978-0134083285 Chapter 1 Part 4

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20) Limited partnerships are not as prevalent as corporations because

A) limited partners can lose up to three times the amount they invested in the partnership if the business

goes bankrupt.

B) limited partnerships have the disadvantage of double taxation.

C) the general partner has no liability, making it difficult for the partnership to borrow money.

D) it is easier to transfer ownership by selling common stock than it is to sell partnership.

Keywords: Limited Partnership, Corporation

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

21) Which of the following is an advantage of the sole proprietorship?

A) limited liability for its owners

B) double taxation for its owners

C) no significant legal requirements for starting the business

D) easily transferred ownership

Keywords: Sole Proprietorship

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

22) Which of the following is NOT true for a limited partnership?

A) It has limited liability for its owners.

B) One general partner must exist who has unlimited liability.

C) Only the name of general partners can appear in the name of the firm.

D) Limited partners may sell their interest in the company.

Keywords: Limited Partnership, General Partner, Limited Partners

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

23) The true owners of the corporation are the

A) holders of debt issues of the firm.

B) preferred stockholders.

C) board of directors of the firm.

D) common stockholders.

Keywords: Stockholders, Corporation

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

24) In terms of the costs to organize each, which of the following sequences is correct, moving from

highest to lowest cost?

A) general partnership, sole proprietorship, limited partnership, corporation

B) sole proprietorship, general partnership, limited partnership, corporation

C) corporation, limited partnership, general partnership, sole proprietorship

D) sole proprietorship, general partnership, corporation, limited partnership

Keywords: Organizational Form

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

25) Which of the following categories of owners enjoy limited liability?

A) all partners in a limited partnership

B) common shareholders of a corporation

C) in a partnership, only the general partners

D) only B and C above

Keywords: Limited Liability, Organizational Form

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

26) Which of the following categories of owners have unlimited liability?

A) general partners in a limited partnership

B) sole proprietors

C) shareholders of a corporation

D) both A and B

Keywords: Unlimited Liability, Limited Partnership, Sole Proprietorship, Corporation

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

27) Which of the following are characteristics of a limited partnership?

A) Limited partners may not participate in the management of the limited partnership.

B) There must be one or more general partners.

C) General partners have unlimited liability.

D) all of the above

Keywords: Limited Partnership

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

28) Which of the following forms of organizations have earnings that are taxed twice, once as business

income and once as personal income as the earnings are distributed to the owners in the form of

dividends?

A) corporations

B) general partnerships

C) limited partnerships

D) both A and C

Keywords: Double Taxation, Corporation

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

29) Which of the following categories of owners have limited liability?

A) general partners

B) sole proprietors

C) shareholders of a corporation

D) both A and B

Keywords: Limited Liability, Organizational Form

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

30) Which of the following forms of business organizations provide limited liability to all its owners?

A) general partnership

B) limited partnership

C) corporation

D) both B and C

Keywords: Limited Liability, Organizational Form

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

31) All of the following forms of business organizations provide limited liability to all owners EXCEPT

A) limited liability company.

B) S-type corporation.

C) corporation.

D) limited partnership.

Keywords: Organizational Form, Limited Partnership, S-Type Corporation, Limited Liability Company

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

32) Which of the statements below are true?

A) The sole proprietorship and the general partnership both feature unlimited liability.

B) A corporation is the business form that is typically the most complicated (legally) to establish.

C) The corporation and the limited partnership both provide at least some owners with limited liability.

D) all of the above

Keywords: Sole Proprietorship, Legal Forms of Business

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

33) Advantages of the corporate form of business organization include

A) easier transfer of ownership.

B) double taxation.

C) minimal legal requirements.

D) none of the above

Keywords: Corporation, Organizational Form

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

34) Which form of organization is free of initial legal requirements?

A) sole proprietorship

B) general partnership

C) corporation

D) both A and B

Keywords: Organizational Form

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

35) Which of the following forms of business organization limits the liability of owners?

A) sole proprietorship

B) general partnership

C) corporation

D) two person partnership

Keywords: Organizational Form, Limited Liability, Corporation

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

36) Which of the following forms of business organization has the greatest ability to attract new capital?

A) sole proprietorship

B) corporation

C) general partnership

D) limited partnership

Keywords: Corporation, Organizational Form

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

37) Which of the following is NOT considered to be a disadvantage of the sole proprietorship form of

business organization?

A) limited ability to raise capital

B) life is limited to that of the owner

C) unlimited liability of business owners

D) fewer regulations and reporting requirements

Keywords: Sole Proprietorship, Organizational Form

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

38) Which of the following is an advantage of the general partnership form of business organization?

A) limited liability of business owners

B) low cost of formation

C) easy ability to raise capital

D) double taxation

Keywords: Organizational Form, Partnership

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

39) What are the primary differences among a sole proprietorship, a partnership, and a corporation?

Keywords: Organizational Form

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

40) Explain why large and growing firms tend to choose the corporate form.

Answer: The advantages of the corporation begin to dominate as the firm grows and needs access to the

capital markets to raise funds. Because of the limited liability, the ease of transferring ownership through

the sale of common shares, and the flexibility in dividing the shares, the corporation is the ideal business

entity in terms of attracting new capital.

Diff: 2 Page Ref: 16, 17

Keywords: Corporation, Advantages of Corporate Form

Learning Obj.: L.O. 1.4

AACSB: Reflective Thinking

Learning Objective 1.5

1) Due to unstable world markets, most large U.S. corporations do almost all of their business in the

United States.

Keywords: Multinational Firm

Learning Obj.: L.O. 1.5

AACSB: Reflective Thinking

2) Even though many U.S. companies, including General Electric, IBM, Walt Disney, and American

Express, have successfully restructured their operations to expand internationally, not many foreign

firms have made their mark in the United States.

Keywords: Multinationals

Learning Obj.: L.O. 1.5

AACSB: Reflective Thinking

3) In the search for profits, U.S. corporations have been forced to look beyond our country’s borders. All

of the following contributed to the movement EXCEPT

A) trade protectionism.

B) collapse of communism.

C) acceptance of the free market system in Third World countries.

D) information technology revolution.

Keywords: Multinationals

Learning Obj.: L.O. 1.5

AACSB: Reflective Thinking

4) What has brought on the era of the multinational corporation?

Keywords: Multinationals

Learning Obj.: L.O. 1.5

AACSB: Diverse and multicultural work environments

5) Has looking beyond U.S. borders been a profitable experience for U.S. corporations?

Keywords: Multinationals

Learning Obj.: L.O. 1.5

AACSB: Diverse and multicultural work environments