Question 1

The corporation, partnership, and sole proprietorship are the three most common forms of business ownership in the United States.

Accepted Answer

The corporation, partnership, and sole proprietorship are indeed the three most common forms of business ownership in the United States.

Question 2

Which of the following statements is true?
A) Economists and financial analysts agree that mergers are good for the economy.
B) Takeovers always increase a firm's productivity.
C) Mergers in the first part of the twenty-first century will see an increase in debt financing.
D) Mergers in the first part of the twenty-first century will be driven by cash-rich companies looking to acquire businesses that will enhance their position in the marketplace.
E) There will be fewer mergers that involve investors from other countries.

Accepted Answer

The statement that mergers in the first part of the twenty-first century will be driven by cash-rich companies looking to acquire businesses that will enhance their position in the marketplace is true based on current trends and analysis. The other statements are not accurate or are too generalizing.

Question 3

Because of unlimited liability, it is easy for sole proprietors to borrow large sums of money.

Accepted Answer

Unlimited liability means that the sole proprietor is personally responsible for all debts and obligations of the business, including if the business cannot repay a large loan. This makes it more risky for lenders to provide large sums of money, as they may not be able to recover the full amount in case of default. Therefore, it is not easy for sole proprietors to borrow large sums of money.

Question 4

If the owner of a sole proprietorship retires or dies, the owner's heirs may take over a profitable business and either sell it or continue to operate it.

Accepted Answer

Since a sole proprietorship is not a separate legal entity from the owner, the business and its assets become part of the owner's estate upon retirement or death. The heirs can then take over and continue to operate the business or sell it, depending on their preferences.

Question 5

Of the three common forms of ownership, a corporation can respond to changes in market conditions more rapidly than others can.

Accepted Answer

Corporations, due to their size, regulatory requirements, and layers of management, often respond to market changes more slowly compared to sole proprietorships and partnerships, which can be more flexible and agile.

Question 6

Recently there have been several mergers involving Big Four accounting firms. One such merger involved the firms of Arthur Young and Ernst & Whinney, who combined to form Ernst & Young. This is an example of a
A) joint venture.
B) horizontal merger.
C) vertical merger.
D) syndicate.
E) conglomerate merger.

Accepted Answer

The merger between Arthur Young and Ernst & Whinney is a horizontal merger because they are two firms operating in the same industry and merged to create a larger entity.

Question 7

A merger between firms in completely unrelated industries is known as a
A) conglomerate merger.
B) cooperative.
C) joint venture.
D) vertical merger.
E) horizontal merger.

Accepted Answer

A conglomerate merger refers to a merger between firms operating in completely unrelated industries. In this type of merger, the merged entity will have diverse business lines, and their operations will not be related in any way. Conglomerate mergers are primarily done to diversify and spread risk across different industries.

Question 8

Every partnership must have at least one limited partner.

Accepted Answer

A partnership can be formed entirely with general partners, who have unlimited personal liability for the business's debts and actions. However, a limited partner can also be included in a partnership, who has limited liability and typically does not participate in the management of the business.

Question 9

Since someone must be responsible for a partnership's debts, a limited partnership must have at least one general partner.

Accepted Answer

A limited partnership must have at least one general partner who is personally responsible for the partnership's debts and obligations. The limited partners, on the other hand, have limited liability and are not personally liable for the partnership's debts beyond their investment in the partnership.

Question 10

Units of ownership in a master limited partnership (MLP) are often sold on organized security exchanges.

Accepted Answer

MLP units are typically sold on organized security exchanges, such as the New York Stock Exchange (NYSE) or NASDAQ. This allows investors to easily buy and sell units of ownership in the MLP.

Question 11

Which of the following is an example of a vertical merger?
A) The purchase of TWA by American Airlines
B) The purchase of Marathon Oil Company by U.S. Steel
C) The purchase of Kentucky Fried Chicken by PepsiCo
D) The purchase of Malone's Cost-Plus Supermarkets by the Kroger supermarket chain
E) The purchase of Gulf Oil by Standard Oil Company of California

Accepted Answer

The answer of Which of the following is an example...

Question 12

A master limited partnership is also known as a closed corporation.

Accepted Answer

A master limited partnership (MLP) is not the same as a closed corporation. A closed corporation is a private company with a limited number of shareholders, while an MLP is a publicly traded partnership typically engaged in the energy, natural resources, or real estate industries.

Question 13

A ____ is a merger between firms operating at different but related levels in the production and marketing of a product.
A) conglomerate merger
B) cooperative
C) joint venture
D) vertical merger
E) horizontal merger

Accepted Answer

A vertical merger is a merger between firms operating at different but related levels in the production and marketing of a product. This type of merger can occur between a company that produces raw materials and a company that uses those materials to manufacture finished products.

Question 14

Unlimited liability holds a sole proprietor personally responsible for all the debts of the business.

Accepted Answer

Unlimited liability is a characteristic of sole proprietorships where the owner is personally responsible for all the debts and obligations of the business. There is no separation between the business and the owner, and therefore the owner's personal assets can be used to pay off business debts.

Question 15

A master limited partnership is taxed like a corporation.

Accepted Answer

Master Limited Partnerships (MLPs) are not taxed like a corporation. They are considered pass-through entities, meaning that the tax liability passes through to the individual investors who own units or shares in the MLP. This means that MLPs do not pay federal income tax at the corporate level, and instead, the owners of MLP units report their share of the partnership's income or loss on their personal tax returns.

Question 16

Articles of partnership are a legal document issued by the secretary of state.

Accepted Answer

Articles of partnership are not issued by the secretary of state. They are a legal document written by the partners themselves to establish the terms and conditions of their partnership agreement.

Question 17

A general partner is responsible for any debts of the partnership, regardless of whether he or she was directly involved in the transaction that created the debt.

Accepted Answer

General partners have unlimited liability, meaning they are personally responsible for the debts and obligations of the partnership. This includes debts created by any partner, even if the other partner was not involved in the transaction.

Question 18

A voluntary association of two or more people acting as co-owners of a business is known as a partnership.

Accepted Answer

This is the definition of a partnership as recognized in many countries' legal systems.

Question 19

About 85 percent of all business firms in the United States are sole proprietorships.

Accepted Answer

The answer of About 85 percent of all business firms...

Question 20

In a limited partnership, a limited partner's name must be included in the partnership's name.

Accepted Answer

In a limited partnership, only the name of the general partner(s) must be included in the partnership's name. The name of the limited partners need not be included.

Quiz 4: Choosing a Form of Business Ownership