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Chapter 5

Chapter 5. Choosing a Form of Business Ownership CPS questions. 1. Which is usually the easiest form of business to start and end?. Sole proprietorship Limited partnership Corporation Cooperative.

jonah-saunders
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Chapter 5

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  1. Chapter 5 Choosing a Form of Business Ownership CPS questions

  2. 1. Which is usually the easiest form of business to start and end? • Sole proprietorship • Limited partnership • Corporation • Cooperative

  3. 2. Sue Layman operates a sole proprietorship, but she is in poor health and may be unable to continue running the business. What would happen if Sue becomes incapacitated? • Her business automatically continues under new management as a sole proprietorship. • Her business automatically converts into a public corporation with stock sold to interested investors. • Her business ceases to exist unless sold or taken over by Sue's heirs. • Her business becomes the property of the most senior employee who wishes to continue operating the firm.

  4. 3. Jaime is the sole proprietor of a gift shop in a small shopping center. Any profit is Jaime's business earns is______ because he is a sole proprietor. • totally tax-free • taxed only as Jaime’s personal income • taxed twice, once as business income, then again as Jaime’s personal income • taxed only if and when it is distributed to investors

  5. 4. The limited liability provided to limited partners means that they are not responsible for the debts of the business beyond which of the following? • The firm's total assets • The amount they have invested in the company • The percentage of profits they are entitled to earn • Their total personal assets

  6. 5. The most accurate statement about partnerships would be which of these? • A partnership is simply a corporation with fewer than 100 owners • A major advantage of a partnership is that it offers owners limited liability • A major drawback of a partnership is that it is difficult to terminate • Partnerships are taxed at the lowest corporate tax rate

  7. 6. Sheila 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. Which of the following does Sheila apparently want to do? • Limit her personal liability to the amount she personally invests in the company. • Be the only person allowed to share in the firm’s profits. • Obtain a strong financial base for the firm while maintaining personal control over the firm’s management. • Meet the legal requirements of the Uniform Partnership Act.

  8. 7. Which of the following is a state-chartered legal entity with authority to act and to have liability separate from its owners? • Limited partnership • Conventional corporation • Unlimited partnership • Nonprofit organization

  9. 8. A major advantage of S corporations is that they _______ • can have more stockholders than a C corporation. • can operate in foreign nations as if they were domestic corporations. • require less paperwork to set up than a C corporation does. • avoid the problem of double taxation associated with conventional corporations.

  10. 9. A _______ is a firm that can attract skilled employees by offering benefits such as stock options. • sole proprietorship • general partnership • limited partnership • corporation

  11. 10. John Coffey is a stockholder in Billet Investments, which is organized as a C Corporation. Billet 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 of its assets are sold and the proceeds are used to pay its debts, Billet is likely to still owe money to its creditors. If Billet does go bankrupt, John and the other stockholders will: • be personally responsible for all remaining debts. • lose their investment but nothing else. • be entitled to full reimbursement of any investment losses. • automatically qualify for federal reimbursement for any losses suffered by the firm.

  12. 11. A _______ is the result of two firms combining to form one company. • joint tenancy • tenancy in common • merger • leveraged buyout

  13. 12. A merger involving a commercial bakery and a grocery retailer would be an example of which of the following? • Vertical merger • Horizontal merger • Linear merger • Conglomerate merger

  14. 13. Stock is ______ when a firm is taken private. • converted into bonds • converted into cash • no longer sold to investors on the open market • pledged as collateral to its bondholders

  15. 14. Trans Globe Airlines has recently looked into a merger 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. Which of the following best describes this proposed merger? • Conglomerate merger • Leveraged buyout • Horizontal merger • Joint venture

  16. 15. A franchise can be formed: • only as a general partnership. • only as a corporation. • as either a corporation or partnership, but not as a sole proprietorship. • as a corporation, partnership or sole proprietorship.

  17. 16. Carley is interested in becoming a franchisee in Bob’s Sunny Seafood, a very successful fast food chain specializing in food dishes from the American east coast. Which of the following problems is Carley most likely to encounter if she agrees to become a franchisee? • High initial costs and fees • Poor name recognition and visibility • Lack of financing • Lack of managerial assistance

  18. 17. Cooper’s Sandwiches, Inc., sells the rights to use its name and sell its sandwiches in a given market area to aspiring business people who are willing to pay agreed upon fees and meet certain contractual terms. Cooper’s: • is offering investors the opportunity to form limited partnerships. • is a franchisor. • creates private subsidiary companies. • offers a tax-free investment potential.

  19. 18. Members/customers ______ in a cooperative. • democratically control their businesses by electing a board of directors • are known as limited partners • each have unlimited liability for the debts of the firm • take turns serving on the board that manages the company

  20. 19. The most accurate statement about farm cooperatives is that they have: • declined in importance in recent years. • become a major force in American agriculture. • run afoul of U.S. antitrust laws in recent years. • increased in number, but decreased in size in recent years.

  21. 20. Fifteen years ago, several small orange grove owners in Florida joined voluntarily to market their oranges and orange juice 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 grove owners is an example of a(n): • closed corporation. • joint venture. • limited agra partnership. • farm cooperative.

  22. 1. Answer: A LG: 1 Page: 119 2. Answer: C LG: 1 Page: 120 3. Answer: B LG: 1 Page: 119 4. Answer: B LG: 2 Page: 121 5. Answer: C LG: 2 Page: 123 6. Answer: C LG: 2 Page: 121 7. Answer: B LG: 3 Page: 125 8. Answer: D LG: 3 Page: 129 9. Answer: D LG: 3 Page: 126 10. Answer: B LG: 3 Page: 125 11. Answer: C LG: 4 Page: 132 12. Answer: A LG: 4 Page: 133 13. Answer: C LG: 4 Page: 133 14. Answer: C LG: 4 Page: 133 15. Answer: D LG: 5 Page: 135 16. Answer: A LG: 5 Page: 136 17. Answer: B LG: 5 Page: 134 18. Answer: A LG: 6 Page: 141 19. Answer: B LG: 6 Page: 141 – 142 20. Answer: D LG: 6 Page: 141

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