Ch01
Student: ___________________________________________________________________________
1. The person generally directly responsible for overseeing the tax management, cost accounting, financial
accounting, and information system functions is the:
A. treasurer.
B. director.
C. controller.
D. chairman of the board.
E. chief executive officer.
2. The person generally directly responsible for overseeing the cash and credit functions, financial planning,
and capital expenditures is the:
A. treasurer.
B. director.
C. controller.
D. chairman of the board.
E. chief operations officer.
3. The process of planning and managing a firm's long-term investments is called:
A. working capital management.
B. financial depreciation.
C. agency cost analysis.
D. capital budgeting.
E. capital structure.
4. The mixture of debt and equity used by a firm to finance its operations is called:
A. working capital management.
B. financial depreciation.
C. cost analysis.
D. capital budgeting.
E. capital structure.
5. The management of a firm's short-term assets and liabilities is called:
A. working capital management.
B. debt management.
C. equity management.
D. capital budgeting.
E. capital structure.
6. A business owned by a single individual is called a:
A. corporation.
B. sole proprietorship.
C. general partnership.
D. limited partnership.
E. limited liability company.
7. A business formed by two or more individuals who each have unlimited liability for business debts is
called a:
A. corporation.
B. sole proprietorship.
C. general partnership.
D. limited partnership.
E. limited liability company.
,8. The division of profits and losses among the members of a partnership is formalized in the:
A. indemnity clause.
B. indenture contract.
C. statement of purpose.
D. partnership agreement.
E. group charter.
9. A business created as a distinct legal entity composed of one or more individuals or entities is called a:
A. corporation.
B. sole proprietorship.
C. general partnership.
D. limited partnership.
E. unlimited liability company.
10. The corporate document that sets forth the business purpose of a firm is the:
A. indenture contract.
B. state tax agreement.
C. corporate bylaws.
D. corporate charter.
E. articles of incorporation.
11. The rules by which corporations govern themselves are called:
A. indenture provisions.
B. indemnity provisions.
C. charter agreements.
D. memoranda of association.
E. articles of incorporation.
12. A business entity operated and taxed like a partnership, but with limited liability for the owners, is called
a:
A. limited liability company.
B. general partnership.
C. limited proprietorship.
D. sole proprietorship.
E. corporation.
13. The original sale of securities by governments and corporations to the general public occurs in the:
A. primary market.
B. secondary market.
C. private placement market.
D. proprietary market.
E. liquidation market.
14. When one shareholder sells equity directly to another the transaction is said to occur in the:
A. dealer market.
B. primary market.
C. secondary market.
D. OTC market.
E. NASDAQ market.
15. Which one of the following is a capital budgeting decision?
A. Determining how much debt should be borrowed from a particular lender.
B. Deciding whether or not to open a new store.
C. Deciding when to repay a long-term debt.
D. Determining how much inventory to keep on hand.
E. Determining how much money should be kept in the checking account.
,16. Capital structure decisions include consideration of the:
I. amount of long-term debt to assume.
II. cost of acquiring funds.
III. current assets and liabilities.
IV. net working capital.
A. I and II only.
B. II and III only.
C. III and IV only.
D. I, II, and IV only.
E. I, III, and IV only.
17. The decision of which lender to use and which type of long-term loan is best for a project is part of:
A. working capital management.
B. the net working capital decision.
C. capital budgeting.
D. a controller's duties.
E. the capital structure decision.
18. Working capital management includes decisions concerning which of the following?
I. trade payables
II. long-term debt
III. trade receivables
IV. inventory
A. I and II only.
B. I and III only.
C. II and IV only.
D. I, II, and III only.
E. I, III, and IV only.
19. Which one of the following statements concerning a sole proprietorship is correct?
A. A sole proprietorship is the least common form of business ownership.
B. The profits of a sole proprietorship are taxed twice.
C. The owners of a sole proprietorship share profits as established by the partnership agreement.
D. The owner of a sole proprietorship may be forced to sell his/her personal assets to pay company debts.
E. A sole proprietorship is often structured as a limited liability company.
20. Which one of the following statements concerning a sole proprietorship is correct?
A. The life of the firm is limited to the life span of the owner.
B. The owner can generally raise large sums of capital quite easily.
C. The ownership of the firm is easy to transfer to another individual.
D. The company must pay separate taxes from those paid by the owner.
E. The legal costs to form a sole proprietorship are quite substantial.
21. Which one of the following best describes the primary advantage of being a limited partner rather than a
general partner?
A. Entitlement to a larger portion of the partnership's income.
B. Ability to manage the day-to-day affairs of the business.
C. No potential financial loss.
D. Greater management responsibility.
E. Liability for firm debts limited to the capital invested.
22. A general partner:
A. has less legal liability than a limited partner.
B. has more management responsibility than a limited partner.
C. faces double taxation whereas a limited partner does not.
D. cannot lose more than the amount of his/her equity investment.
E. is the term applied only to corporations which invest in partnerships.
, 23. A partnership:
A. is taxed the same as a corporation.
B. agreement defines whether the business income will be taxed like a partnership or a corporation.
C. terminates at the death of any general partner.
D. has less of an ability to raise capital than a proprietorship.
E. allows for easy transfer of interest from one general partner to another.
24. Which of the following are disadvantages of a partnership?
I. limited life of the firm
II. personal liability for firm debt
III. greater ability to raise capital than a sole proprietorship
IV. lack of ability to transfer partnership interest
A. I and II only.
B. III and IV only.
C. II and III only.
D. I, II, and IV only.
E. I, III, and IV only.
25. 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, II, and III only.
D. II, III, and IV only.
E. I, III, and IV only.
26. Which one of the following statements is correct concerning corporations?
A. The largest firms are usually corporations.
B. The majority of firms are corporations.
C. The shareholders are usually the managers of a corporation.
D. The ability of a corporation to raise capital is quite limited.
E. The income of a corporation is taxed as personal income of the shareholders.
27. Which one of the following statements is correct?
A. Both partnerships and corporations incur double taxation.
B. Both sole proprietorships and partnerships are taxed in a similar fashion.
C. Partnerships are the most complicated type of business to form.
D. Both partnerships and corporations have bylaws.
E. All types of business formations have limited lives.
28. The articles of incorporation:
A. can be used to remove company management.
B. are amended annually by the company shareholders.
C. set forth the number of shares that can be issued.
D. set forth the rules by which the corporation regulates its existence.
E. can set forth the conditions under which the firm can avoid double taxation.
29. The memoranda of association:
A. establish the name of the corporation.
B. are rules which apply only to limited liability companies.
C. set forth the purpose of the firm.
D. mandate the procedure for electing corporate directors.
E. set forth the procedure by which the shareholders elect the senior managers of the firm.
Student: ___________________________________________________________________________
1. The person generally directly responsible for overseeing the tax management, cost accounting, financial
accounting, and information system functions is the:
A. treasurer.
B. director.
C. controller.
D. chairman of the board.
E. chief executive officer.
2. The person generally directly responsible for overseeing the cash and credit functions, financial planning,
and capital expenditures is the:
A. treasurer.
B. director.
C. controller.
D. chairman of the board.
E. chief operations officer.
3. The process of planning and managing a firm's long-term investments is called:
A. working capital management.
B. financial depreciation.
C. agency cost analysis.
D. capital budgeting.
E. capital structure.
4. The mixture of debt and equity used by a firm to finance its operations is called:
A. working capital management.
B. financial depreciation.
C. cost analysis.
D. capital budgeting.
E. capital structure.
5. The management of a firm's short-term assets and liabilities is called:
A. working capital management.
B. debt management.
C. equity management.
D. capital budgeting.
E. capital structure.
6. A business owned by a single individual is called a:
A. corporation.
B. sole proprietorship.
C. general partnership.
D. limited partnership.
E. limited liability company.
7. A business formed by two or more individuals who each have unlimited liability for business debts is
called a:
A. corporation.
B. sole proprietorship.
C. general partnership.
D. limited partnership.
E. limited liability company.
,8. The division of profits and losses among the members of a partnership is formalized in the:
A. indemnity clause.
B. indenture contract.
C. statement of purpose.
D. partnership agreement.
E. group charter.
9. A business created as a distinct legal entity composed of one or more individuals or entities is called a:
A. corporation.
B. sole proprietorship.
C. general partnership.
D. limited partnership.
E. unlimited liability company.
10. The corporate document that sets forth the business purpose of a firm is the:
A. indenture contract.
B. state tax agreement.
C. corporate bylaws.
D. corporate charter.
E. articles of incorporation.
11. The rules by which corporations govern themselves are called:
A. indenture provisions.
B. indemnity provisions.
C. charter agreements.
D. memoranda of association.
E. articles of incorporation.
12. A business entity operated and taxed like a partnership, but with limited liability for the owners, is called
a:
A. limited liability company.
B. general partnership.
C. limited proprietorship.
D. sole proprietorship.
E. corporation.
13. The original sale of securities by governments and corporations to the general public occurs in the:
A. primary market.
B. secondary market.
C. private placement market.
D. proprietary market.
E. liquidation market.
14. When one shareholder sells equity directly to another the transaction is said to occur in the:
A. dealer market.
B. primary market.
C. secondary market.
D. OTC market.
E. NASDAQ market.
15. Which one of the following is a capital budgeting decision?
A. Determining how much debt should be borrowed from a particular lender.
B. Deciding whether or not to open a new store.
C. Deciding when to repay a long-term debt.
D. Determining how much inventory to keep on hand.
E. Determining how much money should be kept in the checking account.
,16. Capital structure decisions include consideration of the:
I. amount of long-term debt to assume.
II. cost of acquiring funds.
III. current assets and liabilities.
IV. net working capital.
A. I and II only.
B. II and III only.
C. III and IV only.
D. I, II, and IV only.
E. I, III, and IV only.
17. The decision of which lender to use and which type of long-term loan is best for a project is part of:
A. working capital management.
B. the net working capital decision.
C. capital budgeting.
D. a controller's duties.
E. the capital structure decision.
18. Working capital management includes decisions concerning which of the following?
I. trade payables
II. long-term debt
III. trade receivables
IV. inventory
A. I and II only.
B. I and III only.
C. II and IV only.
D. I, II, and III only.
E. I, III, and IV only.
19. Which one of the following statements concerning a sole proprietorship is correct?
A. A sole proprietorship is the least common form of business ownership.
B. The profits of a sole proprietorship are taxed twice.
C. The owners of a sole proprietorship share profits as established by the partnership agreement.
D. The owner of a sole proprietorship may be forced to sell his/her personal assets to pay company debts.
E. A sole proprietorship is often structured as a limited liability company.
20. Which one of the following statements concerning a sole proprietorship is correct?
A. The life of the firm is limited to the life span of the owner.
B. The owner can generally raise large sums of capital quite easily.
C. The ownership of the firm is easy to transfer to another individual.
D. The company must pay separate taxes from those paid by the owner.
E. The legal costs to form a sole proprietorship are quite substantial.
21. Which one of the following best describes the primary advantage of being a limited partner rather than a
general partner?
A. Entitlement to a larger portion of the partnership's income.
B. Ability to manage the day-to-day affairs of the business.
C. No potential financial loss.
D. Greater management responsibility.
E. Liability for firm debts limited to the capital invested.
22. A general partner:
A. has less legal liability than a limited partner.
B. has more management responsibility than a limited partner.
C. faces double taxation whereas a limited partner does not.
D. cannot lose more than the amount of his/her equity investment.
E. is the term applied only to corporations which invest in partnerships.
, 23. A partnership:
A. is taxed the same as a corporation.
B. agreement defines whether the business income will be taxed like a partnership or a corporation.
C. terminates at the death of any general partner.
D. has less of an ability to raise capital than a proprietorship.
E. allows for easy transfer of interest from one general partner to another.
24. Which of the following are disadvantages of a partnership?
I. limited life of the firm
II. personal liability for firm debt
III. greater ability to raise capital than a sole proprietorship
IV. lack of ability to transfer partnership interest
A. I and II only.
B. III and IV only.
C. II and III only.
D. I, II, and IV only.
E. I, III, and IV only.
25. 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, II, and III only.
D. II, III, and IV only.
E. I, III, and IV only.
26. Which one of the following statements is correct concerning corporations?
A. The largest firms are usually corporations.
B. The majority of firms are corporations.
C. The shareholders are usually the managers of a corporation.
D. The ability of a corporation to raise capital is quite limited.
E. The income of a corporation is taxed as personal income of the shareholders.
27. Which one of the following statements is correct?
A. Both partnerships and corporations incur double taxation.
B. Both sole proprietorships and partnerships are taxed in a similar fashion.
C. Partnerships are the most complicated type of business to form.
D. Both partnerships and corporations have bylaws.
E. All types of business formations have limited lives.
28. The articles of incorporation:
A. can be used to remove company management.
B. are amended annually by the company shareholders.
C. set forth the number of shares that can be issued.
D. set forth the rules by which the corporation regulates its existence.
E. can set forth the conditions under which the firm can avoid double taxation.
29. The memoranda of association:
A. establish the name of the corporation.
B. are rules which apply only to limited liability companies.
C. set forth the purpose of the firm.
D. mandate the procedure for electing corporate directors.
E. set forth the procedure by which the shareholders elect the senior managers of the firm.
