Which one of the following statements concerning sole proprietorships is correct?

Multiple Choice Questions

1. Which one of the following terms is defined as the management of a firm's long-term investments? A. working capital management B. financial allocation C. agency cost analysis D. capital budgeting E. capital structure

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Capital budgeting

1. Which one of the following terms is defined as the mixture of a firm's debt and equity financing? A. working capital management B. cash management C. cost analysis D. capital budgeting E. capital structure

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Capital structure

1. Which one of the following is defined as a firm's short-term assets and its short-term liabilities? A. working capital B. debt C. investment capital D. net capital E. capital structure

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Working capital

1. A business owned by a solitary individual who has unlimited liability for its debt is called a: A. corporation. B. sole proprietorship. C. general partnership. D. limited partnership. E. limited liability company.

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Sole proprietorship

1. A business created as a distinct legal entity and treated as a legal "person" is called a: A. corporation. B. sole proprietorship. C. general partnership. D. limited partnership. E. unlimited liability company.

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Corporation

1. Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers? A. articles of incorporation B. corporate breakdown C. agency problem D. bylaws E. legal liability

Refer to section 1.

AACSB: Ethics Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Agency problem

1. A stakeholder is: A. a person who owns shares of stock. B. any person who has voting rights based on stock ownership of a corporation. C. a person who initially founded a firm and currently has management control over that firm. D. a creditor to whom a firm currently owes money. E. any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm.

Refer to section 1.

AACSB: Ethics Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Stakeholder

1. Which of the following questions are addressed by financial managers? I. How should a product be marketed? II. Should customers be given 30 or 45 days to pay for their credit purchases? III. Should the firm borrow more money? IV. Should the firm acquire new equipment? A. I and IV only B. II and III only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Financial management

1. Which one of the following correctly defines the upward chain of command in a typical corporate organizational structure? A. The vice president of finance reports to the chairman of the board. B. The chief executive officer reports to president. C. The controller reports to the president. D. The treasurer reports to the vice president of finance. E. The chief operations officer reports to the vice president of production.

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Corporate structure

1. Which one of the following is a capital budgeting decision? A. determining how many shares of stock to issue B. deciding whether or not to purchase a new machine for the production line C. deciding how to refinance a debt issue that is maturing D. determining how much inventory to keep on hand E. determining how much money should be kept in the checking account

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Capital budgeting

1. Which of the following should a financial manager consider when analyzing a capital budgeting project? I. project start up costs II. timing of all projected cash flows III. dependability of future cash flows IV. dollar amount of each projected cash flow A. I and IV only B. I, II, and IV only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Capital budgeting

1. Which one of the following is a capital structure decision? A. determining which one of two projects to accept B. determining how to allocate investment funds to multiple projects C. determining the amount of funds needed to finance customer purchases of a new product D. determining how much debt should be assumed to fund a project E. determining how much inventory will be needed to support a project

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Capital structure

1. Which one of the following is a working capital management decision? A. determining the amount of equipment needed to complete a job B. determining whether to pay cash for a purchase or use the credit offered by the supplier C. determining the amount of long-term debt required to complete a project D. determining the number of shares of stock to issue to fund an acquisition E. determining whether or not a project should be accepted

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Working capital management

1. Which one of the following statements concerning a sole proprietorship is correct? A. A sole proprietorship is designed to protect the personal assets of the owner. B. The profits of a sole proprietorship are subject to double taxation. C. The owner of a sole proprietorship is personally responsible for all of the company's debts. D. There are very few sole proprietorships remaining in the U. today. E. A sole proprietorship is structured the same as a limited liability company.

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Sole proprietorship

1. Which one of the following statements concerning a sole proprietorship is correct? A. The life of a sole proprietorship is potentially unlimited. B. A sole proprietor can generally raise large sums of capital quite easily. C. Transferring ownership of a sole proprietorship is easier than transferring ownership of a corporation. D. A sole proprietorship is taxed the same as a C corporation. E. It is easy to create a sole proprietorship.

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Sole proprietorship

1. Which of the following individuals have unlimited liability based on their ownership interest? I. general partner II. sole proprietor III. stockholder IV. limited partner A. II only B. I and II only C. II and IV only D. I, II, and III only E. I, II, and IV only

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Unlimited liability

1. A limited partnership: A. has an unlimited life. B. can opt to be taxed as a corporation. C. terminates at the death of any limited partner. D. has a greater ability to raise capital than a sole proprietorship. E. consists solely of limited partners.

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Partnership

1. Which of the following apply to a partnership that consists solely of general partners? I. double taxation of partnership profits II. limited partnership life III. active involvement in the firm by all the partners IV. unlimited personal liability for all partnership debts A. II only B. I and II only C. II and III only D. I, II, and IV only E. II, III, and IV only

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Partnership

1. Which of the following are advantages of the corporate form of business ownership? I. limited liability for firm debt II. double taxation III. ability to raise capital IV. unlimited firm life A. I and II only B. III and IV only C. I, III, and IV only D. II, III, and IV only E. I, II, III, and IV

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Corporation

1. Which one of the following statements is correct? A. The majority of firms in the U. are structured as corporations. B. Corporate profits are taxable income to the shareholders when earned. C. Corporations can raise large amounts of capital generally easier than partnerships can. D. Stockholders face no potential losses related to their corporate investment. E. Corporate shareholders elect the corporate president.

Refer to section 1.

AACSB: N/A Difficulty: Intermediate Learning Objective: 1- Section: 1. Topic: Corporation

1. Corporate bylaws: A. must be amended should a firm decide to increase the number of shares authorized. B. cannot be amended once adopted. C. define the name by which the firm will operate. D. describe the intended life and purpose of the organization. E. determine how a corporation regulates itself.

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Corporate bylaws

1. Which one of the following characteristics applies to a limited liability company? A. available only to firms having a single owner B. limited liability for limited partners only C. taxed similar to a partnership D. taxed similar to a C corporation E. all income generated is totally tax-free

Refer to section 1.

AACSB: N/A Difficulty: Intermediate Learning Objective: 1- Section: 1. Topic: Limited liability company

1. Which one of the following business types is best suited to raising large amounts of capital? A. sole proprietorship B. limited liability company C. corporation D. general partnership E. limited partnership

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Corporation

1. Which type of business organization has all the respective rights and privileges of a legal person? A. sole proprietorship B. general partnership C. limited partnership D. corporation E. limited liability company

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Corporation

1. Which one of the following best states the primary goal of financial management? A. maximize current dividends per share B. maximize the current value per share C. increase cash flow and avoid financial distress D. minimize operational costs while maximizing firm efficiency E. maintain steady growth while increasing current profits

Refer to section 1.

AACSB: N/A Difficulty: Basic Learning Objective: 1- Section: 1. Topic: Goal of financial management

1. Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management? A. increase in the amount of the quarterly dividend B. decrease in the per unit production costs C. increase in the number of shares outstanding D. decrease in the net working capital E. increase in the market value per share

Refer to section 1.

AACSB: N/A Difficulty: Intermediate Learning Objective: 1- Section: 1. Topic: Goal of financial management

1. Why should financial managers strive to maximize the current value per share of the existing stock? A. doing so guarantees the company will grow in size at the maximum possible rate B. doing so increases employee salaries C. because they have been hired to represent the interests of the current shareholders D. because this will increase the current dividends per share E. because managers often receive shares of stock as part of their compensation

Refer to section 1.

AACSB: N/A Difficulty: Intermediate Learning Objective: 1- Section: 1. Topic: Goal of financial management

1. Decisions made by financial managers should primarily focus on increasing which one of the following? A. size of the firm B. growth rate of the firm C. gross profit per unit produced D. market value per share of outstanding stock E. total sales

Refer to section 1.

AACSB: N/A Difficulty: Intermediate Learning Objective: 1- Section: 1. Topic: Goal of financial management

Which of the following is a correct statement concerning a sole proprietorship?

Which statement is true about creating a sole proprietorship?

Which of the following describes a sole proprietorship?

Which of the following statements is correct one of the disadvantages of a sole proprietorship?