Download BUSINESS 10 (Business, Corporation, Types of companies, AACSB, Reflective thinking) TESTB and more Exams Business Economics in PDF only on Docsity!
05 Key
1. (p. 114) The corporation is the most common form of business ownership.
FALSE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Basic Forms of Business Ownership
2. (p. 114) The three major forms of business ownership in the U.S. are sole proprietorships, partnerships, and
corporations.
TRUE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Basic Forms of Business Ownership
3. (p. 114) Few people today start their own business.
FALSE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Basic Forms of Business Ownership
4. (p. 115) Once a business is established, it's almost impossible to change from one form of business ownership to
another.
FALSE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Basic Forms of Business Ownership
5. (p. 114) When two or more people legally agree to become co-owners of a business, the form of business is
called a partnership.
TRUE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Basic Forms of Business Ownership
6. (p. 114) A legal entity with authority to act and have liability separate from its owners is called a partnership.
FALSE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Basic Forms of Business Ownership
7. (p. 114) Corporations represent 20 percent of all the businesses in the U.S. and earn 81 percent of the total U.S.
business receipts.
TRUE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Basic Forms of Business Ownership
12. (p. 115) The sole proprietorship form of ownership tends to be attractive to people who want to invest in a
company without taking an active role in management.
FALSE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Sole Proprietorship
13. (p. 115) A major advantage of sole proprietorships is that an owner has limited liability for the debts of his or
her business.
FALSE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Sole Proprietorship
14. (p. 115) One of the strengths of the sole proprietorship is its ability to sustain rapid growth by raising large
amounts of financial resources.
FALSE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Sole Proprietorship
15. (p. 116) The debts of a business operated as a sole proprietorship are considered to be the personal debts of the
owner of the business.
TRUE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Sole Proprietorship
16. (p. 116) A drawback of sole proprietorships is that they usually have limited access to additional financial
resources.
TRUE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Sole Proprietorship
17. (p. 116) An advantage of forming a sole proprietorship is that it allows the owner to have more time for leisure
activities.
FALSE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Sole Proprietorship
18. (p. 116) If a sole proprietorship fails, the owner may lose whatever was invested in the business, however, the
owner's personal assets are not at risk.
FALSE
Sole proprietors have unlimited liability for the debts of their business. This means that if their business gets
into financial trouble they can lose their personal assets.
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 # Topic: Sole Proprietorship
22. (p. 115) Eric wants to start a business. He is attracted to the idea of being his own boss, and wants to get started
with a minimum of expense and hassle. He is confident in his abilities, and the market he can draw from, so he
is not particularly worried about financial risks. All of these factors suggest that Eric may favor starting his
business as a sole proprietorship.
TRUE
People who want to be their own boss often prefer to operate their business, at least initially, as a sole
proprietorship. An advantage of the sole proprietorship is that it is a relatively easy and inexpensive form of
business to set up. One drawback of a sole proprietorship is that the owner has unlimited liability. However, at
this time, Eric is not worried about risk. The unlimited liability factor does not appear to be a problem for him.
AACSB: Reflective Thinking Blooms: Application Learning Goal: 05- Level of Learning 3: Application of principles Nickels - Chapter 05 # Topic: Sole Proprietorship
23. (p. 115-116) Sandy Beech, a talented fashion designer who wants to start her own women's swimwear and beach
towel line is trying to decide which form of business ownership is right for her. As a young mother who aspires
to send her children to college some day, she does not want to jeopardize her savings account in any way. In
order to overcome these risks, Sandy should start her business as a sole proprietorship.
FALSE
Sandy is concerned about the risk of losing personal assets if her business does not succeed. Although the sole
proprietorship is easy to set-up, it may not be the best form of business ownership for Sandy due to her need to
protect personal assets. She may want to consider a form of ownership that provides limited liability.
AACSB: Reflective Thinking Blooms: Application Learning Goal: 05- Level of Learning 3: Application of principles Nickels - Chapter 05 # Topic: Sole Proprietorship
24. (p. 116) Rocky Rhodes is convinced that he has a great idea for a new business. Unfortunately, the type of
business he wants to start would require a fairly high initial investment and Rocky has a poor credit rating and
very little personal wealth. Rocky would be unlikely to find success if he organized his business as a sole
proprietorship.
TRUE
Funds available to sole proprietorships are often limited to the amount the owner can raise. Thus, Rocky's
business would probably have a hard time raising enough money if he organized it as a sole proprietorship.
AACSB: Reflective Thinking Blooms: Application Learning Goal: 05- Level of Learning 3: Application of principles Nickels - Chapter 05 # Topic: Sole Proprietorship
25. (p. 117) A general partner takes an active role in the management of the business.
TRUE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Partnerships
26. (p. 117) All partners in a general partnership have limited liability for the debts of their firm.
FALSE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Partnerships
27. (p. 117) In a general partnership, all partners share in management of the business and in the liability for the
firm's debts.
TRUE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Partnerships
32. (p. 117) Although shares of master limited partnerships can be purchased on one of the national stock
exchanges, these companies are taxed like partnerships.
TRUE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Partnerships
33. (p. 118) The Uniform Partnership Act is law in every state except Louisiana.
TRUE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Partnerships
34. (p. 118) According to the Uniform Partnership Act, the three key elements of any general partnership are (1)
shares of stock to represent ownership, (2) limited liability, and (3) ease of ownership transfer.
FALSE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Partnerships
35. (p. 118) According to the Uniform Partnership Act, the three key elements of any general partnership are (1)
common ownership, (2) shared profits and losses, and (3) the right to participate in managing the operations of
the business.
TRUE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Partnerships
36. (p. 118) A recent study showed that partnerships are more likely to fail than sole proprietorships.
FALSE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Partnerships
37. (p. 117) A major objective of limited liability partnerships (LLPs) is to limit each partner's personal liability to
the consequences of their own acts and those of people under their supervision.
TRUE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Partnerships
38. (p. 119) One of the major disadvantages of a partnership is that profits must be divided equally.
FALSE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Partnerships
39. (p. 117) A general partner has unlimited liability for the debts of the partnership only if he or she personally
approved the decisions that resulted in those debts.
FALSE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Partnerships
44. (p. 118) Compared to sole proprietorships, partnerships offer the advantage of shared management and pooled
knowledge.
TRUE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Partnerships
45. (p. 117) A limited partnership refers to a partnership set up for a temporary purpose, such as a real estate
development project.
FALSE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Partnerships
46. (p. 117) In a limited partnership, the general partners should encourage the limited partners to take a more
active role in the operations of the business. After all, the limited partner has comparable liability in the
business, even though he/she may not be a partner for as long a period of time as the general partners.
FALSE
By definition, a limited partnership will consist of one or more general partners and one or more limited
partners. The limited partners are passive investors. By law, they do not take an active role in the management
of the business, yet they may share in the profits of the business and remain a partner for as long as the
partnership exists.
AACSB: Reflective Thinking Blooms: Comprehension Learning Goal: 05- Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 # Topic: Partnerships
47. (p. 119) If a partner in a limited partnership dies, the partnership ceases to exist.
TRUE
If a partner in any partnership dies, the partnership agreement automatically ceases to exist. Good partnership
agreements usually have provisions for these situations.
AACSB: Reflective Thinking Blooms: Comprehension Learning Goal: 05- Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 # Topic: Partnerships
48. (p. 119) In the Spotlight on Small Business box, titled, "Pick Your Partners Wisely", the writer suggests that
potential partners discuss the types of skills that each brings to the business. Partners with complimentary skills
may enhance the business.
TRUE
It is suggested that you ask yourself what types of skills you and your potential partners bring to the business,
and whether those skills compliment each other. Successful partners often come with varying backgrounds.
Sometimes one partner will have the technical skills to get the job done, while others might have the business or
accounting knowledge.
AACSB: Reflective Thinking Blooms: Comprehension Learning Goal: 05- Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 # Topic: Spotlight on Small Business box
49. (p. 119) One method to avoid conflicts between partners is to solicit the services of a lawyer to create a well-
written partnership agreement.
TRUE
One of the most important tasks to achieve before forming a partnership is to create a partnership agreement.
The partnership agreement addresses a number of rules that will govern the activities of the partnership
including but not limited to: the duties of each partner; the rules for adding partners; contributions by each
partner; and, how profits will be distributed.
AACSB: Reflective Thinking Blooms: Comprehension Learning Goal: 05- Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 # Topic: Partnerships; Figure 5.
53. (p. 117) Connie is a general partner in a retail cookie store. Her personal assets are legally protected from the
debts of the business.
FALSE
As a general partner, Connie assumes unlimited liability for the debts of her business.
AACSB: Reflective Thinking Blooms: Application Learning Goal: 05- Level of Learning 3: Application of principles Nickels - Chapter 05 # Topic: Partnerships
54. (p. 117) Two of Diana's friends have approached her about starting a new business. Diana is willing to invest
money in the business and share in its profits, but she has no desire to be involved in the day-to-day
management of the company, nor is she willing to risk any amount beyond her initial investment. Diana's
preferences suggest that she prefers a general partnership form of business ownership.
FALSE
In a general partnership, all partners share in the management of the business, and have unlimited liability for
the firm's debts. Since Diana has no interest in managing a company and wants to limit her risk, she is more
suited for a Limited Partnership, where her friends would serve as general partners and she would serve as a
limited partner.
AACSB: Reflective Thinking Blooms: Application Learning Goal: 05- Level of Learning 3: Application of principles Nickels - Chapter 05 # Topic: Partnerships
55. (p. 117) Emma Pebble and Chase Stone formed a partnership in a landscape business. Under their arrangement.
Emma actively manages the company and assumes unlimited liability for the firm's debts. Chase has invested
several thousand dollars of his money with plans to share in the profits, but does not actively make management
decisions, nor will he assume liability beyond his initial investment. Emma and Chase participate in a limited
partnership.
TRUE
A limited partnership consists of at least one general partner, who has unlimited liability, and at least one
limited partner, who risks only what he or she has invested. By law, the limited partner cannot actively manage
the partnership.
AACSB: Reflective Thinking Blooms: Application Learning Goal: 05- Level of Learning 3: Application of principles Nickels - Chapter 05 # Topic: Partnerships
56. (p. 118-119) Sergio has agreed to become a partner in his brother's horse breeding business. Since he provided
30 percent of the money to start the firm and build an air-conditioned barn, he is entitled to 30 percent of any
profits the firm earns during its first year of operation.
FALSE
The division of profits in a partnership is negotiable and is not necessarily tied to the amount of the initial
investment.
AACSB: Reflective Thinking Blooms: Comprehension Learning Goal: 05- Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 # Topic: Partnerships; Figure 5.
59. (p. 118) According to the Spotlight on Small Business box, "Pick Your Partners Wisely", it is really not
necessary to interview your prospective partner carefully, especially if they are an old friend.
FALSE
The Spotlight on Small Business box suggests doing three things before starting a partnership: (1) talk to
people who have been in successful and unsuccessful partnerships; (2) interview your prospective partner(s)
very carefully; and (3) evaluate the decision skills of your prospective partner(s).
AACSB: Reflective Thinking Blooms: Application Learning Goal: 05- Level of Learning 3: Application of principles Nickels - Chapter 05 # Topic: Spotlight on Small Business box
60. (p. 117-118) Last night as you scrolled through the TV channels to find an action flick, you came across an old
movie with tough guy, James Cagney, called "Yankee Doodle Dandy". Although not particularly your kind of
movie, you stayed on that channel for a few minutes because Cagney and another guy were in partnership
together. They were arguing over who was the senior partner and who was the junior partner, even though,
clearly, they started the business at the same time. If you were brought on board as their present-day business
advisor, you would explain to them that all partnerships have at least one general partner (known as the senior
partner) and one limited partner (known as the junior partner).
FALSE
According to the Uniform Partnership Act adopted in every state except Louisiana, partners have the right to 1)
common ownership; 2) shared profits and losses; and, 3) the right to participate in managing the operations of
the business. In some cases, partners may have differing skills and skill levels (or level of experience) of the
other partners, but as partners they are on equal-footing. A good partnership agreement will spell-out the details
of the partnership. Further, partnerships can be 1) general partnerships or 2) limited partnerships, but these
variations do not hold the senior/junior designation.
AACSB: Reflective Thinking Blooms: Application Learning Goal: 05- Level of Learning 3: Application of principles Nickels - Chapter 05 # Topic: Partnerships
61. (p. 121) A conventional corporation is a state-chartered legal entity, with authority to act and have liability
separate from its owners.
TRUE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Corporations
62. (p. 121) In today's economy, only large business enterprises should operate as corporations.
FALSE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Corporations
63. (p. 121) The owners of a corporation are known as general corporate partners.
FALSE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Corporations; Figure 5.
64. (p. 122) A corporation can raise financial capital by selling shares of stock to interested investors.
TRUE
AACSB: Reflective Thinking Blooms: Knowledge Learning Goal: 05- Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 # Topic: Corporations
