(Test Bank) Business, Corporation, Types Of Companies, Aacsb, Reflective Thinking

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05 Key 1. (p. 114) The corporation is the most common form of business ownership. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #1Topic: Basic Forms of Business Ownership 2. (p. 114) The three major forms of business ownership in the U.S. are sole proprietorships, partnerships, and corporations. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #2Topic: Basic Forms of Business Ownership 3. (p. 114) Few people today start their own business. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #3Topic: Basic Forms of Business Ownership 14. (p. 115) Once a business is established, it's almost impossible to change from one form of business ownership to another. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #4Topic: Basic Forms of Business Ownership 5. (p. 114) When two or more people legally agree to become co-owners of a business, the form of business is called a partnership. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #5Topic: Basic Forms of Business Ownership 6. (p. 114) A legal entity with authority to act and have liability separate from its owners is called a partnership. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #6Topic: Basic Forms of Business Ownership 7. (p. 114) Corporations represent 20 percent of all the businesses in the U.S. and earn 81 percent of the total U.S. business receipts. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #7Topic: Basic Forms of Business Ownership 28. (p. 114) A comparison of the three major forms of business ownership shows that sole proprietorships are usually the most difficult type of business to establish. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #8Topic: Basic Forms of Business Ownership 9. (p. 115) The first step in starting a sole proprietorship is to fill out a proprietorship charter application form and file it with the state government. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #9Topic: Sole Proprietorship 10. (p. 115) It is usually easy to start and end a sole proprietorship. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #10Topic: Sole Proprietorship 11. (p. 115) The profits of a sole proprietorship are taxed as the personal income of the owner. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #11Topic: Sole Proprietorship 312. (p. 115) The sole proprietorship form of ownership tends to be attractive to people who want to invest in a company without taking an active role in management. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #12Topic: Sole Proprietorship 13. (p. 115) A major advantage of sole proprietorships is that an owner has limited liability for the debts of his or her business. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #13Topic: Sole Proprietorship 14. (p. 115) One of the strengths of the sole proprietorship is its ability to sustain rapid growth by raising large amounts of financial resources. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #14Topic: Sole Proprietorship 15. (p. 116) The debts of a business operated as a sole proprietorship are considered to be the personal debts of the owner of the business. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #15Topic: Sole Proprietorship 416. (p. 116) A drawback of sole proprietorships is that they usually have limited access to additional financial resources. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #16Topic: Sole Proprietorship 17. (p. 116) An advantage of forming a sole proprietorship is that it allows the owner to have more time for leisure activities. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #17Topic: Sole Proprietorship 18. (p. 116) If a sole proprietorship fails, the owner may lose whatever was invested in the business, however, the owner's personal assets are not at risk. FALSE Sole proprietors have unlimited liability for the debts of their business. This means that if their business gets into financial trouble they can lose their personal assets. AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 2: Understanding of concepts and principlesNickels - Chapter 05 #18Topic: Sole Proprietorship 519. (p. 115) If the business is designated a sole proprietorship, profits are passed along to the owner. For tax purposes, these profits are accounted for with any other personal income the owner may have accumulated and taxed at the owner's personal income tax rate. TRUE The profits of a sole proprietorship are passed through to the owner, and taxed at the owner's personal tax rate. However, owners do have to pay self employment tax (Social Security and Medicare). By law, sole proprietors are required to estimate their taxes and make quarterly payments to the government or suffer penalties for nonpayment. AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 2: Understanding of concepts and principlesNickels - Chapter 05 #19Topic: Sole Proprietorship 20. (p. 116) A difficulty that sole proprietors try to overcome is the fact that they have trouble competing with large firms for expert talent. Large firms can usually pay better and offer fringe benefits that are unaffordable to the sole proprietor. TRUE Sole proprietors often find it difficult to attract qualified employees to help run the business because often they cannot compete with the salary and benefits offered by larger companies. AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 2: Understanding of concepts and principlesNickels - Chapter 05 #20Topic: Sole Proprietorship 21. (p. 116) Unlike partnerships, if sole proprietorships find themselves in bankruptcy, they need not worry about a court of law requiring them to sell-off personal assets to pay for the debts of the firm. FALSE Sole proprietorships have unlimited liability. This means that the proprietor is financially responsible for all debts incurred by the company. In a court of law, a judge could require the owner/proprietor to liquidate personal assets to pay the debts of the business. AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-1Level of Learning 2: Understanding of concepts and principlesNickels - Chapter 05 #21Topic: Sole Proprietorship 622. (p. 115) Eric wants to start a business. He is attracted to the idea of being his own boss, and wants to get started with a minimum of expense and hassle. He is confident in his abilities, and the market he can draw from, so he is not particularly worried about financial risks. All of these factors suggest that Eric may favor starting his business as a sole proprietorship. TRUE People who want to be their own boss often prefer to operate their business, at least initially, as a sole proprietorship. An advantage of the sole proprietorship is that it is a relatively easy and inexpensive form of business to set up. One drawback of a sole proprietorship is that the owner has unlimited liability. However, at this time, Eric is not worried about risk. The unlimited liability factor does not appear to be a problem for him. AACSB: Reflective ThinkingBlooms: ApplicationLearning Goal: 05-1Level of Learning 3: Application of principlesNickels - Chapter 05 #22Topic: Sole Proprietorship 23. (p. 115-116) Sandy Beech, a talented fashion designer who wants to start her own women's swimwear and beach towel line is trying to decide which form of business ownership is right for her. As a young mother who aspires to send her children to college some day, she does not want to jeopardize her savings account in any way. In order to overcome these risks, Sandy should start her business as a sole proprietorship. FALSE Sandy is concerned about the risk of losing personal assets if her business does not succeed. Although the sole proprietorship is easy to set-up, it may not be the best form of business ownership for Sandy due to her need to protect personal assets. She may want to consider a form of ownership that provides limited liability. AACSB: Reflective ThinkingBlooms: ApplicationLearning Goal: 05-1Level of Learning 3: Application of principlesNickels - Chapter 05 #23Topic: Sole Proprietorship 724. (p. 116) Rocky Rhodes is convinced that he has a great idea for a new business. Unfortunately, the type of business he wants to start would require a fairly high initial investment and Rocky has a poor credit rating and very little personal wealth. Rocky would be unlikely to find success if he organized his business as a sole proprietorship. TRUE Funds available to sole proprietorships are often limited to the amount the owner can raise. Thus, Rocky's business would probably have a hard time raising enough money if he organized it as a sole proprietorship. AACSB: Reflective ThinkingBlooms: ApplicationLearning Goal: 05-1Level of Learning 3: Application of principlesNickels - Chapter 05 #24Topic: Sole Proprietorship 25. (p. 117) A general partner takes an active role in the management of the business. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #25Topic: Partnerships 26. (p. 117) All partners in a general partnership have limited liability for the debts of their firm. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #26Topic: Partnerships 27. (p. 117) In a general partnership, all partners share in management of the business and in the liability for the firm's debts. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #27Topic: Partnerships 828. (p. 117) In a general partnership, all partners are entitled to an equal share of the firm's profits. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #28Topic: Partnerships 29. (p. 117) Limited partnerships are just like general partnerships, except that they are partners for a limited time period. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #29Topic: Partnerships 30. (p. 117) A limited partner is an owner who assumes no management responsibility and has no liability for losses beyond the amount invested. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #30Topic: Partnerships 31. (p. 117) A limited partnership consists of one or more general partners and one or more limited partners. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #31Topic: Partnerships 932. (p. 117) Although shares of master limited partnerships can be purchased on one of the national stock exchanges, these companies are taxed like partnerships. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #32Topic: Partnerships 33. (p. 118) The Uniform Partnership Act is law in every state except Louisiana. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #33Topic: Partnerships 34. (p. 118) According to the Uniform Partnership Act, the three key elements of any general partnership are (1) shares of stock to represent ownership, (2) limited liability, and (3) ease of ownership transfer. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #34Topic: Partnerships 35. (p. 118) According to the Uniform Partnership Act, the three key elements of any general partnership are (1) common ownership, (2) shared profits and losses, and (3) the right to participate in managing the operations of the business. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #35Topic: Partnerships 1036. (p. 118) A recent study showed that partnerships are more likely to fail than sole proprietorships. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #36Topic: Partnerships 37. (p. 117) 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. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #37Topic: Partnerships 38. (p. 119) One of the major disadvantages of a partnership is that profits must be divided equally. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #38Topic: Partnerships 39. (p. 117) A general partner has unlimited liability for the debts of the partnership only if he or she personally approved the decisions that resulted in those debts. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #39Topic: Partnerships 1140. (p. 119) In order to protect all parties and minimize misunderstandings among partners, all terms of the partnership should be spelled out in writing. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #40Topic: Partnerships 41. (p. 118) One advantage of a partnership is that there is a simple process for partners to terminate their business. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #41Topic: Partnerships 42. (p. 118) Compared to sole proprietorships, an advantage of partnerships is their ability to obtain more financial resources. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #42Topic: Partnerships 43. (p. 119) 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. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #43Topic: Partnerships 1244. (p. 118) Compared to sole proprietorships, partnerships offer the advantage of shared management and pooled knowledge. TRUE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #44Topic: Partnerships 45. (p. 117) A limited partnership refers to a partnership set up for a temporary purpose, such as a real estate development project. FALSE AACSB: Reflective ThinkingBlooms: KnowledgeLearning Goal: 05-2Level of Learning 1: Knowledge of key termsNickels - Chapter 05 #45Topic: Partnerships 46. (p. 117) In a limited partnership, the general partners should encourage the limited partners to take a more active role in the operations of the business. After all, the limited partner has comparable liability in the business, even though he/she may not be a partner for as long a period of time as the general partners. FALSE By definition, a limited partnership will consist of one or more general partners and one or more limited partners. The limited partners are passive investors. By law, they do not take an active role in the management of the business, yet they may share in the profits of the business and remain a partner for as long as the partnership exists. AACSB: Reflective ThinkingBlooms: ComprehensionLearning Goal: 05-2Level of Learning 2: Understanding of concepts and principlesNickels - Chapter 05 #46Topic: Partnerships 1347. (p. 119) If a partner in a limited partnership dies, the partnership ceases to exist. TRUE If a partner in any partnership dies, the partnership agreement automatically ceases to exist. Good partnership agreements usually have provisions for these situations. AACSB: Reflective ThinkingBlooms: ComprehensionLearning Goal: 05-2Level of Learning 2: Understanding of concepts and principlesNickels - Chapter 05 #47Topic: Partnerships 48. (p. 119) In the Spotlight on Small Business box, titled, "Pick Your Partners Wisely", the writer suggests that potential partners discuss the types of skills that each brings to the business. Partners with complimentary skills may enhance the business. TRUE It is suggested that you ask yourself what types of skills you and your potential partners bring to the business, and whether those skills compliment each other. Successful partners often come with varying backgrounds. Sometimes one partner will have the technical skills to get the job done, while others might have the business or accounting knowledge. AACSB: Reflective ThinkingBlooms: ComprehensionLearning Goal: 05-2Level of Learning 2: Understanding of concepts and principlesNickels - Chapter 05 #48Topic: Spotlight on Small Business box 49. (p. 119) One method to avoid conflicts between partners is to solicit the services of a lawyer to create a well- written partnership agreement. TRUE One of the most important tasks to achieve before forming a partnership is to create a partnership agreement. The partnership agreement addresses a number of rules that will govern the activities of the partnership including but not limited to: the duties of each partner; the rules for adding partners; contributions by each partner; and, how profits will be distributed. AACSB: Reflective ThinkingBlooms: ComprehensionLearning Goal: 05-2Level of Learning 2: Understanding of concepts and principlesNickels - Chapter 05 #49Topic: Partnerships; Figure 5.2 1450. (p. 119) According to the Spotlight on Small Business box, titled, "Pick Your Partners Wisely", attributes such as trust and integrity are not something you should get overly concerned about when selecting partners, due to the fact that this is a business decision, not a friendly game of golf. FALSE Prospective partners should concern themselves with several aspects of the business relationship, including the values shared by partners who are entering into business together. Others things that you should ask yourself is whether the partners share the same goals and whether each partner's skills compliments the others. AACSB: Reflective ThinkingBlooms: ComprehensionLearning Goal: 05-2Level of Learning 2: Understanding of concepts and principlesNickels - Chapter 05 #50Topic: Spotlight on Small Business box 51. (p. 118-119) The fairest way to handle profits in any partnership arrangement is to divide things evenly. If there are two owners in the business, each gets 50%. If there are three owners (even if one is a limited partner), each gets 33.333% of any accumulated profits. FALSE The partnership agreement should stipulate the way the business plans to share the profits. The partnership may not necessarily divide the profits equally among members. Several criteria may enter into the decision of how to share profits, including the expertise of each partner, the investment amount of each partner, and the amount of time each partner spends in the business. AACSB: Reflective ThinkingBlooms: ComprehensionLearning Goal: 05-2Level of Learning 2: Understanding of concepts and principlesNickels - Chapter 05 #51Topic: Partnerships; Figure 5.2 52. (p. 117) Ted and Mark are partners in a dry cleaning business. They would like their brother Todd to join them. Unfortunately, partnership law states that only two partners can participate in a partnership. FALSE A partnership consists of two or more owners. Unless explicitly written in the original partnership agreement, the partnership can add partners. AACSB: Reflective ThinkingBlooms: ApplicationLearning Goal: 05-2Level of Learning 3: Application of principlesNickels - Chapter 05 #52Topic: Partnerships 15