Which one of the following best describes the primary advantage of being a limited partner instead of a general partner?

21. 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.

Refer to section 1.2

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: Sole proprietorship
 

22. 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

Refer to section 1.2

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: Unlimited liability
 

23. 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

Refer to section 1.2

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: Limited partner
 

24. A general partner:
A. is solely 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.

Refer to section 1.2

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: General partner
 

25. A limited partnership:
A. has an unlimited life.
B. can opt to be taxed as a corporation.
C. terminates at the death of any limited partner.
D. has a greater ability to raise capital than a sole proprietorship.
E. consists solely of limited partners.

Refer to section 1.2

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: Partnership
 

26. Which of the following apply to a partnership that consists solely of general partners?
I. double taxation of partnership profits
II. limited partnership life
III. active involvement in the firm by all the partners
IV. unlimited personal liability for all partnership debts
A. II only
B. I and II only
C. II and III only
D. I, II, and IV only
E. II, III, and IV only

Refer to section 1.2

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: Partnership
 

27. Which of the following are advantages of the corporate form of business ownership?
I. limited liability for firm debt
II. double taxation
III. ability to raise capital
IV. unlimited firm life
A. I and II only
B. III and IV only
C. I, III, and IV only
D. II, III, and IV only
E. I, II, III, and IV

Refer to section 1.2

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: Corporation
 

28. Which one of the following statements is correct?
A. The majority of firms in the U.S. are structured as corporations.
B. Corporate profits are taxable income to the shareholders when earned.
C. Corporations can raise large amounts of capital generally easier than partnerships can.
D. Stockholders face no potential losses related to their corporate investment.
E. Corporate shareholders elect the corporate president.

Refer to section 1.2

AACSB: N/A
Difficulty: Intermediate
Learning Objective: 1-3
Section: 1.2
Topic: Corporation
 

29. Which one of the following statements is correct?
A. A general partnership is legally the same as a corporation.
B. Both sole proprietorship and partnership income is taxed as individual income.
C. Partnerships are the most complicated type of business to form.
D. All business organizations have bylaws.
E. Only firms organized as sole proprietorships have limited lives.

Refer to section 1.2

AACSB: N/A
Difficulty: Intermediate
Learning Objective: 1-3
Section: 1.2
Topic: Business entity
 

30. The articles of incorporation:
I. describe the purpose of the firm.
II. are amended periodically.
III. set forth the number of shares of stock that can be issued.
IV. detail the method that will be used to elect corporate directors.
A. I and III only
B. I and IV only
C. II and III only
D. II and IV only
E. I, III, and IV only

Refer to section 1.2

AACSB: N/A
Difficulty: Intermediate
Learning Objective: 1-3
Section: 1.2
Topic: Articles of incorporation
 

31. Corporate bylaws:
A. must be amended should a firm decide to increase the number of shares authorized.
B. cannot be amended once adopted.
C. define the name by which the firm will operate.
D. describe the intended life and purpose of the organization.
E. determine how a corporation regulates itself.

Refer to section 1.2

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: Corporate bylaws
 

32. Which one of the following characteristics applies to a limited liability company?
A. available only to firms having a single owner
B. limited liability for limited partners only
C. taxed similar to a partnership
D. taxed similar to a C corporation
E. all income generated is totally tax-free

Refer to section 1.2

AACSB: N/A
Difficulty: Intermediate
Learning Objective: 1-3
Section: 1.2
Topic: Limited liability company
 

33. Which one of the following business types is best suited to raising large amounts of capital?
A. sole proprietorship
B. limited liability company
C. corporation
D. general partnership
E. limited partnership

Refer to section 1.2

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: Corporation
 

34. Which type of business organization has all the respective rights and privileges of a legal person?
A. sole proprietorship
B. general partnership
C. limited partnership
D. corporation
E. limited liability company

Refer to section 1.2

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-3
Section: 1.2
Topic: Corporation
 

35. Sam, Alfredo, and Juan want to start a small U.S. business. Juan will fund the venture but wants to limit his liability to his initial investment and has no interest in the daily operations. Sam will contribute his full efforts on a daily basis but has limited funds to invest in the business. Alfredo will be involved as an active consultant and manager and will also contribute funds. Sam and Alfredo are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm's profits and wish to keep the initial organizational costs of the business to a minimum. Which form of business entity should these individuals adopt?
A. sole proprietorship
B. joint stock company
C. limited partnership
D. general partnership
E. corporation

Refer to section 1.2

AACSB: Reflective thinking
Difficulty: Intermediate
Learning Objective: 1-3
Section: 1.2
Topic: Limited partnership
 

36. Sally and Alicia currently are general partners in a business located in Atlanta, Georgia. They are content with their current tax situation but are both very uncomfortable with the unlimited liability to which they are each subjected. Which form of business entity should they consider to replace their general partnership assuming they wish to remain the only two owners of their business? Whichever organization they select, they wish to be treated equally.
A. sole proprietorship
B. joint stock company
C. limited partnership
D. limited liability company
E. corporation

Refer to section 1.2

AACSB: Reflective thinking
Difficulty: Intermediate
Learning Objective: 1-3
Section: 1.2
Topic: Limited liability company
 

37. Which one of the following best states the primary goal of financial management?
A. maximize current dividends per share
B. maximize the current value per share
C. increase cash flow and avoid financial distress
D. minimize operational costs while maximizing firm efficiency
E. maintain steady growth while increasing current profits

Refer to section 1.3

AACSB: N/A
Difficulty: Basic
Learning Objective: 1-2
Section: 1.3
Topic: Goal of financial management
 

38. Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?
A. increase in the amount of the quarterly dividend
B. decrease in the per unit production costs
C. increase in the number of shares outstanding
D. decrease in the net working capital
E. increase in the market value per share

Refer to section 1.3

AACSB: N/A
Difficulty: Intermediate
Learning Objective: 1-2
Section: 1.3
Topic: Goal of financial management
 

39. Why should financial managers strive to maximize the current value per share of the existing stock?
A. doing so guarantees the company will grow in size at the maximum possible rate
B. doing so increases employee salaries
C. because they have been hired to represent the interests of the current shareholders
D. because this will increase the current dividends per share
E. because managers often receive shares of stock as part of their compensation

Refer to section 1.3

AACSB: N/A
Difficulty: Intermediate
Learning Objective: 1-2
Section: 1.3
Topic: Goal of financial management
 

40. Decisions made by financial managers should primarily focus on increasing which one of the following?
A. size of the firm
B. growth rate of the firm
C. gross profit per unit produced
D. market value per share of outstanding stock
E. total sales

Refer to section 1.3

AACSB: N/A
Difficulty: Intermediate
Learning Objective: 1-2
Section: 1.3
Topic: Goal of financial management