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A nonprofit corporation does not seek personal profit for its owners.

A) True
B) False

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A merger is a mutual agreement where companies join together, whereas an acquisition is when one firm purchases the assets and obligations of another firm.

A) True
B) False

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It is correct to say that if a franchisor expects an 8% royalty fee on revenue, the franchisor earns 8 cents on each dollar of revenue the franchisee generates.

A) True
B) False

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With respect to taxes, the sole proprietorship


A) pays taxes on the profits of the business at the same rate that corporations pay taxes.
B) pays taxes on the profits of the business, at the owner's personal tax rate.
C) pays taxes only if there are no expenses associated with the business.
D) is permitted to determine its own tax rate and schedule of payments.

E) A) and C)
F) None of the above

Correct Answer

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A merger involving a commercial bakery and a grocery retailer would be an example of a ________ merger.


A) vertical
B) horizontal
C) linear
D) conglomerate

E) B) and D)
F) A) and D)

Correct Answer

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A quasi-public corporation is a corporation chartered by the government as an approved monopoly to perform services to the general public.

A) True
B) False

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Ivy is investing in a home cleaning franchise called HomeKeepers. At her first interview with the franchisor's selling agent, she was told the parent company expects 5% royalties. What are royalties?


A) The initial investment, also known as the franchise fee paid to the franchisor
B) The cost of supplies that she will purchase one time each month from the parent company
C) The milestones that the parent company expects her to reach. With each milestone, she will be rewarded with commissions
D) The share of the profits or a percentage share of revenues (net sales)

E) A) and D)
F) B) and D)

Correct Answer

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The fairest way to handle profits in any partnership arrangement is to divide things evenly. If there are two owners in the business, each gets 50%. If there are three owners (even if one is a limited partner), each gets 33.333% of any accumulated profits.

A) True
B) False

Correct Answer

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A foreign corporation is chartered in a country outside the U.S.

A) True
B) False

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A disadvantage of corporations is that their charters are only valid for 99 years, so corporations are less permanent than other types of businesses.

A) True
B) False

Correct Answer

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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.

A) True
B) False

Correct Answer

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The organization structure of a corporation allows for stockholders to exert a significant degree of control over the company's daily operations.

A) True
B) False

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Originally, farm cooperatives were formed to provide better prices for farmers. These groups now cooperatively buy farm equipment and other products, and realize economies of scale by banding together for these things.

A) True
B) False

Correct Answer

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When one of the owners of a corporation dies, the corporation legally ceases to exist.

A) True
B) False

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Two of your friends are horse fanatics. They inherited several acres of land that they turned into a retirement sanctuary for racehorses. Serenity Stables was originally incorporated as a limited liability company. The members are reevaluating this form of ownership. Unlike an S corporation, they now pay self-employment taxes on all company profits-not just on the salaries they pay themselves.

A) True
B) False

Correct Answer

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Corporations represent 20 percent of all the businesses in the U.S. and earn over 80 percent of the total U.S. business receipts.

A) True
B) False

Correct Answer

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The first step in starting a sole proprietorship is to fill out a proprietorship charter application form and file it with the state government.

A) True
B) False

Correct Answer

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A domestic corporation does business in the state in which it's chartered.

A) True
B) False

Correct Answer

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The owners of Game Guys are looking to become an S corporation. Unfortunately, after speaking with their lawyer, she advised them that they do not meet some of the requirements necessary to qualify as an S corporation. An alternative form of business that would give them similar advantages is a limited liability company.

A) True
B) False

Correct Answer

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If you want to sell your ownership in a publicly traded corporation, you find someone willing to buy your shares.

A) True
B) False

Correct Answer

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