Question 1

A(n)________ is the most basic type of trust,which allows a business owner to put up to $1.3 million into trust,naming his spouse as the beneficiary upon his death.The spouse receives the income from the trust throughout her life,but the principal in the trust goes to the couple's heirs free of estate taxes upon the spouse's death.
A)grantor-retained annuity trust
B)family limited partnership
C)bypass trust
D)estate freeze

Accepted Answer

The type of trust described in the question is a bypass trust, also known as a credit shelter trust. It allows the business owner to utilize their estate tax exemption (currently $11.7 million) by putting up to $1.3 million into the trust, which would be excluded from their estate. The surviving spouse would receive the income from the trust throughout their life, but the principal would not be included in their estate upon their death, allowing it to pass to the couple's heirs estate tax-free.

Question 2

When building your management succession "survival kit,"
A)never assume your children want to take control of the business.
B)keep your succession choice a secret to avoid conflict among other family members.
C)remember that entrepreneurial skills and desire are largely hereditary.
D)you may assume your children want to take control of the business.

Accepted Answer

Never assume that your children want to take control of the business. It is important to have open and honest conversations with your family members to understand their goals and aspirations. This will help you make informed decisions about succession planning and avoid conflicts among family members.

Question 3

When transferring power in a management succession,the small business owner should do all but which of the following?
A)Tell the successor where all the critical documents are wills,trusts,insurance policies,etc.
B)Provide the successor with a list of advisers,people who have given you good advice in the past.
C)Be open to learn from as well as to teach the successor.
D)Transfer power quickly and step back,letting the successor run the business completely without any advice or interference by the owner.

Accepted Answer

Transferring power in a management succession should be done gradually and with caution, allowing time for the successor to learn and grow into their new role. Simply stepping back and letting the successor run the business completely without any advice or interference by the owner could lead to mistakes and negative consequences for the business.

Question 4

During the transfer of power,how should the owner deal with company problems and mistakes the successor makes?
A)Use them as a means for teaching.
B)Step in and fix them herself,to prevent damage to the company.
C)Explain how the owner would have handled it and insist it be done that way in the future.
D)Use them as an opportunity to maintain control for as long as possible.

Accepted Answer

Using mistakes and problems as a means for teaching can help the successor learn and grow in their role, ultimately benefiting the company in the long run. It also allows for a more collaborative approach to problem-solving and decision-making.

Question 5

A compensation system in which employees' pay depends on how well they perform their jobs is known as:
A)a profit-sharing plan.
B)open book management.
C)a pay-for-performance compensation system.
D)a commission compensation plan.

Accepted Answer

A pay-for-performance compensation system is the most appropriate choice since it is a system where employees are incentivized to perform better by receiving compensation in proportion to their job performance. This type of system is commonly used to motivate employees to contribute more to the organization and align employees' goals with the organization's goals. The other options, profit-sharing plan, open book management, and a commission compensation plan, do not necessarily link an employee's pay directly to their performance.

Question 6

A(n)________ attempts to minimize taxes on a family business passed from one generation to the next by creating two classes of stock one for the parents (preferred voting stock),whose value is locked in,and another for the children (nonvoting common stock),whose value reflects the market value of the business.
A)grantor-retained annuity trust
B)estate freeze
C)bypass trust
D)buy/sell agreement

Accepted Answer

An estate freeze attempt to minimize taxes on a family business passed from one generation to the next by creating two classes of stock one for the parents (preferred voting stock), whose value is locked in, and another for the children (nonvoting common stock), whose value reflects the market value of the business. This allows parents to retain control while also freezing the value of the business for estate tax purposes.

Question 7

An arrangement under which employees work a normal number of hours with options regarding when they start and stop work is:
A)hoteling.
B)flextime.
C)job sharing.
D)flexspace.

Accepted Answer

Flextime is an arrangement under which employees work a normal number of hours but have some options regarding when they start and stop work. This allows for greater flexibility and work-life balance for employees. Hoteling refers to a shared workspace where employees reserve space as needed, job sharing involves two or more employees sharing the responsibilities of a single full-time position, and flexspace refers to flexible office space arrangements.

Question 8

Entrepreneurs who are planning to retire often use two strategies:
A)sell to outsiders or arrange for an IPO.
B)assume the role of a silent partner or sell to nonfamily insiders.
C)sell to outsiders or sell to nonfamily insiders.
D)sell to outsiders or sell to relatives.

Accepted Answer

The two most common strategies used by entrepreneurs planning to retire are selling to outsiders or selling to nonfamily insiders. Selling to outsiders may involve finding a buyer who is interested in the business and negotiating a sale price. Selling to nonfamily insiders could mean selling to key employees or managers who understand the business and are interested in taking over ownership. Both strategies can provide the entrepreneur with the financial resources they need to retire while ensuring the continuity of the business. Assuming the role of a silent partner or selling to relatives may not necessarily provide the same benefits and may not be as effective in maintaining the success of the business. IPOs are also not typically used as a retirement strategy for entrepreneurs, as they are more complex and require a significant amount of preparation and capital.

Question 9

Maria is excited about the new opportunity her company has offered her she will be able to work from her home office with a company computer and a high speed internet connection while she spends time with her newborn son.This is possible because of the implementation of:
A)telecommuting.
B)hoteling.
C)job sharing.
D)job rotation.

Accepted Answer

Telecommuting refers to the practice of working from a remote location, typically from one's home. In this scenario, Maria will be able to work from her home office with company-provided equipment and internet connection. Therefore, the implementation that has made this possible is telecommuting. Hoteling refers to the practice of sharing office space or workstations on an as-needed basis, job sharing involves two or more employees sharing the responsibilities of a full-time job, and job rotation refers to the practice of rotating employees between different jobs or departments to increase their skills and experience. None of these practices are mentioned in the scenario.

Question 10

As a motivator,money:
A)is the best motivator a business owner can use.
B)is the most effective motivator for younger,"Generation X" workers.
C)is only a short-term motivator,losing its impact over time.
D)All of the above

Accepted Answer

Studies have shown that while money can be an effective motivator in the short-term, its impact lessens over time. Other factors such as a sense of purpose, work-life balance, and opportunities for growth and development can be more effective motivators in the long-term. Additionally, money is not necessarily the best motivator for all individuals, and factors such as job satisfaction and a positive work environment can be equally or more important.

Question 11

Studies regarding succession of family businesses reveal that:
A)70 percent of first-generation businesses fail to survive into the second generation.
B)only 12 percent make it to the third generation.
C)only 3 percent make it to the fourth generation and beyond.
D)All of the above

Accepted Answer

All of the options are true regarding the succession of family businesses. Only 70 percent of first-generation businesses can survive until the second generation, and the percentage drops to 12 percent when it comes to the third generation. Moreover, only a mere 3 percent of businesses succeed to the fourth generation or beyond.

Question 12

In a grantor-retained annuity trust (GRAT):
A)the grantor could put company stock in an irrevocable trust lasting for up to 10 years.
B)the grantor retains the voting power and interest income from the stock in the trust.
C)the company stock transfers to the beneficiaries at the end of the trust and is taxed at its discounted present value.
D)All of the above

Accepted Answer

In a grantor-retained annuity trust (GRAT), the grantor could put company stock in an irrevocable trust lasting for up to 10 years, while retaining the voting power and interest income from the stock in the trust. The company stock transfers to the beneficiaries at the end of the trust, and is taxed at its discounted present value. Therefore, all of the above choices are correct.

Question 13

Arturo,a sales representative for a small manufacturer,works out of an office in his home,using his laptop computer,a fax machine,and a beeper to communicate with the home office,which is located in a city 58 miles away.Arturo actually goes to the main office,on average,once every 10 to 14 days.His company is using which work arrangement?
A)Job sharing
B)Flextime
C)Flexplace
D)Job enrichment

Accepted Answer

Arturo's work arrangement of working from his home office using technology to communicate with the main office, and visiting the main office only occasionally, fits the definition of flexplace. This allows for more flexibility in location and reduces commuting time and costs. Job sharing involves two or more people sharing one full-time position, flextime allows for flexibility in scheduling work hours, and job enrichment involves adding more job responsibilities and tasks to increase job satisfaction.

Question 14

A business founder relying on a lifetime gifting strategy to minimize the taxes on the estate she is passing on to her son can give him a maximum gift of ________ in company stock each year,tax exempt.
A)$6,000
B)$12,000
C)$18,000
D)$24,000

Accepted Answer

As of 2023, the annual gift tax exclusion allows an individual to give up to $17,000 per recipient per year without incurring gift tax. However, the options provided seem outdated, and the closest correct historical figure is $12,000, which was the exclusion limit in previous years.

Question 15

A family limited partnership (FLP)is a strategy that allows business owning parents to transfer their company to their children and ________ their estate taxes while retaining control over the business.
A)lower
B)modify
C)avoid
D)defer

Accepted Answer

The answer of A family limited partnership (FLP)is a strategy...

Question 16

Cora arrived at work at 7 am today,and she will get off at 4 pm so that she can watch her son's soccer game.Her office mate,Emma,is not a "morning person" and usually arrives at the office at 10 am and gets off at 7 pm.Their company uses:
A)job sharing.
B)flextime.
C)flexplace.
D)job enrichment.

Accepted Answer

Cora and Emma have different work schedules which is possible because their company uses flextime, allowing employees to have some flexibility in their work hours.

Question 17

In a grantor-retained annuity trust (GRAT),
A)there is an attempt to minimize taxes on a family by creating two classes of stock preferred stock whose value is locked in and common stock whose value reflects the market value of the business.
B)a business owner can pass on up to $10,000 annually which is exempt from federal gift taxes.
C)the grantor retains the voting power and interest income from the stock in the trust for up to ten years before the business goes to the beneficiaries.
D)the surviving owner or heir of a family business has the right to purchase the stock of the deceased owner at a price established by a predetermined formula.

Accepted Answer

In a grantor-retained annuity trust (GRAT), the grantor retains the interest income and voting power from the stock in the trust for up to ten years before the assets are transferred to the beneficiaries. This can help minimize estate and gift taxes by reducing the value of the gift and transferring the assets at a lower value. Option A is referring to a dual-class stock structure which is a separate concept, option B is referring to the annual gift tax exclusion which is not specific to GRATs, and option D is referring to a predetermined formula for valuing stock in a buy-sell agreement, which is also not specific to GRATs.

Question 18

Almost ________ percent of business founders intend to pass theirs on to their children; however,only ________ percent have created a formal management succession plan.
A)81; 25
B)90; 65
C)75; 50
D)60; 10

Accepted Answer

Many business founders wish to pass their businesses to their children, but only a small percentage have formal succession plans, as indicated by the figures 81% and 25%.

Question 19

Chris openly shares the company's financial results with employees.This represents:
A)a profit-sharing plan.
B)a pay-for-performance approach.
C)the cafeteria benefit plan.
D)open book management.

Accepted Answer

Openly sharing the company's financial results with employees is a characteristic of open book management, where employees have access to the company's financials and are encouraged to understand them to help achieve the company's goals.

Question 20

In job enrichment,________ is the degree to which a job allows a worker to complete a whole or identifiable piece of work.
A)skill variety
B)task identity
C)task significance
D)autonomy

Accepted Answer

Task identity refers to the degree to which a job allows a worker to complete a whole or identifiable piece of work. Skill variety refers to the range of tasks and activities involved in a job, task significance refers to the perceived impact and importance of a job, and autonomy refers to the degree of control and independence a worker has in performing their job.

Quiz 16: Building a Team and Management Succession

When building your management succession "survival kit,"

When transferring power in a management succession,the small business owner should do all but which of the following?

During the transfer of power,how should the owner deal with company problems and mistakes the successor makes?

A compensation system in which employees' pay depends on how well they perform their jobs is known as:

An arrangement under which employees work a normal number of hours with options regarding when they start and stop work is:

Entrepreneurs who are planning to retire often use two strategies:

Maria is excited about the new opportunity her company has offered her she will be able to work from her home office with a company computer and a high speed internet connection while she spends time with her newborn son.This is possible because of the implementation of:

As a motivator,money:

Studies regarding succession of family businesses reveal that:

In a grantor-retained annuity trust (GRAT) :

A business founder relying on a lifetime gifting strategy to minimize the taxes on the estate she is passing on to her son can give him a maximum gift of ________ in company stock each year,tax exempt.

A family limited partnership (FLP) is a strategy that allows business owning parents to transfer their company to their children and ________ their estate taxes while retaining control over the business.

Cora arrived at work at 7 am today,and she will get off at 4 pm so that she can watch her son's soccer game.Her office mate,Emma,is not a "morning person" and usually arrives at the office at 10 am and gets off at 7 pm.Their company uses:

In a grantor-retained annuity trust (GRAT) ,

Almost percent of business founders intend to pass theirs on to their children; however,only percent have created a formal management succession plan.

Chris openly shares the company's financial results with employees.This represents:

In job enrichment,________ is the degree to which a job allows a worker to complete a whole or identifiable piece of work.