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TEST BANK
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,Jonathan Berk: Corporate Finance, 5th Canadian Edition
Chapter 1 The Corporation

1.1 The Three Types of Firms

1) A sole proprietorship is owned by:
A) one person
B) two or more people
C) shareholders
D) bankers
Answer: A
Diff: 1 Type: MC
Topic: 1.1 The Three Types of Firms

2) In Canada, which of the following organization forms accounts for the greatest number of
firms?
A) Limited Liability Partnership
B) Limited Partnership
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C) Sole Proprietorship
D) Publicly Traded Corporation
Answer: C
Diff: 1 Type: MC
Topic: 1.1 The Three Types of Firms
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3) Which of the following organization forms earns the most revenue?
A) Privately Owned Corporation
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B) Limited Partnership
C) Publicly Owned Corporation
D) Limited Liability Company
Answer: C
Diff: 1 Type: MC
Topic: 1.1 The Three Types of Firms

4) Which of the following is NOT an advantage of a sole proprietorship?
A) Single taxation
B) Ease of setup
C) Limited liability
D) No separation of ownership and control
Answer: C
Diff: 2 Type: MC
Topic: 1.1 The Three Types of Firms

,5) Which of the following statements regarding limited partnerships is TRUE?
A) There is no limit on a limited partner's liability.
B) A limited partner's liability is limited by the amount of his investment.
C) A limited partner is not liable until all of the assets of the general partners have been
exhausted.
D) A general partner's liability is limited by the amount of his investment.
Answer: B
Diff: 2 Type: MC
Topic: 1.1 The Three Types of Firms

6) Which of the following is/are an advantage(s) of incorporation?
A) Access to capital markets
B) Limited liability
C) Unlimited life
D) All of the above
Answer: D
Diff: 2 Type: MC
Topic: 1.1 The Three Types of Firms
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7) In Canada, a limited liability partnership, LLP, is essentially:
A) a limited partnership without limited partners
B) a limited partnership without a general partner
C) just another name for a limited partnership
D) just another name for a corporation
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Answer: B
Diff: 1 Type: MC
Topic: 1.1 The Three Types of Firms
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8) In Canada, which of the following business organization forms cannot avoid double taxation?
A) Limited Partnership
B) Publicly Traded Corporation
C) Privately Owned Corporation
D) Limited Liability Company
Answer: B
Diff: 1 Type: MC
Topic: 1.1 The Three Types of Firms

9) In Canada, the dividend tax credit gives some relief by:
A) effectively giving a lower tax rate on dividend income than on other sources of income
B) effectively giving a higher tax rate on dividend income than on other sources of income
C) effectively giving the same tax rate on dividend income as on other sources of income
D) effectively giving a tax rate of zero on dividend income compared to other sources of income
Answer: A
Diff: 1 Type: MC
Topic: 1.1 The Three Types of Firms

, 10) Which of the following statements is most correct?
A) An advantage to incorporation is that it allows for less regulation of the business.
B) An advantage of a corporation is that it is subject to double taxation.
C) Unlike a partnership, a disadvantage of a corporation is that it has limited liability.
D) Corporations face more regulations when compared to partnerships.
Answer: D
Diff: 2 Type: MC
Topic: 1.1 The Three Types of Firms

11) In Canada, the distinguishing feature of a corporation is that:
A) there is no legal difference between the corporation and its owners
B) it is a legally defined, artificial being, separate from its owners
C) it spreads liability for its corporate obligations to all shareholders
D) it provides limited liability only to small shareholders
Answer: B
Diff: 2 Type: MC
Topic: 1.1 The Three Types of Firms

12) Which of the following is/are subject to double taxation in Canada?
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A) Corporation
B) Partnership
C) Sole proprietorship
D) Both A and B
Answer: A
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Diff: 1 Type: MC
Topic: 1.1 The Three Types of Firms
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13) Canada Revenue Agency, CRA, allows an exemption from double taxation for certain flow
through entities where all income produced by the business flows to the investors and virtually
no earnings are retained within the business. These entities are called:
A) Canadian Federal Crown Corporations
B) Canadian Controlled Corporations
C) Income Trust Corporations
D) Foreign Controlled Corporations
Answer: C
Diff: 1 Type: MC
Topic: 1.1 The Three Types of Firms