likely to still owe money to its creditors. If SmallWorld go bankrupt, Dane and the other
stockholders will:
A. Be personally responsible for all remaining debts.
B. Lose their investment but nothing else.
C. Be entitled to full reimbursement of any investment losses.
D. Automatically qualify for federal reimbursement for any losses suffered by the firm.

33. (p. 129) One reason that companies participate in mergers and acquisitions is:
A. To do the same thing as the competition because it makes for a highly leveraged company.

B. To convert a sole proprietorship into a partnership.

C. To expand within their own field or enter new markets.
D. To take the first step toward a join venture.

34. (p. 129) In recent years, firms found it easier to grow market share by:
A. Switching from the corporate form of ownership to the partnership form of ownership.
B. Merging with other companies or acquiring new companies.
C. Downsizing their operations.
D. Avoiding problems with antitrust regulations.

35. (p. 129) A ____________ is two firms combining to form one company.
A. joint tenancy
B. tenancy in common
C. merger
D. leveraged buyout

36. (p. 129) A(n) _________ occurs when one company buys the property and obligations of another company.
A. cooperative
B. hostile takeover
C. leveraged buyout
D. acquisition

37. (p. 129-130) Three types of corporate mergers are:

A. Economic, geographic, and financial.
B. Vertical, horizontal, and conglomerate.
C. Flexible, differentiated, and conditional.
D. Explicit, implicit, and intrinsic.

38. (p. 129-130) A ______________ merger unites firms at different stages of related businesses.
A. vertical
B. horizontal
C. diagonal
D. conglomerate

39. (p. 129-130) When two companies in the same industry agree to become one firm, the result is called a:
A. Vertical merger.
B. Joint venture.
C. Monopoly.
D. Horizontal merger.

40. (p. 129-130) When two companies in completely unrelated industries agree to become one firm, the result is
called a:
A. Vertical merger.
B. Joint venture.

C. Conglomerate merger.
D. Horizontal merger.

41. (p. 129) A conglomerate merger will:

A. Diversify business operations and investments.
B. Allow the firm to have a less dominant position in its market.
C. Enable the firm to enjoy a higher degree of specialization.
D. Give the firm a more secure access to needed materials and components and better control over quality.

42. (p. 129) A merger involving a commercial bakery and a grocery retailer would be an example of a:
A. Vertical merger.
B. Horizontal merger.
C. Linear merger.
D. Conglomerate merger.

43. (p. 129) A merger involving a software producer and a clothing manufacturer is an example of a:
A. Vertical merger.
B. Horizontal merger.
C. Linear merger.
D. Conglomerate merger.

44. (p. 129) 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. Merger.
B. Combination.
C. Expropriation.
D. Acquisition.

45. (p. 129) Trans Globe Airlines is in talks with Royal Blue Airlines, a financially troubled rival. The firms
believe the merger will create a stronger company that can offer travelers more flights to a wider variety of
destinations. This proposed merger is an example of a:
A. Conglomerate merger.
B. Leveraged buyout.
C. Horizontal merger.
D. Joint venture.

46. (p. 131) A ___________ is an arrangement whereby someone with proven idea for a business sells the rights
to use the business model, to sell a product or service to others in a given territory.
A. conditional grant
B. franchise agreement
C. trade contract
D. extended ownership agreement

47. (p. 131) A(n) _____________ is a company that has a proven business model and is willing to sell the rights

to use the business model to others so that they can sell the same product or service within a given territory.
A. intrapreneur
B. franchisee
C. limited partner
D. franchisor

48. (p. 131) A person who buys the right to use a business name and sell a product within a given territory is
called a:
A. Stockholder.
B. Franchisee.
C. Limited franchisor.
D. Venture capitalist.

49. (p. 133) A ____________ is the share of profits or percentage of sales a franchisee pays to a franchisor.
A. royalty
B. dividend
C. premium
D. co-pay

50. (p. 132) Which of the following is an advantage of franchises?

A. Shared profit.
B. Management regulation.
C. Management and marketing assistance.
D. Coattail effects.