Question 1

Kari owns and operates Living Earth Garden Shop, an outdoor tool and landscaping supplies retail store, as a sole proprietorship. When Kari dies, Living Earth will automatically​

Accepted Answer

As a sole proprietorship, Living Earth Garden Shop is not a separate legal entity from its owner, Kari. Therefore, there is no separate entity to continue operations after Kari's death. The business will cease to exist.

Question 2

Graham buys from Hook, Line & Sinker Corporation the exclusive right to sell Hook, Line & Sinker fishing gear in a certain area. Their franchise agreement requires Graham to pay certain administrative expenses. Their agreement may also require Graham to pay a percentage of the franchisor's​

Accepted Answer

Franchise agreements often require franchisees to contribute to the franchisor's advertising and marketing expenses. This is typically done through a percentage of sales or a flat fee. Personal expenses and retirement income are not typically included in franchise agreements.

Question 3

Instead of setting up a business to market her own products, Rita considers entering into a distributorship franchise with Sports Equipment Corporation. This involves the transfer of​

Accepted Answer

In a distributorship franchise, the franchisee (Rita) is granted the right to distribute the franchisor's (Sports Equipment Corporation) products or services. This transfer of rights is typically done through a license agreement, which allows Rita to use the franchisor's trademarks, logos, and other intellectual property in marketing the products. Therefore, the correct answer is A) a license.

Question 4

Cathy buys an exclusive territory in which she is authorized to set up a plant to make Delite Dairy, Inc., products. After receiving the recipes, Cathy begins making Evie's-brand yogurt and other Delite products. This is​

Accepted Answer

Cathy has been given the right to manufacture and sell Delite Dairy, Inc. products within an exclusive territory, making this a manufacturing franchise.

Question 5

Digital Wizards, Inc., a franchisor of computer technicians, wishes to standardize the pricing practices of its franchisees because they have engaged in price-cutting to increase their respective shares of the market. The most prudent action might be for Digital Wizardsto

Accepted Answer

Mandating prices may lead to legal issues and may also harm the franchisees' ability to compete in the market. Requiring franchisees to pay a premium based on market share increase is not an equitable solution as it may not be fair to those who have gained market share through legitimate means. Threatening franchisees with a suit for material breach of contract may harm the relationship between the franchisor and franchisees. Therefore, suggesting prices to franchisees may be the most prudent action to promote standardized pricing practices while allowing franchisees to maintain some autonomy in setting their own prices.

Question 6

Haute Dogs, Inc., sells a franchise to Irene's Cuisine, a lunch truck. Irene's Cuisine is​

Accepted Answer

Irene's Cuisine is referred to as a franchisee because they are purchasing the right to use the Haute Dogs brand and business model, but they are not the original owner of the company or responsible for creating the franchise system.

Question 7

Sauces n' Syrups, Inc., and Thad's Sweet & Spicy Bottling Plant have a manufacturing franchise arrangement. This involves the transfer of​

Accepted Answer

The manufacturing franchise arrangement between Sauces n' Syrups, Inc. and Thad's Sweet & Spicy Bottling Plant involves the transfer of the formula to make a certain product. This allows Thad's to manufacture and distribute Sauces n' Syrups products under the franchisor's brand name and recipe.

Question 8

Without creating a separate business organization, Reynold starts up, and assumes the financial risk of, Sole Savers, a new, pre-owned auto sales enterprise. Reynold is​

Accepted Answer

Reynold is a sole proprietor because he is assuming the financial risk of the new enterprise without creating a separate business organization.

Question 9

Challenge Games Corporation licenses the trademarks to its products to Direct Marketing, Inc., to reproduce on caps, sweatshirts, and similar goods for sale. This is​

Accepted Answer

The answer of Challenge Games Corporation licenses the trademarks to...

Question 10

Paradise Footwear buys a franchise from Quadrangle Athletic Shoes Inc. This relationship, like all other franchise relationships, is governed by​

Accepted Answer

Franchise relationships are governed by contract law. The contract between the franchisor and the franchisee sets out the terms and conditions of the relationship, including the rights and obligations of each party. The franchise agreement will typically include provisions on matters such as fees, advertising, training, and the use of trademarks and intellectual property.

Question 11

Mai-Lin's Martial Arts, Inc., grants a franchise to Naomi to operate a Mai-Lin's school. Mai-Lin's may require Naomi to pay the franchisor a percentage of her​

Accepted Answer

It is common for a franchisor to require the franchisee to pay a percentage of their annual sales or volume of business as a royalty fee for using the franchisor's brand and business model. This helps the franchisor to earn income from multiple locations and ensure consistent quality across all franchises. The other options (B, C, and D) are not typical methods for calculating franchise fees.

Question 12

Olav owns Precision Painting, a sole proprietorship. Olav's liability is​

Accepted Answer

As a sole proprietor, Olav's liability is unlimited, meaning that his personal assets are at risk if the business incurs any debts or liabilities.

Question 13

Foster enters into an agreement with Grab n' Eat Burgers, Inc., to operate a franchise in Home Town. Later, Grab n' Eat grants franchises to others within the same territory, causing Foster to suffer a significant loss in profits. In Foster's suit against Grab n' Eat, Foster's best argument is that the franchisor

Accepted Answer

The best argument for Foster would be that Grab n' Eat breached the implied covenant of good faith and fair dealing by granting franchises to others within the same territory, causing significant loss in profits for Foster's franchise. This covenant is an implied promise in every contract that the parties will act in good faith and deal fairly with one another. Foster can argue that Grab n' Eat acted unfairly by allowing competition within the same territory, which was not disclosed or anticipated in their agreement.

Question 14

Fong contracts to buy a franchise from Genuine Asian Sushi House Company. In this contract, as in most franchise contracts, the determination of the territory to be served is made by

Accepted Answer

In most franchise contracts, the determination of the territory to be served is made by the franchisor, in this case, Genuine Asian Sushi House. They have the power to control the area in which Fong can operate and sell their products and services under the franchise agreement.

Question 15

Bill sells Corner Deli & Groceries, a sole proprietorship, to Diane. This is​

Accepted Answer

Selling a sole proprietorship is a transfer of ownership of the business.

Question 16

Ralph is interested in buying a franchise from Sparkle Beverages Inc. For Ralph to make an informed decision concerning this purchase, Sparkle Beverages must disclose in writing or in electronic form​

Accepted Answer

Sparkle Beverages Inc. must disclose material facts such as the basis of projected earnings figures so that Ralph can make an informed decision about purchasing the franchise. This includes information about start-up requirements and renewal conditions. Simply providing general estimates of costs and sales without the basis for them may not give Ralph a clear picture of the potential profitability and risks of the franchise. Likewise, withholding all information would not be ethical or legal.

Question 17

Esperanza is interested in buying a franchise from Fire Mountain Gemstones, Inc. Fire Mountain must disclose material facts that Esperanza needs to make an informed decision concerning this purchase, according to​

Accepted Answer

The Federal Trade Commission's Franchise Rule requires franchisors to disclose material facts that a prospective franchisee needs to make an informed decision about purchasing a franchise. This includes information about the franchisor's experience, fees and costs associated with purchasing and operating the franchise, and any restrictions or limitations on the franchisee's operations. Failure to comply with the FTC's Franchise Rule can result in legal action against the franchisor.

Question 18

Bob is the sole proprietor of ClamBooks, an electronic book subscription service. As a sole proprietor, on the business's profits, Bob pays​

Accepted Answer

The answer of Bob is the sole proprietor of ClamBooks,...

Question 19

We-Haul Equipment Rentals, Inc., uses a Web site to provide downloadable information to prospective franchisees. This electronic information is the equivalent of an offer that must comply with​

Accepted Answer

The Federal Trade Commission's Franchise Rule requires that franchisors provide prospective franchisees with a Franchise Disclosure Document (FDD) that contains specific information about the franchisor, the franchise system, and the franchise agreement. This information is typically provided in electronic format on a franchisor's website. Therefore, We-Haul Equipment Rentals, Inc.'s downloadable information would be subject to the Franchise Rule.

Question 20

Faye is interested in buying a franchise from Gas n' Snax Stores Inc. This transaction, like other franchise deals, is regulated to protect​

Accepted Answer

Franchise deals are regulated by the government to protect prospective franchisees from dishonest franchisors. The regulations ensure that franchisors provide accurate and complete information about the franchise opportunity and are compliant with applicable laws and regulations. This helps prospective franchisees make an informed decision about investing in the franchise and protects them from fraudulent or deceptive practices by the franchisor.

Quiz 26: Sole Proprietorships and Private Franchises

Kari owns and operates Living Earth Garden Shop, an outdoor tool and landscaping supplies retail store, as a sole proprietorship. When Kari dies, Living Earth will automatically​

Graham buys from Hook, Line & Sinker Corporation the exclusive right to sell Hook, Line & Sinker fishing gear in a certain area. Their franchise agreement requires Graham to pay certain administrative expenses. Their agreement may also require Graham to pay a percentage of the franchisor's​

Instead of setting up a business to market her own products, Rita considers entering into a distributorship franchise with Sports Equipment Corporation. This involves the transfer of​

Cathy buys an exclusive territory in which she is authorized to set up a plant to make Delite Dairy, Inc., products. After receiving the recipes, Cathy begins making Evie's-brand yogurt and other Delite products. This is​

Digital Wizards, Inc., a franchisor of computer technicians, wishes to standardize the pricing practices of its franchisees because they have engaged in price-cutting to increase their respective shares of the market. The most prudent action might be for Digital Wizardsto

Haute Dogs, Inc., sells a franchise to Irene's Cuisine, a lunch truck. Irene's Cuisine is​

Sauces n' Syrups, Inc., and Thad's Sweet & Spicy Bottling Plant have a manufacturing franchise arrangement. This involves the transfer of​

Without creating a separate business organization, Reynold starts up, and assumes the financial risk of, Sole Savers, a new, pre-owned auto sales enterprise. Reynold is​

Challenge Games Corporation licenses the trademarks to its products to Direct Marketing, Inc., to reproduce on caps, sweatshirts, and similar goods for sale. This is​

Paradise Footwear buys a franchise from Quadrangle Athletic Shoes Inc. This relationship, like all other franchise relationships, is governed by​

Mai-Lin's Martial Arts, Inc., grants a franchise to Naomi to operate a Mai-Lin's school. Mai-Lin's may require Naomi to pay the franchisor a percentage of her​

Olav owns Precision Painting, a sole proprietorship. Olav's liability is​

Fong contracts to buy a franchise from Genuine Asian Sushi House Company. In this contract, as in most franchise contracts, the determination of the territory to be served is made by

Bill sells Corner Deli & Groceries, a sole proprietorship, to Diane. This is​

Ralph is interested in buying a franchise from Sparkle Beverages Inc. For Ralph to make an informed decision concerning this purchase, Sparkle Beverages must disclose in writing or in electronic form​

Esperanza is interested in buying a franchise from Fire Mountain Gemstones, Inc. Fire Mountain must disclose material facts that Esperanza needs to make an informed decision concerning this purchase, according to​

Bob is the sole proprietor of ClamBooks, an electronic book subscription service. As a sole proprietor, on the business's profits, Bob pays​

We-Haul Equipment Rentals, Inc., uses a Web site to provide downloadable information to prospective franchisees. This electronic information is the equivalent of an offer that must comply with​

Faye is interested in buying a franchise from Gas n' Snax Stores Inc. This transaction, like other franchise deals, is regulated to protect​

Kari owns and operates Living Earth Garden Shop, an outdoor tool and landscaping supplies retail store, as a sole proprietorship. When Kari dies, Living Earth will automatically

Graham buys from Hook, Line & Sinker Corporation the exclusive right to sell Hook, Line & Sinker fishing gear in a certain area. Their franchise agreement requires Graham to pay certain administrative expenses. Their agreement may also require Graham to pay a percentage of the franchisor's

Instead of setting up a business to market her own products, Rita considers entering into a distributorship franchise with Sports Equipment Corporation. This involves the transfer of

Cathy buys an exclusive territory in which she is authorized to set up a plant to make Delite Dairy, Inc., products. After receiving the recipes, Cathy begins making Evie's-brand yogurt and other Delite products. This is

Haute Dogs, Inc., sells a franchise to Irene's Cuisine, a lunch truck. Irene's Cuisine is

Sauces n' Syrups, Inc., and Thad's Sweet & Spicy Bottling Plant have a manufacturing franchise arrangement. This involves the transfer of

Without creating a separate business organization, Reynold starts up, and assumes the financial risk of, Sole Savers, a new, pre-owned auto sales enterprise. Reynold is

Challenge Games Corporation licenses the trademarks to its products to Direct Marketing, Inc., to reproduce on caps, sweatshirts, and similar goods for sale. This is

Paradise Footwear buys a franchise from Quadrangle Athletic Shoes Inc. This relationship, like all other franchise relationships, is governed by

Mai-Lin's Martial Arts, Inc., grants a franchise to Naomi to operate a Mai-Lin's school. Mai-Lin's may require Naomi to pay the franchisor a percentage of her

Olav owns Precision Painting, a sole proprietorship. Olav's liability is

Bill sells Corner Deli & Groceries, a sole proprietorship, to Diane. This is

Ralph is interested in buying a franchise from Sparkle Beverages Inc. For Ralph to make an informed decision concerning this purchase, Sparkle Beverages must disclose in writing or in electronic form

Esperanza is interested in buying a franchise from Fire Mountain Gemstones, Inc. Fire Mountain must disclose material facts that Esperanza needs to make an informed decision concerning this purchase, according to

Bob is the sole proprietor of ClamBooks, an electronic book subscription service. As a sole proprietor, on the business's profits, Bob pays

We-Haul Equipment Rentals, Inc., uses a Web site to provide downloadable information to prospective franchisees. This electronic information is the equivalent of an offer that must comply with

Faye is interested in buying a franchise from Gas n' Snax Stores Inc. This transaction, like other franchise deals, is regulated to protect