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Chapter 1
1. The objective of most businesses is to maximize profits.
a.
True
b.
False
2. A limited liability company combines attributes of a partnership and a corporation.
a.
True
b.
False
3. A partnership is owned by two or more individuals.
a.
True
b.
False
Chapter 1
4. Manufacturing businesses change basic inputs into products that are sold to individual customers.
a.
True
b.
False
5. Merchandising businesses produce products rather than provide services to customers.
a.
True
b.
False
Chapter 1
6. A corporation is a business that is legally separate and distinct from its owners.
a.
True
b.
False
7. The popularity of the sole proprietorship is due to the ease and low cost of organizing.
a.
True
b.
False
8. A primary disadvantage of corporations is that the financial resources available to them are limited.
a.
True
b.
False
9. The ownership of a proprietorship is divided into shares of stock owned by its stockholders.
a.
True
b.
False
Chapter 1
10. All merchandising businesses are organized as corporations.
a.
True
b.
False
11. Stockholders of a corporation are its internal stakeholders.
a.
True
b.
False
Chapter 1
12. John Deere is a leading manufacturer of agricultural machinery in the world producing products that serve unique
market needs. Therefore, John Deere is an example of a company that uses a premium-price emphasis to attract
customers.
a.
True
b.
False
13. A business stakeholder has an interest in the economic performance of a business.
a.
True
b.
False
Chapter 1
14. Companies using a low-cost emphasis provide products and services that compete on features other than price.
a.
True
b.
False
15. The basic type of stock issued to owners is called common stock.
a.
True
b.
False
Chapter 1
16. Assets are acquired through investing activities when resources are purchased.
a.
True
b.
False
17. Creditors have preference to assets behind stockholders if a business fails.
a.
True
b.
False
18. A liability is a legal obligation to repay the amount borrowed according to the terms of the borrowing agreement.
a.
True
Chapter 1
b.
False
19. Accounting is thought to be the "language of business" because business information is communicated to stakeholders.
a.
True
b.
False
20. The branch of accounting related to the management's financial decisions is known as financial accounting.
a.
True
b.
False
Chapter 1
21. The stockholders' equity of a company should equal the sum of its total assets and total liabilities.
a.
True
b.
False
22. The balance sheet represents the accounting equation.
a.
True
b.
False
Chapter 1
23. What is the primary objective of most businesses?
a.
To maximize profits
b.
To pay dividends to stockholders
c.
To provide a benefit to society
d.
To manufacture a quality product
24. Which of the following businesses buys products from other businesses to sell them to customers?
a.
A merchandising business
b.
A manufacturing business
c.
A service business
d.
An investment business
Chapter 1
25. Which of the items below is not a business organization form?
a.
Venture entrepreneurship
b.
Proprietorship
c.
Partnership
d.
Corporation
26. Which of the following types of business is popular for its ease and low cost of organizing?
a.
Not-for-profit
b.
Corporation
c.
Partnership
d.
Proprietorship
Chapter 1
27. Which of the following statements is true about a limited liability company?
a.
It is organized under state or federal statutes as a separate legal entity.
b.
Many professional practices such as lawyers, doctors, and accountants are organized as limited liability
companies.
c.
Its financial resources are limited to the individual owner's resources.
d.
The frequency of this form is due to the ease and low cost of organizing.
28. Under a _____, a business designs products that possess unique attributes or characteristics for which customers are
willing to pay more.
a.
premium-price emphasis
b.
outreach emphasis
c.
low-cost emphasis
d.
customer emphasis
Chapter 1
29. Which of the following is not a characteristic of a corporation?
a.
Corporations are organized as a separate legal taxable entity.
b.
Ownership is divided into shares of stock.
c.
Corporations experience an ease in obtaining large amounts of resources by issuing stock.
d.
A corporation can elect to be taxed as a partnership.
30. A corporation is an entity _____.
a.
that is organized according to state or federal statutes and in which ownership is divided into shares of stock
b.
that is known for its ease of formation
c.
that terminates its existence with the death of the owner
Chapter 1
d.
that pays tax on the owner's tax returns
31. A low-cost emphasis strives to provide:
a.
no-frills, standardized products and services.
b.
products and services that provide unique market needs.
c.
products and services that provide prestige and image for customers.
d.
products and services that compete on features other than price.
32. Which of the following businesses use a premium-price emphasis?
a.
Value City Furniture selling furniture at affordable prices
b.
Tommy Hilfiger selling products that have a unique image
Chapter 1
c.
Wal-Mart reselling standardized products
d.
Southwest Airlines providing standardized services
33. Motel 6, a company that helps customers find budget motels across the nation, is an example of a business using
which of the following?
a.
Low-cost emphasis
b.
Outreach emphasis
c.
Customer emphasis
d.
Premium-price emphasis
34. Which of the following is a business stakeholder?
Chapter 1
a.
A bank
b.
An employee
c.
A federal government
d.
All of these
35. _____ is an example of internal stakeholders.
a.
Managers
b.
Creditors
c.
Stockholders
d.
Suppliers
Chapter 1
36. Which of the following is not an example of a capital market stakeholder?
a.
Banks
b.
Owners
c.
Suppliers
d.
Stockholders
37. Capital market stakeholders have an interest in a company because:
a.
they collect taxes from the company.
b.
they depend upon the continued success of the company for keeping their jobs.
c.
they purchase the company's products or services or sell their products or services to the company.
d.
they provide major financing for the business.
Chapter 1
38. In the case of a failing company, the first claim to the company's assets lies with:
a.
the state governments.
b.
the creditors of the company.
c.
the owners of the company.
d.
the managers of the company.
39. The economic performance of a business is of importance to the government because:
a.
of tax collections.
b.
they sell their products to the business.
c.
of the amount owed by them to the business.
d.
all of these.
Chapter 1
40. The performance evaluation of the managers of a company is dependent on the company's:
a.
common stock.
b.
volatility.
c.
economic performance.
d.
nonrecurring activities.
41. Which of the following is incurred by a business when it borrows money?
a.
An accumulated depletion
b.
A liability
c.
A loss
d.
An accrued expenditure
