Chapter 1 The Corporation
1.1The Four Types Of Firms
1) A Sole Proprietorship Is Owned By:
A) One Person.
B) Two Of More Persons.
C) Shareholders.
D) Bankers. Correct Answer: A Diff: 1
Section: 1.1 The Four Types Of Firms Skill: Definition
2) Which Of The Following Organization Forms For A Business Does NOT Avoid Double Taxation?
A) Limited Partnership
B) "C" Corporation
C) "S" Corporation
D) Limited Liability Company Correct
Answer: B Diff: 1
Section: 1.1 The Four Types Of Firms Skill: Conceptual
3) Which Of The Following Organization Forms Accounts For The Most Revenue?
A) "S" Corporation
B) Limited Partnership
C) "C" Corporation
D) Limited Liability Company Correct
Answer: C Diff: 1
Section: 1.1 The Four Types Of Firms Skill: Conceptual
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,4) Which Of The Following Organization Forms Accounts For The Greatest Number Of Firms?
A) "S" Corporation
B) Limited Partnership
C) Sole Proprietorship
D) "C" Corporation Correct Answer:
C Diff: 1
Section: 1.1 The Four Types Of Firms Skill: Conceptual
5) 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 Correct
Answer: C Diff: 2
Section: 1.1 The Four Types Of Firms Skill: Conceptual
6) 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 Their Investment.
C) A Limited Partner Is Not Liable Until All The Assets Of The General Partners Have Been Exhausted.
D) A General Partner's Liability Is Limited By The Amount Of Their Investment. Correct
Answer: B Diff: 2
Section: 1.1 The Four Types Of Firms Skill: Conceptual
7) Which Of The Following Is/Are An Advantage Of Incorporation?
A) Access To Capital Markets
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,B) Limited Liability
C) Unlimited Life
D) All Of The Above Correct
Answer: D Diff: 2
Section: 1.1 The Four Types Of Firms Skill: Conceptual
8) 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 Has Limited Liability.
D) Corporations Face More Regulations When Compared To Partnerships. Correct
Answer: D Diff: 2
Section: 1.1 The Four Types Of Firms Skill: Conceptual
9) A Limited Liability Company 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. Correct
Answer: B Diff: 1
Section: 1.1 The Four Types Of Firms Skill: Conceptual
10) The Distinguishing Feature Of A Corporation Is That:
A) Their 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.
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, D) Provides Limited Liability Only To Small Shareholders. Correct
Answer: B Diff: 2
Section: 1.1 The Four Types Of Firms
Skill: Conceptual
11) Which Of The Following Are Subject To Double Taxation?
A) Corporation
B) Partnership
C) Sole Proprietorship
D) A And B Correct Answer: A Diff: 1
Section: 1.1 The Four Types Of Firms Skill: Conceptual
12) You Own 100 Shares Of A "C" Corporation. The Corporation Earns $5.00 Per Share Before Taxes.
Once The Corporation Has Paid Any Corporate Taxes That Are Due, It Will Distribute The Rest Of Its
Earnings To Its Shareholders In The Form Of A Dividend. If The Corporate Tax Rate Is 40% And Your
Personal Tax Rate On (Both Dividend And Non-Dividend) Income Is 30%, Then How Much Money Is
Left For You After All Taxes Have Been Paid?
A) $210
B) $300
C) $350
D) $500
Correct Answer: A
Explanation: A) EPS × Number Of Shares × (1 - Corporate Tax Rate) × (1 - Individual Tax Rate)
$5.00 Per Share × 100 Shares × (1 - .40) × (1 - .30) = $210
Diff: 2
Section: 1.1 The Four Types Of Firms Skill: Analytical
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1.1The Four Types Of Firms
1) A Sole Proprietorship Is Owned By:
A) One Person.
B) Two Of More Persons.
C) Shareholders.
D) Bankers. Correct Answer: A Diff: 1
Section: 1.1 The Four Types Of Firms Skill: Definition
2) Which Of The Following Organization Forms For A Business Does NOT Avoid Double Taxation?
A) Limited Partnership
B) "C" Corporation
C) "S" Corporation
D) Limited Liability Company Correct
Answer: B Diff: 1
Section: 1.1 The Four Types Of Firms Skill: Conceptual
3) Which Of The Following Organization Forms Accounts For The Most Revenue?
A) "S" Corporation
B) Limited Partnership
C) "C" Corporation
D) Limited Liability Company Correct
Answer: C Diff: 1
Section: 1.1 The Four Types Of Firms Skill: Conceptual
Page | 1
,4) Which Of The Following Organization Forms Accounts For The Greatest Number Of Firms?
A) "S" Corporation
B) Limited Partnership
C) Sole Proprietorship
D) "C" Corporation Correct Answer:
C Diff: 1
Section: 1.1 The Four Types Of Firms Skill: Conceptual
5) 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 Correct
Answer: C Diff: 2
Section: 1.1 The Four Types Of Firms Skill: Conceptual
6) 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 Their Investment.
C) A Limited Partner Is Not Liable Until All The Assets Of The General Partners Have Been Exhausted.
D) A General Partner's Liability Is Limited By The Amount Of Their Investment. Correct
Answer: B Diff: 2
Section: 1.1 The Four Types Of Firms Skill: Conceptual
7) Which Of The Following Is/Are An Advantage Of Incorporation?
A) Access To Capital Markets
Page | 2
,B) Limited Liability
C) Unlimited Life
D) All Of The Above Correct
Answer: D Diff: 2
Section: 1.1 The Four Types Of Firms Skill: Conceptual
8) 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 Has Limited Liability.
D) Corporations Face More Regulations When Compared To Partnerships. Correct
Answer: D Diff: 2
Section: 1.1 The Four Types Of Firms Skill: Conceptual
9) A Limited Liability Company 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. Correct
Answer: B Diff: 1
Section: 1.1 The Four Types Of Firms Skill: Conceptual
10) The Distinguishing Feature Of A Corporation Is That:
A) Their 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.
Page | 3
, D) Provides Limited Liability Only To Small Shareholders. Correct
Answer: B Diff: 2
Section: 1.1 The Four Types Of Firms
Skill: Conceptual
11) Which Of The Following Are Subject To Double Taxation?
A) Corporation
B) Partnership
C) Sole Proprietorship
D) A And B Correct Answer: A Diff: 1
Section: 1.1 The Four Types Of Firms Skill: Conceptual
12) You Own 100 Shares Of A "C" Corporation. The Corporation Earns $5.00 Per Share Before Taxes.
Once The Corporation Has Paid Any Corporate Taxes That Are Due, It Will Distribute The Rest Of Its
Earnings To Its Shareholders In The Form Of A Dividend. If The Corporate Tax Rate Is 40% And Your
Personal Tax Rate On (Both Dividend And Non-Dividend) Income Is 30%, Then How Much Money Is
Left For You After All Taxes Have Been Paid?
A) $210
B) $300
C) $350
D) $500
Correct Answer: A
Explanation: A) EPS × Number Of Shares × (1 - Corporate Tax Rate) × (1 - Individual Tax Rate)
$5.00 Per Share × 100 Shares × (1 - .40) × (1 - .30) = $210
Diff: 2
Section: 1.1 The Four Types Of Firms Skill: Analytical
Page | 4
