Test Chapter 5
56 multiple choice questions below.
Reference page given
Questions spread out—software set-up I have no control when editing.
Due:
Tuesday, Oct 7, 1 PM for remediation
Final submission Oct 9 Thursday, 1 PM
Use answer sheet for submittion.
Chapter 05
How to Form a Business
Multiple Choice Questions
1. 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
Answer:
Page: 116
AACSB: Reflective Thinking
Bloom’s: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Basic Forms of Business Ownership
2. ____________ comprise about 20% of all businesses but account for about 81% of U.S.
business receipts.
A. Corporations
B. Partnerships
C. Sole proprietorships
D. Limited liability companies
Answer:
Page: 116
AACSB: Reflective Thinking
Bloom’s: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Basic Forms of Business Ownership; Figure 5.1
3. The __________ is usually the easiest form of business to start and end.
A. sole proprietorship
B. limited partnership
C. corporation
D. cooperative
Answer:
Page: 117
AACSB: Reflective Thinking
Bloom’s: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Advantages of Sole Proprietorships
4. 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.
Answer:
Page: 118
AACSB: Reflective Thinking
Bloom’s: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Disadvantages of Sole Proprietorships
5. 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.
Answer:
Page: 117
AACSB: Reflective Thinking
Bloom’s: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Advantages of Sole Proprietorships
6. With respect to taxes, the sole proprietorship:
A. Pays taxes on the profits of the business at the same rate that corporations pay taxes.
B. Pays taxes on the profits of the business, at the owner’s personal tax rate.
C. Pays taxes only if there are no expenses associated with the business.
D. Is permitted to determine its own tax rate and schedule of payments.
Answer:
Page: 117
AACSB: Reflective Thinking
Bloom’s: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Advantages of Sole Proprietorships
7. 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.
Answer:
Page: 118
AACSB: Reflective Thinking
Bloom’s: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Disadvantages of Sole Proprietorships
8. 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.
Answer:
Page: 118
AACSB: Reflective Thinking
Bloom’s: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Disadvantages of Sole Proprietorships
9. 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.
Answer:
Page: 118
AACSB: Reflective Thinking
Bloom’s: Comprehension
Learning Goal: 05-1
Level of Difficulty 2: Understanding of concepts and principles
Topic: Disadvantages of Sole Proprietorships
Question 10 below
10. Which of the following statements is the most accurate? Sole proprietorships:
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. Is the least risky form of business ownership.
D. Must receive a state charter before they can legally conduct business.
Answer:
Page: 11
AACSB: Reflective Thinking
Bloom’s: Comprehension
Learning Goal: 05-1
Level of Difficulty 2: Understanding of concepts and principles
Topic: Advantages of Sole Proprietorships
Question 11 below
11. Being your own boss means:
A. Reducing your working hours.
B. Having the freedom to set your own working hours and taking lots of vacations,
particularly when just beginning the business.
C. Accepting accountability for the mistakes of the business.
D. Having limited financial resources to throw into the business.
Answer: C
Page: 117
AACSB: Reflective Thinking
Bloom’s: Comprehension
Learning Goal: 05-1
Level of Difficulty 2: Understanding of concepts and principles
Topic: Advantages of Sole Proprietorships
12. Maria has a lot of self-confidence and business knowledge. She recently opened a
bakery as a sole proprietor. She is expecting a high level of profits and is looking forward
to:
A. The lower corporate tax rate paid by sole proprietorships.
B. Keeping all of the money she earns except for the taxes she is required to pay.
C. Keeping all of the money she earns since she does not have to pay taxes as a sole
proprietor.
D. Easily raising additional large sums of money from the capital markets since she is a
sole proprietor.
Answer:
Page: 117
AACSB: Application
Bloom’s: Knowledge
Learning Goal: 05-1
Level of Difficulty 3: Application of principles
Topic: Advantages of Sole Proprietorships
13. Nick wants to start his own business. Nick should consider a sole proprietorship if he:
A. Expects rapid growth and want to be able to raise a large sum of money.
B. Wants to make it easy to attract qualified employees.
C. Wants to be his own boss and can accept unlimited liability.
D. Wants to minimize the financial risk he must accept as the owner of a business.
Answer:
Page: 117
AACSB: Reflective Thinking
Bloom’s: Application
Learning Goal: 05-1
Level of Difficulty 3: Application of principles