1) The ownership structure of a business includes the following forms ________.
A) individual, group, and corporate
B) sole proprietorship, partnership, and corporation
C) service, manufacturing, and financial
D) debtors, creditors, and owners
2) Which of the following is true about a sole proprietorship?
A) A sole proprietorship is a company owned by two or more individuals.
B) The owner’s liability is limited to the amounts invested in the business.
C) Income from a sole proprietorship is distributed to the owner in the form of a dividend.
D) The income from a sole proprietorship is taxed on the owner’s personal income tax return.
3) A partnership agreement ________.
A) exempts partners from unlimited liability
B) establishes the partnership as a separate legal entity
C) details how much work partners will do and how they will split up the profits
D) defines how many shares of stock the partnership may sell to investors
4) The two types of merchandising businesses include ________.
A) wholesale and retail
B) service and financial
C) manufacturing and retail
D) service and wholesale
5) The inputs of a firm include ________.
A) revenues
B) liabilities
C) inventory and supplies
D) All of these are correct.
6) A corporation ________.
A) is a legal entity separate from the owners
B) is a manufacturer and not a service organization
C) may cause unlimited liability for its shareholders
D) provides goods or services for the sole purpose of helping people
7) Corporations are ________.
A) for-profit businesses only
B) manufacturers and not service organizations
C) owned by shareholders
D) exempt from legal liability
8) Advantages of the corporate form of business organization include ________.
A) double taxation
B) limited liability for shareholders
C) separation of ownership and management
D) Two or more of these are correct.
9) Disadvantages of the corporate form of business organization include ________.
A) double taxation
B) limited liability for shareholders
C) separation of ownership and management
D) two or more of these
10) Which of the following is legally a separate entity from its owner(s)?
A) sole proprietorship
B) partnership
C) corporation
D) Two of these are correct.
11) The outputs of a firm are its ________.
A) capital contributions
B) services provided to customers
C) delivery of products to customers
D) Two or more of these are correct.
12) A service company ________.
A) is a wholesale business
B) manufactures goods
C) is a retail business
D) None of these are correct.
13) The four types of business are ________.
A) service, wholesale, retail, and financial
B) for profit, nonprofit, wholesale, and retail
C) service, merchandising, manufacturing, and financial services
D) financial, manufacturing, service, and wholesale
14) A manufacturing business ________.
A) will lend money to customers
B) buys goods for resale
C) provides services to its customers
D) makes the products it sells
15) Financial services companies ________.
A) deal in services related to money
B) sell insurance to their customers
C) lend money to consumers to pay for cars and houses
D) All of these are correct.
16) A business in the form of a sole proprietorship ________.
A) is separate and distinct from its owner
B) is a separate legal entity
C) files its own tax return
D) is a company with a single owner
17) A partnership ________.
A) is a business owned by two or more individuals
B) has owners who are legally liable for everything the company does
C) may be organized under a partnership agreement
D) is all of these
18) The owners of a corporation are called ________.
A) shareholders
B) partners
C) stockholders
D) two or more of these
19) Which of the following is true about a corporation?
A) Corporations must have a minimum of two or more shareholders.
B) Each individual shareholder has individual legal responsibility for the corporation’s actions.
C) Corporations are exempt from taxes; however, the shareholders are required to pay taxes on
dividends received.
D) Managers of corporations can be held responsible for the actions of the corporation.
20) Stock sold for the first time is called ________.
A) issued
B) traded
C) capital
D) dividends
21) Stock may be purchased ________.
A) on a stock exchange
B) on the internet
C) from a stockbroker
D) from more than one of these
22) The stock market is ________.
A) located in New York City
B) the general term used to refer to all stock exchanges
C) where the IRS is located
D) where businesses become incorporated
23) The law firm of Doolittle and Baroque is an example of a ________ firm.
A) service
B) merchandising
C) manufacturing
D) financial services
24) The governmental agency that monitors the stock market and the financial reporting of firms
that trade in the market is the ________.
A) Financial Accounting Standards Board (FASB)
B) Internal Revenue Service (IRS)
C) Public Company Accounting Oversight Board (PCAOB)
D) Securities and Exchange Commission (SEC)
25) A business form in which the partners are not personally liable for the malpractice of any of
the other partners is called a ________.
A) corporation
B) limited liability partnership
C) modified sole proprietorship
D) partnership
26) Huntington Bank is an example of a ________ firm.
A) service
B) merchandising
C) manufacturing
D) financial services
27) Target is an example of a ________ firm.
A) service
B) merchandising
C) manufacturing
D) financial services
28) Toyota is an example of a ________ firm.
A) service
B) merchandising
C) manufacturing
D) financial services
29) Dell Inc.’s distribution of earnings to owners is called dividends. Dell must be a ________.
A) sole proprietorship
B) partnership
C) corporation
D) sole proprietorship or partnership
30) For which organization is there double taxation?
A) sole proprietorship
B) partnership
C) corporation
D) sole proprietorship, partnership and corporation
31) For which organization is ownership represented by shares of stock?
A) sole proprietorship
B) partnership
C) corporation
D) sole proprietorship and partnership
32) For which organization are the personal assets of the owners at risk?
A) sole proprietorship
B) partnership
C) corporation
D) sole proprietorship and partnership
33) For which organization are owners typically separate from managers and not involved in the
day-to-day operations, sometimes resulting in managers making decisions that are not in the best
interest of the owner(s)?
A) sole proprietorship
B) partnership
C) corporation
D) sole proprietorship and partnership
34) Ira Roth, CPA, is an example of a ________.
A) sole proprietorship
B) partnership
C) corporation
D) not-for-profit
35) Target is an example of a ________.
A) sole proprietorship
B) partnership
C) corporation
D) not-for-profit
36) Doolittle & Daley, attorneys at law, is an example of a ________.
A) sole proprietorship
B) partnership
C) corporation
D) not-for-profit
37) The United Way is an example of a ________.
A) sole proprietorship
B) partnership
C) corporation
D) not-for-profit
38) Which of these businesses pays federal income taxes on its income?
A) corporation
B) partnership
C) sole proprietorship
D) Two of these are correct.
39) Which type of business organization exposes its owner(s) to unlimited liability?
A) corporation
B) partnership
C) sole proprietorship
D) Two of these are correct.
40) Which type of business organization finds it easiest to raise large amounts of capital?
A) corporation
B) partnership
C) sole proprietorship
D) Two of these are correct.
41) When starting a business you should first ________.
A) write a business plan
B) borrow from creditors
C) purchase inventory
D) become incorporated
42) Double taxation occurs because businesses pay ________.
A) sales tax and income tax
B) property taxes and income taxes
C) taxes on net income, and owners pay taxes on the remaining net income distributed as
dividends
D) social security taxes for employees, and employees also pay the same amount for themselves
43) Limited legal liability for owners is a characteristic of ________.
A) sole proprietorships
B) partnerships
C) corporations
D) not-for-profits
44) Which organization should keep its financial records separate from the personal financial
affairs of the owner(s)?
A) sole proprietorship
B) partnership
C) corporation
D) All of these are correct.
45) In which of the following are the owners’ or owner’s personal assets at risk if the business
does not have enough money to pay its liabilities?
A) sole proprietorship
B) partnership
C) corporation
D) Two of these are correct.
46) The stock exchange is ________.
A) where companies may issue stock
B) regulated by the Securities and Exchange Commission (SEC)
C) where buyers and sellers exchange their shares of stock.
D) All of these are correct.
47) In 2012, Baroque, Inc., a U. S. corporation, earned profits of $200,000 before taxes. After
paying federal income taxes of 30%, all of Baroque’s after-tax income was paid to its only
shareholder. The federal income tax rate on corporate dividends is 15%. How much tax will
Baroque’s shareholder pay on these dividends?
A) $21,000
B) $30,000
C) $60,000
D) $102,000
48) Use this financial statement to answer the following question:
Cash $ 3,000 Liabilities $ 2,500
Accounts receivable 2,000
Inventory A Common stock B
Supplies 1,000 Retained earnings 500
Total $10,000 Total C
This business must be organized as a ________.
A) sole proprietorship
B) partnership
C) corporation
D) Two of these are possible.
49) Profit is the difference between assets and liabilities.
50) All businesses are formed to create something of value from scratch.
51) A business is formed to provide goods or services for the purpose of making a profit for its
owner or owners.
52) A sole proprietorship is a company with a single owner.
53) A corporation must be owned by two or more people.
54) Profit is the difference between sales and revenues.
55) Profit is the difference between revenues and expenses.
56) The Internal Revenue Service (IRS) is the governmental agency that monitors the stock
market and the financial reporting of publicly held companies.
57) The Securities and Exchange Commission (SEC) is the governmental agency that monitors
the stock market and the financial reporting of publicly held companies.
58) The main purpose of a not-for-profit business is to add value to a product or service in order
to make a profit.
59) Wal-Mart is an example of a merchandising corporation.
60) Wal-Mart is an example of a service corporation.
61) A sole proprietorship has more than one owner.
62) Identify the three forms of business organization.
63) What is the purpose of a business?
64) Match each of the following terms with the appropriate definition. Each term is to be used
only once.
a. Capital
b. Securities and Exchange Commission (SEC)
c. Stock
d. For-profit company
e. Dividends
f. Not-for-profit organization
g. Stock exchange
_____ 1. Distribution of earnings to the owners of the corporation
_____ 2. The financial resources to start a business
_____ 3. Units of ownership in a corporation
_____ 4. A market place where buyers and sellers of shares of stock exchange their shares
_____ 5. Governmental agency that monitors the stock market and the financial reporting of
the firms that trade in the market
_____ 6. An organization that exists to provide goods and services to a target group at a
reduced cost or no cost
_____ 7. A company with the goal of maximizing the owners’ wealth
65) Match each of the following terms with the appropriate definition. Each term is to be used
only once.
a. Partnership
b. For-profit company
c. Not-for-profit organization
d. Sole proprietorship
e. Corporation
_____ 1. A company with a single owner
_____ 2. The owners of this type of organization are taxed when distributions to shareholders are
again taxed as individual income
_____ 3. A company owned by two or more individuals
_____ 4. An organization that exists to provide goods and services to a target group at a reduced
cost or no cost
_____ 5. A company with the goal of maximizing the owners’ wealth
66) Match each of the following businesses with the appropriate type of business. Each type is
used only once.
a. Sole proprietorship
b. Partnership
c. Corporation
_____ 1. Doolittle & Baroque Legal Services
_____ 2. B. Rich’s Grocery Store
_____ 3. Sony, Inc.
67) Match each of the following firms with the one type of business it is considered to be. Each
firm can be only one type of business.
a. Service
b. Merchandising
c. Manufacturing
d. Financial services
_____ 1. Bug-a-boo Pest Control
_____ 2. Toyota
_____ 3. American Express
_____ 4. Huntington Bank
_____ 5. Abercrombie & Fitch
_____ 6. Merry Maids
68) Match each of the following firms with the one type of business it is considered to be. Each
firm can be only one type of business.
a. Service
b. Merchandising
c. Manufacturing
d. Financial services
_____ 1. Patel Dry Cleaners
_____ 2. American Express
_____ 3. Honda
_____ 4. Kmart
_____ 5. Boeing
69) Indicate which form of organization is associated with each of the following by putting an
“X” in the appropriate column. More than one form may apply to each.
Characteristics: Sole Proprietorship Partnership
Corporation
1. Owners are typically separate from managers and not involved in the day-to-day operations.
Thus, managers may make decisions that are not in the best interest of the owner(s).
2. There is double taxation.
3. Ownership is represented by shares of stock.
4. The personal assets of the owners are at risk.
5. The company’s distribution of earnings to owners is called dividends.
70) Indicate the form of organization with which each of the following characteristics is
associated by putting an “X” in the appropriate column. More than one form of organization may
apply to each.
Characteristic: Sole Proprietorship Partnership Corporation
1. The ownership is represented by shares of common stock.
2. The business pays federal income taxes.
3. The business exposes the owner(s) to unlimited liability.
Learning Objective 1-2
1) A person who starts his own business is considered ________.
A) a manager
B) an entrepreneur
C) a shareholder
D) a capitalist
2) The cost of borrowing money is called ________.
A) a financing activity
B) principal
C) interest
D) an investing activity
3) Team Shirts, Inc. pays $5,000 cash for T-shirts from a supplier. This transaction ________.
A) is a financing activity
B) causes an increase in total assets
C) is an operating activity
D) is an investing activity
4) Sara contributes $5,000 of her own money to start her business, Team Shirts, Inc. From Team
Shirts’ perspective, it ________.
A) gets cash and gives up stock
B) gets stock and gives up cash
C) gets ownership and gives up contributed capital
D) is an operating activity
5) Transactions can only occur between businesses.
6) Businesses receive contributed capital when customers pay for goods or services.
7) When a company repays a loan, both the principal and interest paid are financing activities.
8) The balance sheet shows the revenues and expenses for the period.
9) Morris Lest began his business, Graters, Inc. with $10,000 of his savings. Graters borrowed
$5,000 from Baroque Bank. Graters bought $3,000 worth of graters. The rent for the store is
$1,000 per month. The first month’s sales were $4,000 for inventory valued at $2,500. All of the
transactions were in cash. Identify the get/give transactions above, and determine if there is an
increase or decrease in assets, liabilities, or shareholders’ equity.
Get Give Total Assets Total Liabilities Shareholders’ Equity
Contributed capital Retained earnings
Ex. Cash Ownership +10,000 +10,000
10) Identify and describe the three types of business activities.
11) Match each of the following transactions with the appropriate business activity.
a. Operating activity
b. Investing activity
c. Financing activity
_____ 1. Purchase of equipment.
_____ 2. Sale of used equipment.
_____ 3. Sale of T-shirts to a customer.
_____ 4. Payment of advertising.
_____ 5. Issuance of stock.
_____ 6. Payment of dividends.
1) Revenues include ________.
A) the amount earned from providing goods to customers
B) the amount received from borrowing
C) the amount earned from providing services to customers
D) two or more of these
2) Audited financial statements have been examined by ________.
A) owners
B) Certified Public Accountants (CPAs)
C) Internal Revenue Service (IRS) agents
D) Securities and Exchange Commission (SEC) examiners