Finance 325 Exam 2 Study Guide With
Complete Answers
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. - ANSWER B) Sole proprietorship.
A business formed by two or more individuals who each have unlimited liability
for all of the firm's business debts is called a:
A) Corporation.
B) Sole proprietorship.
C) General partnership.
D) Limited partnership.
E) Limited liability company. - ANSWER C) General partnership.
A business partner whose potential financial loss in the partnership will not
exceed his or her investment in that partnership is called a:
A) General partner.
B) Sole proprietor.
C) Limited partner.
D) Corporate shareholder.
E) Zero partner. - ANSWER C) Limited partner.
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. - ANSWER A) Corporation.
Which one of the following statements about 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.S. today.
, E) A sole proprietorship is structured the same as a limited liability company. -
ANSWER C) The owner of a sole proprietorship is personally responsible for all
of the company's debts.
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. - ANSWER E) It is easy to create a
sole proprietorship.
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. - ANSWER B) I and II only.
Which one of the following best describes the primary advantage of being a
limited partner instead of a general partner?
A) Tax-free income.
B) Active participation in the firm's activities.
C) No potential financial loss.
D) Greater control over the business affairs of the partnership.
E) Maximum loss limited to the capital invested. - ANSWER E) Maximum loss
limited to the capital invested.
A general partner:
A) Is personally responsible for all the partnership debts.
B) Has no say over a firm's daily operations.
C) Faces double taxation whereas a limited partner does not.
D) Has a maximum loss equal to his or her equity investment.
E) Receives a salary in lieu of a portion of the profits. - ANSWER A) Is personally
responsible for all the partnership debts.
A limited partnership:
A) Has an unlimited life.
B) Can opt to be taxed as a corporation.
Complete Answers
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. - ANSWER B) Sole proprietorship.
A business formed by two or more individuals who each have unlimited liability
for all of the firm's business debts is called a:
A) Corporation.
B) Sole proprietorship.
C) General partnership.
D) Limited partnership.
E) Limited liability company. - ANSWER C) General partnership.
A business partner whose potential financial loss in the partnership will not
exceed his or her investment in that partnership is called a:
A) General partner.
B) Sole proprietor.
C) Limited partner.
D) Corporate shareholder.
E) Zero partner. - ANSWER C) Limited partner.
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. - ANSWER A) Corporation.
Which one of the following statements about 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.S. today.
, E) A sole proprietorship is structured the same as a limited liability company. -
ANSWER C) The owner of a sole proprietorship is personally responsible for all
of the company's debts.
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. - ANSWER E) It is easy to create a
sole proprietorship.
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. - ANSWER B) I and II only.
Which one of the following best describes the primary advantage of being a
limited partner instead of a general partner?
A) Tax-free income.
B) Active participation in the firm's activities.
C) No potential financial loss.
D) Greater control over the business affairs of the partnership.
E) Maximum loss limited to the capital invested. - ANSWER E) Maximum loss
limited to the capital invested.
A general partner:
A) Is personally responsible for all the partnership debts.
B) Has no say over a firm's daily operations.
C) Faces double taxation whereas a limited partner does not.
D) Has a maximum loss equal to his or her equity investment.
E) Receives a salary in lieu of a portion of the profits. - ANSWER A) Is personally
responsible for all the partnership debts.
A limited partnership:
A) Has an unlimited life.
B) Can opt to be taxed as a corporation.
