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5-1
Chapter 05 - How to Form a Business
5-2
Chapter 05 - How to Form a Business
Chapter 05
How to Form a Business Answer Key
Answer: False
Page: 116
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Basic Forms of Business Ownership
2. The three major forms of business ownership in the U.S. are sole proprietorships,
partnerships, and corporations.
Answer:
Page: 116
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Basic Forms of Business Ownership
Answer: False
Page: 116
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Basic Forms of Business Ownership
4. Once a business is established, it's almost impossible to change from one form of business
ownership to another.
Answer: False
Page: 116
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Basic Forms of Business Ownership
5-3
Chapter 05 - How to Form a Business
5. When two or more people legally agree to become co-owners of a business, the form of
business is called a partnership.
Answer: True
Page: 116
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Basic Forms of Business Ownership
6. A legal entity with authority to act and have liability separate from its owners is called a
partnership.
Answer: False
Page: 116-117
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Basic Forms of Business Ownership
7. Corporations represent 20 percent of all the businesses in the U.S. and earn 81 percent of
the total U.S. business receipts.
Answer: True
Page: 116-117
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Basic Forms of Business Ownership
8. A comparison of the three major forms of business ownership shows that sole
proprietorships are usually the most difficult type of business to establish.
Answer: False
Page: 116-117
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Basic Forms of Business Ownership
5-4
Chapter 05 - How to Form a Business
9. The first step in starting a sole proprietorship is to fill out a proprietorship charter
application form and file it with the state government.
Answer: False
Page: 117
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Advantages of Sole Proprietorships
Answer: True
Page: 117
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Advantages of Sole Proprietorships
11. The profits of a sole proprietorship are taxed as the personal income of the owner.
Answer: True
Page: 117
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Advantages of Sole Proprietorships
12. The sole proprietorship form of ownership tends to be attractive to people who want to
invest in a company without taking an active role in management.
Answer: False
Page: 117
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Advantages of Sole Proprietorships
13. A major advantage of sole proprietorships is that an owner has limited liability for the
debts of his or her business.
Answer: False
Page: 117
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Advantages of Sole Proprietorships
5-5
Chapter 05 - How to Form a Business
14. One of the strengths of the sole proprietorship is its ability to sustain rapid growth by
raising large amounts of financial resources.
Answer: False
Page: 117
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Advantages of Sole Proprietorships
15. The debts of a business operated as a sole proprietorship are considered to be the personal
debts of the owner of the business.
Answer: True
Page: 118
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Disadvantages of Sole Proprietorships
16. A drawback of sole proprietorships is that they usually have limited access to additional
financial resources.
Answer: True
Page: 118
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Disadvantages of Sole Proprietorships
17. An advantage of forming a sole proprietorship is that it allows the owner to have more
time for leisure activities.
Answer: False
Page: 118
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 1: Knowledge of key terms
Topic: Disadvantages of Sole Proprietorships
5-6
Chapter 05 - How to Form a Business
18. If a sole proprietorship fails, the owner may lose whatever was invested in the business,
however, the owner's personal assets are not at risk.
Feedback: Sole proprietors have unlimited liability for the debts of their business. This means
that if their business gets into financial trouble they can lose their personal assets.
Answer: False
Page: 118
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 2: Understanding of concepts and principles
Topic: Disadvantages of Sole Proprietorships
19. If the business is designated a sole proprietorship, profits are passed along to the owner.
For tax purposes, these profits are accounted for with any other personal income the
owner may have accumulated and taxed at the owner's personal income tax rate.
Feedback: The profits of a sole proprietorship are passed through to the owner, and taxed at
the owner's personal tax rate. However, owners do have to pay self employment tax (for
Social Security and Medicare). By law, sole proprietors are required to estimate their taxes
and make quarterly payments to the government or suffer penalties for nonpayment.
Answer: True
Page: 117
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 2: Understanding of concepts and principles
Topic: Advantages of Sole Proprietorships
20. A difficulty that sole proprietors try to overcome is the fact that they have trouble
competing with large firms for expert talent. Large firms can usually pay better and offer
fringe benefits that are unaffordable to the sole proprietor.
Feedback: Sole proprietors often find it difficult to attract qualified employees to help run the
business because often they cannot compete with the salary and benefits offered by larger
companies.
Answer: True
Page: 118
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 2: Understanding of concepts and principles
Topic: Disadvantages of Sole Proprietorships
5-7
Chapter 05 - How to Form a Business
21. Unlike partnerships, if sole proprietorships find themselves in bankruptcy, they need not
worry about a court of law requiring them to sell-off personal assets to pay for the debts of
the firm.
Feedback: Sole proprietorships have unlimited liability. This means that the proprietor is
financially responsible for all debts incurred by the company. In a court of law, a judge could
require the owner/proprietor to liquidate personal assets to pay the debts of the business.
Answer: False
Page: 118
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-1
Level of Difficulty 2: Understanding of concepts and principles
Topic: Disadvantages of Sole Proprietorships
22. Eric wants to start a business. He is attracted to the idea of being his own boss, and wants
to get started with a minimum of expense and hassle. He is confident in his abilities, and
the market he can draw from, so he is not particularly worried about financial risks. All of
these factors suggest that Eric may favor starting his business as a sole proprietorship.
Feedback: People who want to be their own boss often prefer to operate their business, at
least initially, as a sole proprietorship. An advantage of the sole proprietorship is that it is a
relatively easy and inexpensive form of business to set up. One drawback of a sole
proprietorship is that the owner has unlimited liability. However, at this time, Eric is not
worried about risk. The unlimited liability factor does not appear to be a problem for him.
Answer: True
Page: 117-118
AACSB: Reflective Thinking
Bloom's: Application
Learning Goal: 05-1
Level of Difficulty 3: Application of principles
Topic: Sole Proprietorships
5-8
Chapter 05 - How to Form a Business
23. Sandy Beech, a talented fashion designer who wants to start her own women's swimwear
and beach towel line, is trying to decide which form of business ownership is right for her.
As a young mother who aspires to send her children to college some day, she does not
want to jeopardize her savings account in any way. In order to overcome these risks,
Sandy should start her business as a sole proprietorship.
Feedback: Sandy is concerned about the risk of losing personal assets if her business does not
succeed. Although the sole proprietorship is easy to set-up, it may not be the best form of
business ownership for Sandy due to her need to protect personal assets. She may want to
consider a form of ownership that provides limited liability.
Answer: False
Page: 117-118
AACSB: Reflective Thinking
Bloom's: Application
Learning Goal: 05-1
Level of Difficulty 3: Application of principles
Topic: Sole Proprietorships
24. Rocky Rhodes is convinced that he has a great idea for a new business. Unfortunately, the
type of business he wants to start would require a fairly high initial investment and Rocky
has a poor credit rating and very little personal wealth. Rocky would be unlikely to find
success if he organized his business as a sole proprietorship.
Feedback: Funds available to sole proprietorships are often limited to the amount the owner
can raise. Thus, Rocky's business would probably have a hard time raising enough money if
he organized it as a sole proprietorship.
Answer: True
Page: 117-118
AACSB: Reflective Thinking
Bloom's: Application
Learning Goal: 05-1
Level of Difficulty 3: Application of principles
Topic: Sole Proprietorships
25. A general partner takes an active role in the management of the business.
Answer: True
Page: 119
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Partnerships
5-9
Chapter 05 - How to Form a Business
26. All partners in a general partnership have limited liability for the debts of their firm.
Answer: False
Page: 119
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Partnerships
27. In a general partnership, all partners share in management of the business and in the
liability for the firm's debts.
Answer: True
Page: 119
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Partnerships
28. In a general partnership, all partners are entitled to an equal share of the firm's profits.
Answer: False
Page: 119
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Partnerships
29. Limited partnerships are just like general partnerships, except that they are partners for a
limited time period.
Answer: False
Page: 119
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Partnerships
5-10
Chapter 05 - How to Form a Business
30. A limited partner is an owner who assumes no management responsibility and has no
liability for losses beyond the amount invested.
Answer: True
Page: 119
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Partnerships
31. A limited partnership consists of one or more general partners and one or more limited
partners.
Answer: True
Page: 119
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Partnerships
32. Although shares of master limited partnerships can be purchased on one of the national
stock exchanges, these companies are taxed like partnerships.
Answer: True
Page: 119
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Partnerships
33. The Uniform Partnership Act is law in every state except Louisiana.
Answer: True
Page: 119
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Partnerships
5-11
Chapter 05 - How to Form a Business
34. According to the Uniform Partnership Act, the three key elements of any general
partnership are (1) shares of stock to represent ownership, (2) limited liability, and (3)
ease of ownership transfer.
Answer: False
Page: 120
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Partnerships
35. 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.
Answer: True
Page: 120
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Partnerships
36. A recent study showed that partnerships are more likely to fail than sole proprietorships.
Answer: False
Page: 120
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Advantages of Partnerships
37. A major objective of limited liability partnerships (LLPs) is to limit each partner's
personal liability to the consequences of their own acts and those of people under their
supervision.
Answer: True
Page: 119
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Partnerships
5-12
Chapter 05 - How to Form a Business
38. One of the major disadvantages of a partnership is that profits must be divided equally.
Answer: False
Page: 121
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Disadvantages of Partnerships
39. A general partner has unlimited liability for the debts of the partnership only if he or she
personally approved the decisions that resulted in those debts.
Answer: False
Page: 119
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Partnerships
40. In order to protect all parties and minimize misunderstandings among partners, all terms
of the partnership should be spelled out in writing.
Answer: True
Page: 121
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Disdvantages of Partnerships
41. One advantage of a partnership is that there is a simple process for partners to terminate
their business.
Answer: False
Page: 121
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Disdvantages of Partnerships s
5-13
Chapter 05 - How to Form a Business
Answer: True
Page: 120
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Advantages of Partnerships s
43. Setting up a partnership under the terms of a written agreement is a bad idea, because
written agreements tend to be too inflexible and impersonal.
Answer: False
Page: 121
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Disadvantages of Partnerships
44. Compared to sole proprietorships, partnerships offer the advantage of shared management
and pooled knowledge.
Answer: True
Page: 120
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Advantages of Partnerships
45. A limited partnership refers to a partnership set up for a temporary purpose, such as a real
estate development project.
Answer: False
Page: 119
AACSB: Reflective Thinking
Bloom's: Knowledge
Learning Goal: 05-2
Level of Difficulty 1: Knowledge of key terms
Topic: Partnerships
5-14
Chapter 05 - How to Form a Business
46. In a limited partnership, the general partners should encourage the limited partners to take
a more active role in the operations of the business. After all, the limited partner has
comparable liability in the business, even though he/she may not be a partner for as long a
period of time as the general partners.
Feedback: By definition, a limited partnership will consist of one or more general partners
and one or more limited partners. The limited partners are passive investors. By law, they do
not take an active role in the management of the business, yet they may share in the profits of
the business and remain a partner for as long as the partnership exists.
Answer: False
Page: 119
AACSB: Reflective Thinking
Bloom's: Comprehension
Learning Goal: 05-2
Level of Difficulty 2: Understanding of concepts and principles
Topic: Partnerships
Feedback: If a partner in any partnership dies, the partnership agreement automatically ceases
to exist. Good partnership agreements usually have provisions for these situations.
Answer: True
Page: 119-122
AACSB: Reflective Thinking
Bloom's: Comprehension
Learning Goal: 05-2
Level of Difficulty 2: Understanding of concepts and principles
Topic: Partnerships
48. In the Spotlight on Small Business box, titled, "The Ties That Bind", the writer suggests
that potential partners discuss the types of skills that each brings to the business. Partners
with complimentary skills may enhance the business.
Feedback: It is suggested that you ask yourself what types of skills you and your potential
partners bring to the business, and whether those skills compliment each other. Successful
partners often come with varying backgrounds. Sometimes one partner will have the technical
skills to get the job done, while others might have the business or accounting knowledge.
Answer: True
Page: 121
AACSB: Reflective Thinking
Bloom's: Comprehension
Learning Goal: 05-2
Level of Difficulty 2: Understanding of concepts and principles
Topic: Spotlight on Small Business box
5-15
Another random document with
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answered by [238]a “burning, as in hell-fire, of priestly shams and
lies,” and not one out of twenty French monasteries escaped the fury
of the avengers. Our Protestant clergymen see their temple walls
cracked by a breach of ever-multiplying schisms, and can prop their
prestige only by more and more humiliating concessions, and in
every intelligent community have to purchase popularity by rank
heresies against the dogmas of their predecessors. Here and there
the orthodox tenets of the New Testament have survived the
progress of rationalism, but haunt the shade, like specters scenting
the morning air, and momentarily expecting the summons that shall
banish them to the realms of their native night.
[Contents]
E.—REFORM.
The religion of reason will limit its proper sphere to the secular
welfare of mankind, but will ask, as well as grant, the fullest freedom
of metaphysical speculation. Why should the friends of light darken
the sunshine of earth with fanatical wars for the suppression of
private theories about the mystery of the unrevealed first cause?
Why should they rage about the riddle of the veiled hereafter to
please the ordainer of the eternal law that visits such inexorable
penalties upon the neglect of the present world? Should the friends
of common sense quarrel about guesses at the solution of
unknowable secrets? We need not grudge our wonder-loving brother
the luxury of meditating on the mysteries of the unseen or the
possibilities of resurrection. Shall the soul of the dying patriarch live
only in his children? Shall it wing its way to distant stars? Shall it
linger on earth:
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42 Golgatha Golgotha 1
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75 koennen können 2/1
89 Jerstaecker Gerstäcker 3/2
90 Rhus Rushd 3
97 Hartz Harz 1
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98 Luetzen Lützen 2/1
98 Oudenarde Oudenaarde 1
102 wordly worldly 1
105 Hooglyn Hooghly 2
117 cooperation coöperation 1/0
123 intemperence intemperance 1
124 eshalten erhalten 1
152 hypocrits hypocrites 1
160 michievousness mischievousness 1
165,
179, Moriscoes Moriscos 1
189
173 groessre grössre 2/1
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197 Budha-Pesth Buda-Pesth 1
226 favorit favorite 1
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