,Test Bank For Intermediate Financial Management 14th
Chapter 1. An Overview of Financial Management.
Chapter 1. An Overview of Financial Management.
1. 01: The form of organization for a business is not an important
The form of organization for a business is not an important issue, as
this decision has very little effect on the income and wealth of the
firm's owners.
a. True
*b. False
2. 02: The major advantage of a regular partnership or a corporatio
The major advantage of a regular partnership or a corporation as a form
of business organization is the fact that both offer their owners
limited liability, whereas proprietorships do not.
a. True
*b. False
3. 03: There are three primary disadvantages of a regular partnersh
There are three primary disadvantages of a regular partnership: (1)
unlimited liability, (2) limited life of the organization, and (3)
difficulty of transferring ownership. These combine to make it
difficult for partnerships to attract large amounts of capital and thus
to grow to a very large size.
*a. True
b. False
4. 04: Two disadvantages of a proprietorship are (1) the relative d
Two disadvantages of a proprietorship are (1) the relative difficulty
of raising new capital and (2) the owner's unlimited personal liability
for the business' debts.
*a. True
b. False
5. 05: One key value of limited liability is that it lowers owners&
One key value of limited liability is that it lowers owners' risks and
thereby enhances a firm's value.
*a. True
b. False
6. 06: The disadvantages associated with a proprietorship are simil
The disadvantages associated with a proprietorship are similar to those
under a partnership. One exception relates to the more formal nature of
the partnership agreement and the commitment of all partners' personal
assets. As a result, partnerships do not have difficulty raising large
amounts of capital.
1
,Test Bank For Intermediate Financial Management 14th
Chapter 1. An Overview of Financial Management.
a. True
*b. False
7. 07: The facts that a proprietorship, as a business, pays no corp
The facts that a proprietorship, as a business, pays no corporate
income tax, and that it is easily and inexpensively formed, are two key
advantages to that form of business.
*a. True
b. False
8. 08: Which of the following statements is CORRECT?...
Which of the following statements is CORRECT?
a. One of the disadvantages of incorporating a business is that the owners then become
subject to liabilities in the event the firm goes bankrupt.
b. Sole proprietorships are subject to more regulations than corporations.
c. In any type of partnership, every partner has the same rights, privileges, and liability
exposure as every other partner.
*d. Sole proprietorships and partnerships generally have a tax advantage over many
corporations, especially large ones.
e. Corporations of all types are subject to the corporate income tax.
9. 09: Which of the following statements is CORRECT?...
Which of the following statements is CORRECT?
*a. One of the disadvantages of a sole proprietorship is that the proprietor is exposed to
unlimited liability.
b. It is generally easier to transfer one's ownership interest in a partnership than in a
corporation.
c. One of the advantages of the corporate form of organization is that it avoids double
taxation.
d. One of the advantages of a corporation from a social standpoint is that every
stockholder has equal voting rights, i.e., "one person, one vote."
e. Corporations of all types are subject to the corporate income tax.
10. 10: Which of the following statements is CORRECT?...
Which of the following statements is CORRECT?
a. It is generally more expensive to form a proprietorship than a corporation because,
with a proprietorship, extensive legal documents are required.
b. Corporations face fewer regulations than sole proprietorships.
c. One disadvantage of operating a business as a sole proprietorship is that the firm is
subject to double taxation, at both the firm level and the owner level.
2
, Test Bank For Intermediate Financial Management 14th
Chapter 1. An Overview of Financial Management.
*d. One advantage of forming a corporation is that equity investors are usually exposed
to less liability than in a regular partnership.
e. If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to
the amount of his or her investment in the business.
11. 11: Cheers Inc. operates as a partnership. Now the partners have
Cheers Inc. operates as a partnership. Now the partners have decided to convert the business into
a regular corporation. Which of the following statements is CORRECT?
a. Assuming Cheers is profitable, less of its income will be subject to federal income
taxes.
b. Cheers will now be subject to fewer regulations.
*c. Cheers' shareholders (the ex-partners) will now be exposed to less liability.
d. Cheers' investors will be exposed to less liability, but they will find it more difficult
to transfer their ownership.
e. Cheers will find it more difficult to raise additional capital.
12. 12: Which of the following statements is CORRECT?...
Which of the following statements is CORRECT?
*a. It is usually easier to transfer ownership in a corporation than it is to transfer
ownership in a sole proprietorship.
b. Corporate shareholders are exposed to unlimited liability.
c. Corporations generally face fewer regulations than sole proprietorships.
d. Corporate shareholders are exposed to unlimited liability, and this factor may be
compounded by the tax disadvantages of incorporation.
e. Shareholders in a regular corporation (not an S corporation) pay higher taxes than
owners of an otherwise identical proprietorship.
13. 13: Which of the following could explain why a business might ch
Which of the following could explain why a business might choose to operate as a corporation
rather than as a sole proprietorship or a partnership?
a. Corporations generally find it relatively difficult to raise large amounts of capital.
b. Less of a corporation's income is generally subjected to taxes than would be true if
the firm were a partnership.
*c. Corporate shareholders escape liability for the firm's debts, but this factor may be
offset by the tax disadvantages of the corporate form of organization.
d. Corporate investors are exposed to unlimited liability.
e. Corporations generally face relatively few regulations.
14. 14: One drawback of switching from a partnership to the corporat
One drawback of switching from a partnership to the corporate form of organization is the
following:
3
Chapter 1. An Overview of Financial Management.
Chapter 1. An Overview of Financial Management.
1. 01: The form of organization for a business is not an important
The form of organization for a business is not an important issue, as
this decision has very little effect on the income and wealth of the
firm's owners.
a. True
*b. False
2. 02: The major advantage of a regular partnership or a corporatio
The major advantage of a regular partnership or a corporation as a form
of business organization is the fact that both offer their owners
limited liability, whereas proprietorships do not.
a. True
*b. False
3. 03: There are three primary disadvantages of a regular partnersh
There are three primary disadvantages of a regular partnership: (1)
unlimited liability, (2) limited life of the organization, and (3)
difficulty of transferring ownership. These combine to make it
difficult for partnerships to attract large amounts of capital and thus
to grow to a very large size.
*a. True
b. False
4. 04: Two disadvantages of a proprietorship are (1) the relative d
Two disadvantages of a proprietorship are (1) the relative difficulty
of raising new capital and (2) the owner's unlimited personal liability
for the business' debts.
*a. True
b. False
5. 05: One key value of limited liability is that it lowers owners&
One key value of limited liability is that it lowers owners' risks and
thereby enhances a firm's value.
*a. True
b. False
6. 06: The disadvantages associated with a proprietorship are simil
The disadvantages associated with a proprietorship are similar to those
under a partnership. One exception relates to the more formal nature of
the partnership agreement and the commitment of all partners' personal
assets. As a result, partnerships do not have difficulty raising large
amounts of capital.
1
,Test Bank For Intermediate Financial Management 14th
Chapter 1. An Overview of Financial Management.
a. True
*b. False
7. 07: The facts that a proprietorship, as a business, pays no corp
The facts that a proprietorship, as a business, pays no corporate
income tax, and that it is easily and inexpensively formed, are two key
advantages to that form of business.
*a. True
b. False
8. 08: Which of the following statements is CORRECT?...
Which of the following statements is CORRECT?
a. One of the disadvantages of incorporating a business is that the owners then become
subject to liabilities in the event the firm goes bankrupt.
b. Sole proprietorships are subject to more regulations than corporations.
c. In any type of partnership, every partner has the same rights, privileges, and liability
exposure as every other partner.
*d. Sole proprietorships and partnerships generally have a tax advantage over many
corporations, especially large ones.
e. Corporations of all types are subject to the corporate income tax.
9. 09: Which of the following statements is CORRECT?...
Which of the following statements is CORRECT?
*a. One of the disadvantages of a sole proprietorship is that the proprietor is exposed to
unlimited liability.
b. It is generally easier to transfer one's ownership interest in a partnership than in a
corporation.
c. One of the advantages of the corporate form of organization is that it avoids double
taxation.
d. One of the advantages of a corporation from a social standpoint is that every
stockholder has equal voting rights, i.e., "one person, one vote."
e. Corporations of all types are subject to the corporate income tax.
10. 10: Which of the following statements is CORRECT?...
Which of the following statements is CORRECT?
a. It is generally more expensive to form a proprietorship than a corporation because,
with a proprietorship, extensive legal documents are required.
b. Corporations face fewer regulations than sole proprietorships.
c. One disadvantage of operating a business as a sole proprietorship is that the firm is
subject to double taxation, at both the firm level and the owner level.
2
, Test Bank For Intermediate Financial Management 14th
Chapter 1. An Overview of Financial Management.
*d. One advantage of forming a corporation is that equity investors are usually exposed
to less liability than in a regular partnership.
e. If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to
the amount of his or her investment in the business.
11. 11: Cheers Inc. operates as a partnership. Now the partners have
Cheers Inc. operates as a partnership. Now the partners have decided to convert the business into
a regular corporation. Which of the following statements is CORRECT?
a. Assuming Cheers is profitable, less of its income will be subject to federal income
taxes.
b. Cheers will now be subject to fewer regulations.
*c. Cheers' shareholders (the ex-partners) will now be exposed to less liability.
d. Cheers' investors will be exposed to less liability, but they will find it more difficult
to transfer their ownership.
e. Cheers will find it more difficult to raise additional capital.
12. 12: Which of the following statements is CORRECT?...
Which of the following statements is CORRECT?
*a. It is usually easier to transfer ownership in a corporation than it is to transfer
ownership in a sole proprietorship.
b. Corporate shareholders are exposed to unlimited liability.
c. Corporations generally face fewer regulations than sole proprietorships.
d. Corporate shareholders are exposed to unlimited liability, and this factor may be
compounded by the tax disadvantages of incorporation.
e. Shareholders in a regular corporation (not an S corporation) pay higher taxes than
owners of an otherwise identical proprietorship.
13. 13: Which of the following could explain why a business might ch
Which of the following could explain why a business might choose to operate as a corporation
rather than as a sole proprietorship or a partnership?
a. Corporations generally find it relatively difficult to raise large amounts of capital.
b. Less of a corporation's income is generally subjected to taxes than would be true if
the firm were a partnership.
*c. Corporate shareholders escape liability for the firm's debts, but this factor may be
offset by the tax disadvantages of the corporate form of organization.
d. Corporate investors are exposed to unlimited liability.
e. Corporations generally face relatively few regulations.
14. 14: One drawback of switching from a partnership to the corporat
One drawback of switching from a partnership to the corporate form of organization is the
following:
3
