Deck 7: Entrepreneurship and Business Ownership

Question 1

The sole proprietor faces a disadvantage of limited liability.

Answer 1

False

Question 2

A business can have more than two partners.

Answer 2

True

Question 3

A corporation exists as a separate legal entity that can be sued.

Answer 3

True

Question 4

A share of stock represents a claim on the assets of all the partners.

Question 5

The value of a corporation typically rises when stockholders allow the corporation to reinvest its profit rather than pay out dividends.

Question 6

A more conservative stockholder will choose to hold preferred stock rather than common stock.

Question 7

People who own preferred stock have voting privileges in the corporation.

Question 8

A U.S. international corporation will produce in other countries if costs are lower there.

Question 9

The top four U.S. multinational corporations are oil companies.

Question 10

Stock owners have claims on the assets and earnings of the firm in proportion to the percentage of total stock they own.

Question 11

Stock owners have a claim to the assets and earnings of the corporation and are liable for all of the corporation's debts.

Question 12

A dividend is the net income stockholders receive from the corporation.

Question 13

Convertible stockholders are paid dividends before common and preferred stockholders.

Question 14

The order of payment of corporate earnings is bondholders, preferred stockholders, convertible stockholders, and finally common stockholders.

Question 15

A management plan to buy back corporate stock in the event of a threatened takeover is one form of shark repellent.

Question 16

A white knight is often sought by the target of a potential takeover in order to force the shareholders to settle for lower dividends.

Question 17

Shark-repellent refers to a class of activities utilized to take over attractive corporations.

Question 18

Typically, as a member of an employee pension plan, you indirectly become stockholder.

Question 19

A multinational corporation sells its goods in many countries but manufactures them in only one.

Question 20

A sole proprietorship with unlimited liability and full control over daily operations is one form of business ownership.

Question 21

If a corporation earns a profit, dividends must be paid.

Question 22

A sole proprietorship produces only one good.

Question 23

Almost one-half of corporate stock in the United States is owned by people whose annual income exceeds $100,000.

Question 24

Sole proprietorships are permitted to operate in only one country.

Question 25

The sheer number of corporations vastly outnumbers proprietorships in the United States.

Question 26

A bondholder is a stockholder who owns bonds.

Question 27

A major advantage of the corporate form of business organization is the added decision-making authority of the owners.

Question 28

A major advantage to owners of convertible stock over preferred stock is that they are the first claimants to the corporation's dividends.

Question 29

A major advantage to owners of preferred stock over common stock is that owners of preferred stock have voting rights.

Question 30

Prediction of stock share prices is relatively straightforward, given information about corporate earnings and number of shareholders.

Question 31

The Little Man's Ice Cream Company sells ice cream in 5 countries from its small production facility in rural Vermont. According to economic definitions, this firm should be eligible for the "multinational business of the year" award.

Question 32

The value of any business is largely determined by the size of the dividend it pays its shareholders.

Question 33

Indirect stock ownership is used to hide information about actual stock ownership for purposes of income tax evasion.

Question 34

Only a small proportion of corporate stock owners have incomes under $100,000.

Question 35

A family-owned business is likely to have a higher degree of control over management decisions than a corporation.

Question 36

McSweed Cleaning Co. is a partnership between Tom McSweed and his wife's accountant. The accountant provided $40,000 in initial start-up capital (along with record keeping services) to Tom's provision of day-to-day staff coordination and back-breaking work. They recently shut down with $45,000 in debt after selling the business assets. For how much debt is each partner responsible?

A) $45,000
B) an equal share
C) proportionate to their initial investment
D) none
E) $5,000 for Tom and $40,000 for the accountant

Question 37

In the event that the business fails, sole proprietors

A) retain the assets of the business and write off its liabilities
B) lose only those assets associated with the business
C) pass the losses on to the shareholders
D) face unlimited personal liability
E) only lose the value of his/her stock

Question 38

Unlimited liability explains why

A) bondholders don't buy stock
B) many proprietors are reluctant to expand their businesses
C) banks are reluctant to lend money to corporations
D) sole proprietors prefer not to incorporate
E) many businesses go bankrupt

Question 39

A major difference between a partnership and proprietorship is that with a partnership,

A) the liability for each individual is limited by the wealth of the others
B) the liability for each partner is proportionate to his or her investment
C) profits increase with each new partner
D) the business has greater investment resources than proprietorships
E) only the shareholders face losses

Question 40

The distribution of profits among partners is determined by the

A) government's regulations
B) partnership agreement
C) financial contribution each makes to the business
D) limits of their liability
E) quantity of stock each owns

Question 41

A shark repellent activity is designed to __________ in order to secure the position of the___________.

A) thwart competitors; shareholders
B) protect managers; suitors
C) lure white knights; managers
D) thwart takeovers; managers
E) thwart takeovers; shareholders

Question 42

Which of the following conditions is least likely to make a corporation a takeover target?

A) high asset-to-liability ratio
B) little stock owned by corporate management
C) few shares owned by the corporation
D) a nonmanagement group of owners of significant shares
E) satisfaction with corporate earnings and direction

Question 43

Bonds are preferred to stock by individual investors who

A) need to have immediate access to their money
B) don't think the business is profitable
C) prefer a guaranteed lower return to a risky higher return
D) prefer a risky higher return to a guaranteed lower return
E) prefer dividends to interest payments

Question 44

The upper limit on the value of a share of common stock is

A) nonexistent
B) the value of preferred stock plus dividends
C) the return rate on corporate bonds
D) the dividends accumulated over the life of the business
E) the value of stocks of similar firms

Question 45

Which of the following is an advantage that a sole proprietorship has over all other types of firms?

A) unlimited liability
B) easy access to capital markets
C) all decision making belongs to the owner
D) shared liabilities
E) small scale of operation

Question 46

The major difference between partnerships and proprietorships is

A) the limit to liability
B) the opportunity to sell shares
C) the reduced cost of capital
D) shared responsibility and profit
E) tax advantages

Question 47

One of the reasons that successful proprietors may be reluctant to borrow money from a bank to expand their business is that

A) expanded businesses generally generate lower rates of profit
B) the bank would become a part owner
C) unlimited liability cramps ambition
D) the bank's liability insurance isn't sufficient to cover expected liabilities
E) issuing stock to finance the expansion is less costly

Question 48

Ownership of a corporation is divided into shares that are claims on the firm's__________ and these shares are also referred to as ____________.

A) assets and liabilities; bonds
B) assets and liabilities; stocks
C) liabilities and earnings; stocks
D) assets and earnings; stocks
E) assets and earnings; bonds

Question 49

A corporate bond is issued when a corporation ____________ and promises to pay____________.

A) sells stocks; future profit
B) sells stocks; agreed upon interest
C) sells common shares; future profit
D) borrows money; the principal and interest
E) lends money; the principal and interest

Question 50

A sole proprietorship is typically a relatively small business because

A) its operations must stay within state borders
B) it is operated out of the proprietor's home
C) there are no employees, only working family members
D) there are no bank loans available for expansion
E) expansion often requires a partner or conversion to another form of business organization

Question 51

If two partners have a firm with more debt than assets,

A) the business is a success
B) the partners are equally liable for the debt
C) there is a limit to their personal liability
D) each one's liability is limited to the investment made in the business
E) the burden of debt is proportionate to the partners' original investment

Question 52

One of the costs of shifting from a business form that has unlimited liability to one that has limited liability is the

A) reduction in profit levels
B) loss of expansion opportunity
C) loss of a white knight
D) loss of complete control over all aspects of the business
E) unlimited debt potential

Question 53

A corporation is not

A) a legal identity separate from shareholders
B) eligible to issue stock as a method of acquiring capital to expand operations
C) allowed to file for bankruptcy protection
D) a business form allowing owners to earn income
E) a business organization whose ownership is the same as management

Question 54

If a proprietorship converts to a corporation form of business organization, it gives up control of day-to-day operations to the

A) bondholders
B) shareholders
C) owners
D) management
E) board of directors

Question 55

If a corporation does not distribute profit to its stockholders, it might be that

A) no profit was earned by the corporation
B) profit was used to pay out dividends
C) the corporation has no stockholders
D) its losses were as large as its profit
E) profit was used to pay its board of directors, the first claimants to corporate profit

Question 56

Corporate profits that are not reinvested in the corporation are distributed to

A) consumers in the form of lower prices
B) management and bondholders
C) management and the board of directors
D) shareholders in the form of interest
E) shareholders in the form of dividends

Question 57

Which of the following is a disadvantage that proprietorships face and corporations do not?

A) company size too big to manage effectively
B) access to familiar and even family labor
C) owners' control over day-to-day operations
D) double taxation
E) unlimited liability

Question 58

The major difference between a proprietorship and a partnership is the

A) double taxation laws
B) change in the liability of the owners
C) profit earned
D) number of owners
E) ownership control over day-to-day operations

Question 59

Which of the following does not provide the corporation access to capital financing?

A) issuing new preferred stock
B) paying shareholder dividends
C) acquiring a bank loan
D) issuing new corporate bonds
E) issuing new common stock

Question 60

Who receives corporate interest before any disbursement of profit is made to others?

A) employees
B) management
C) shareholders
D) banks
E) bondholders

Question 61

Suppose you decide to set up your fishing enterprise as a corporation. The first thing you need to do is

A) issue stock
B) determine dividend levels
C) become a stockholder
D) obtain a charter from your state government
E) notify insurers of your liability

Question 62

A corporation has sold 1,000 shares of stock at a value of $100 each. Bob is a stockholder. If the corporation fails and has $3 million dollars of debt and only $500,000 in assets, what is the most Bob can lose if Bob owns 25 shares of stock?

A) $100
B) $250
C) $1,000
D) $2,500
E) 0

Question 63

The difference between a sole proprietorship and a partnership is

A) a partnership is a separate legal being apart from its owners
B) ability to issue stock
C) limited liability
D) the distribution of dividends
E) the number of owners

Question 64

Unlimited liability applies

A) to partnerships and sole proprietorships
B) only to partnerships
C) only to sole proprietorships
D) only to corporations
E) to corporations and partnerships

Question 65

If a business is run as a sole proprietorship,

A) it is not allowed to borrow money
B) the financial liability of the owner is limited to the amount invested in the business
C) all of the profits earned in the business flow to the proprietor
D) at least two persons are involved in all management decisions
E) it cannot hire nonfamily members to work in the business

Question 66

If a sole proprietor is forced to liquidate and business debts exceed business assets,

A) the maximum liability of the proprietor is limited to the amount invested in the business
B) the proprietor's business assets and only the financial portion of personal assets can be taken to cover business debts
C) the proprietor has no liability for any of the business debts
D) the proprietor's business and personal assets can be taken to cover business debts
E) only the proprietor's profit from the business can be used to cover business debts

Question 67

Which of the following would be an advantage of a sole proprietorship?

A) ability to raise money by issuing stock
B) the sharing of risk with other investors
C) limited liability
D) unlimited liability
E) one person can make all decisions

Question 68

Which of the following would be a disadvantage of a sole proprietorship?

A) limited liability
B) limited ability to raise funds to expand business
C) too many people involved in decision making
D) inability to produce more than one product
E) inability to advertise

Question 69

In a sole proprietorship

A) only one product can be offered for sale
B) only family members can be employed in the business
C) the business cannot expand unless it becomes a partnership
D) one person owns the business
E) stock can be issued to raise money for the business

Question 70

In a partnership form of business

A) all, except one partner, are subject to limited liability
B) the business must operate in at least two countries
C) at least two different products must be produced
D) the partner who owns the majority of stock makes all of the important managerial decisions
E) profits are shared by the partners

Question 71

Which of the following would be an advantage of the partnership form of business?

A) limited liability
B) unlimited liability
C) ability to raise money by issuing stock
D) ability to bring talents and money together
E) all of the profits earned flow to one person

Question 72

Which of the following would be a disadvantage of the partnership form of business?

A) limited liability
B) too many products
C) unlimited liability
D) profits flow directly to the one person responsible for creating it
E) one person must make all of the important managerial decisions

Question 73

Joe and Frank are partners in a delivery business. Their only business asset is the truck they use for deliveries, which is jointly owned by the partners. Frank, while on a business run, speeds through a red light, hits a car, and causes personal injury to the car owner of $150,000. In the apportionment of liability for this injury among the partners

A) the most that could be taken from Joe is his half-ownership in the truck
B) the most that can be taken from Joe is $75,000
C) Joe is not liable at all since he was not the driver
D) Joe could be required to pay the full $150,000 in damages
E) Joe would be liable only for the amount of profit earned in the trucking business

Question 74

Which of the following distinguishes corporations from the other forms of business organization?

A) Corporations can issue stock.
B) Corporations are permitted to operate in other countries.
C) Corporations can produce more than one product.
D) Corporations can offer both products and services.
E) Corporations are subject to unlimited liability.

Question 75

Which form of business organization creates a separate legal being?

A) partnerships and proprietorships
B) only proprietorships
C) only partnerships
D) only corporations
E) corporations and partnerships

Question 76

The creation of a separate legal being implies the business

A) has an existence independent of its owners
B) is partially owned by the government
C) must abide by federal law
D) will be regulated by the government
E) does not have to abide by state law

Question 77

Which of the following is not found in the corporate form of business?

A) stocks
B) bonds
C) state charter
D) dividends
E) unlimited liability

Question 78

The portion of corporation profits received by shareholders is termed

A) stocks
B) bonds
C) dividends
D) interest
E) principal

Question 79

Common stock in a corporation represents a(n)

A) loan to the business
B) ownership interest in the business
C) investment in the business with a guaranteed interest return
D) investment in the business with a guaranteed profit return
E) gift to the corporation

Question 80

One difference in the creation of a corporation as opposed to other forms of business is that a corporation

A) requires the receipt of a state charter
B) must receive a federal charter
C) must have at least 10 employees
D) must operate in at least two states
E) must produce at least two products