Question 1

In a sole proprietorship, the profits earned by the business are:

Accepted Answer

A)   taxed as income for the business, but 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.E) B) and C)
F) A) and C)

Question 2

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:

Accepted Answer

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.E) B) and C)
F) A) and D)

Question 3

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 4

A horizontal merger refers to a merger between two companies that serve entirely different markets.

Accepted Answer

A) True 
 B)False

Question 5

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 commitmentE) A) and C)
F) B) and C)

Question 6

A few years back, your friends who are horse fanatics inherited several acres of land that they turned into a retirement haven for race horses. Peaceful Pastures was recently incorporated as a limited liability company. The members are reevaluating this form of ownership. Unlike an S corporation, they now pay self-employment taxes on all company profits-not just on the salaries they pay themselves.

Accepted Answer

A) True 
 B)False

Question 7

The debts of a business operated as a sole proprietorship are considered to be the personal debts of the owner of the business.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

The owners of a corporation are known as general corporate partners.

Accepted Answer

A) True 
 B)False

Question 10

In the Adapting to Change box, digital franchising is an impossible feat and could not be successful.

Accepted Answer

A) True 
 B)False

Question 11

Continental Foods is considering a conglomerate merger with a company that makes storage solutions. A likely reason is:

Accepted Answer

A)   expand its market share.
B)   develop spin-off companies.
C)   diversification.
D)   meet the requirements to convert to a limited liability company.E) A) and B)
F) A) and C)

Question 12

The corporation is the most common form of business ownership.

Accepted Answer

A) True 
 B)False

Question 13

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.

Accepted Answer

A)   implied partner.
B)   limited partner.
C)   partial partner.
D)   corporate partner.E) All of the above
F) None of the above

Question 14

Which of the following statements is the most accurate? Sole proprietorships:

Accepted Answer

A)   are well suited for people who want to own a business and share in its profits without taking an active role in management.
B)   are taxed at the owner's personal tax rate.
C)   are the least risky form of business ownership.
D)   must receive a state charter before they can legally conduct business.E) None of the above
F) B) and C)

Question 15

When comparing general partnerships to sole proprietorships, an advantage of partnerships is that they:

Accepted Answer

A)   are less risky, because each partner is responsible for only a specified fraction of the firm's debts.
B)   are easier to terminate.
C)   cost less to organize.
D)   give the firm a stronger financial foundation.E) C) and D)
F) B) and C)

Question 16

Twenty-six years ago, several small vineyard owners in California joined voluntarily to market their grapes and wine in an attempt to get better prices. Over the years they expanded the organization to include other services such as buying and selling farm supplies and equipment and providing financial and technical services. The arrangement established by these vineyard owners is an example of a(n) :

Accepted Answer

A)   closed corporation.
B)   joint venture.
C)   limited agricultural partnership.
D)   farm cooperative.E) A) and D)
F) C) and D)

Question 17

Setting up a partnership under the terms of a written agreement is a bad idea, because written agreements tend to be too inflexible and impersonal.

Accepted Answer

A) True 
 B)False

Question 18

One difference between partnerships and sole proprietorships is that partnerships:

Accepted Answer

A)   take less work to form.
B)   are managed by an elected board of directors.
C)   have the advantage of limited liability.
D)   have a greater chance of long-term survival due to the accountability of each partner to the other.E) C) and D)
F) B) and C)

Question 19

In today's economy, only large business enterprises should operate as corporations.

Accepted Answer

A) True 
 B)False

Question 20

The purpose of a conglomerate merger is to diversify operations and investments.

Accepted Answer

A) True 
 B)False

Exam 5: How to Form a Business

In the Adapting to Change box, digital franchising is an impossible feat and could not be successful.

Correct Answer
verified

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

Correct Answer
verified

In a sole proprietorship, the profits earned by the business are:

Correct Answer
verified

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.

Correct Answer
verified

A horizontal merger refers to a merger between two companies that serve entirely different markets.

Correct Answer
verified

Which of the following is an advantage of a partnership?

Correct Answer
verified

Continental Foods is considering a conglomerate merger with a company that makes storage solutions. A likely reason is:

Correct Answer
verified

Which of the following statements is the most accurate? Sole proprietorships:

Correct Answer
verified

Correct Answer
verified

The owners of a corporation are known as general corporate partners.

Correct Answer
verified

The debts of a business operated as a sole proprietorship are considered to be the personal debts of the owner of the business.

Correct Answer
verified

Correct Answer
verified

When comparing general partnerships to sole proprietorships, an advantage of partnerships is that they:

Correct Answer
verified

Correct Answer
verified

The purpose of a conglomerate merger is to diversify operations and investments.

Correct Answer
verified

Setting up a partnership under the terms of a written agreement is a bad idea, because written agreements tend to be too inflexible and impersonal.

Correct Answer
verified

One difference between partnerships and sole proprietorships is that partnerships:

Correct Answer
verified

The corporation is the most common form of business ownership.

Correct Answer
verified

In today's economy, only large business enterprises should operate as corporations.

Correct Answer
verified

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

Correct Answer
verified

Exam 5: How to Form a Business

In the Adapting to Change box, digital franchising is an impossible feat and could not be successful.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In a sole proprietorship, the profits earned by the business are:

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.

Correct AnswerverifiedShow Answer

A horizontal merger refers to a merger between two companies that serve entirely different markets.

Correct AnswerverifiedShow Answer

Which of the following is an advantage of a partnership?

Correct AnswerverifiedShow Answer

Continental Foods is considering a conglomerate merger with a company that makes storage solutions. A likely reason is:

Correct AnswerverifiedShow Answer

Which of the following statements is the most accurate? Sole proprietorships:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The owners of a corporation are known as general corporate partners.

Correct AnswerverifiedShow Answer

The debts of a business operated as a sole proprietorship are considered to be the personal debts of the owner of the business.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When comparing general partnerships to sole proprietorships, an advantage of partnerships is that they:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The purpose of a conglomerate merger is to diversify operations and investments.

Correct AnswerverifiedShow Answer

Setting up a partnership under the terms of a written agreement is a bad idea, because written agreements tend to be too inflexible and impersonal.

Correct AnswerverifiedShow Answer

One difference between partnerships and sole proprietorships is that partnerships:

Correct AnswerverifiedShow Answer

The corporation is the most common form of business ownership.

Correct AnswerverifiedShow Answer

In today's economy, only large business enterprises should operate as corporations.

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

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