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Business In Action 6Th Ed By Courtland L. Bovee Test Bank
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Business In Action 6Th Ed By Courtland L. Bovee Test Bank
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WITH ANSWERS
Business In Action 6Th Ed By Courtland L. Bovee Test Bank
Business in Action, 6e (Bovee/Thill)
Chapter 5 Forms of Ownership
1) Owner has limited personal liability for the businesss financial obligations in sole proprietorships.
Answer: FALSE
Explanation: Owner has unlimited personal liability for the businesss financial obligations in sole proprietorships. In corporations investors have limited liability.
Page Ref: 95
Difficulty: Easy
Chapter LO: 1
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
2) Establishing a corporation is more complicated and expensive compared to establishing a sole proprietorship.
Answer: TRUE
Explanation: Establishing a corporation is more complicated and expensive compared to establishing a sole proprietorship. Requirements for establishing a corporation vary from state to state.
Page Ref: 95
Difficulty: Easy
Chapter LO: 1
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
3) The federal government recognizes a sole proprietorship as an independent taxable entity.
Answer: FALSE
Explanation: Income tax is a straightforward matter for sole proprietorships. The federal government doesnt recognize the company as a taxable entity.
Page Ref: 96
Difficulty: Moderate
Chapter LO: 1
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
4) Unlimited liability is a legal condition under which any damages or debts incurred by a business are the owners personal responsibility.
Answer: TRUE
Explanation: Unlimited liability is a legal condition under which any damages or debts incurred by a business are the owners personal responsibility.
Page Ref: 96
Difficulty: Easy
Chapter LO: 1
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
5) A partnership is a company that is owned by two or more people but is not a corporation.
Answer: TRUE
Explanation: A partnership is a company that is owned by two or more people but is not a corporation.
Page Ref: 97
Difficulty: Easy
Chapter LO: 2
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
6) All partners have joint authority to make decisions for the firm in a general partnership.
Answer: TRUE
Explanation: In a general partnership, all partners have joint authority to make decisions for the firm and joint liability for the firms financial obligations.
Page Ref: 98
Difficulty: Easy
Chapter LO: 2
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
7) A master limited partnership is not allowed to raise money by selling units of ownership to the general public.
Answer: FALSE
Explanation: A master limited partnership (MLP) is allowed to raise money by selling units of ownership to the general public, in the same way corporations sell shares of stock to the public.
Page Ref: 98
Difficulty: Easy
Chapter LO: 2
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
8) Partners are responsible for each others action in a limited liability partnership.
Answer: FALSE
Explanation: The limited liability partnership (LLP) form of business was created to help protect individual partners in certain professions from major mistakes (such as errors that trigger malpractice lawsuits) by other partners in the firm.
Page Ref: 98
Difficulty: Easy
Chapter LO: 2
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
9) Partnerships are subject to double taxation of income.
Answer: FALSE
Explanation: Income tax is straightforward for partnerships. Each owners income is treated as his or her share as personal income. This helps investors avoid double taxation.
Page Ref: 98
Difficulty: Easy
Chapter LO: 2
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
10) All owners in a general partnership and the general partners in a limited partnership face the same unlimited liability as sole proprietors.
Answer: TRUE
Explanation: All owners in a general partnership and the general partners in a limited partnership face the same unlimited liability as sole proprietors.
Page Ref: 99
Difficulty: Moderate
Chapter LO: 2
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
11) A corporation is a legal entity distinct from the persons running the corporation.
Answer: TRUE
Explanation: A corporation is a legal entity, distinct from any individual persons, that has the power to own property and conduct business.
Page Ref: 100
Difficulty: Easy
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
12) The stock of a private corporation is made available for purchase by the public.
Answer: FALSE
Explanation: The stock of a private corporation is owned by only a few individuals or companies and is not made available for purchase by the public.
Page Ref: 100
Difficulty: Moderate
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
13) Liquidity is a measure of how easily and quickly an asset can be converted into cash.
Answer: TRUE
Explanation: Liquidity is a measure of how easily and quickly an asset such as corporate stock can be converted into cash by selling it.
Page Ref: 100
Difficulty: Easy
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
14) A corporation itself has limited liability on its transactions.
Answer: FALSE
Explanation: A corporation itself has unlimited liability, but the various shareholders who own the corporation face only limited liability.
Page Ref: 101
Difficulty: Moderate
Chapter LO: 2
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
15) Government agencies require publicly traded companies to publish extensive and detailed financial reports.
Answer: TRUE
Explanation: To help investors make informed decisions about stocks, government agencies require publicly traded companies to publish extensive and detailed financial reports.
Page Ref: 101
Difficulty: Moderate
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
16) An S corporation has the federal taxation advantages of a partnership.
Answer: TRUE
Explanation: S corporation is a type of corporation that combines the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership.
Page Ref: 101
Difficulty: Easy
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
17) The number of shareholders is limited to fifty in a limited liability company.
Answer: FALSE
Explanation: A limited liability company (LLC) is a structure that combines limited liability with the pass-through taxation benefits of a partnership. The number of shareholders is not restricted, nor is members participation in management.
Page Ref: 102
Difficulty: Moderate
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
18) A benefit corporation must pursue a stated non-financial goal.
Answer: TRUE
Explanation: A benefit corporation has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated non-financial goal, such as hiring workers whose life histories make employment difficult to attain or reducing the environmental impact of particular products.
Page Ref: 102
Difficulty: Easy
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
19) Board of directors has the responsibility for the overall direction of the company and the selection of top executives.
Answer: TRUE
Explanation: Board of directors is a group of professionals elected by shareholders as their representatives, with responsibility for the overall direction of the company and the selection of top executives.
Page Ref: 103
Difficulty: Easy
Chapter LO: 4
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
20) Corporate officers of an organization are elected directly by the shareholders of a corporation.
Answer: FALSE
Explanation: Corporate officers of an organization are hired by the board of directors.
Page Ref: 103
Difficulty: Easy
Chapter LO: 4
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
21) Proxy is a document that authorizes another person to vote on behalf of a shareholder in a corporation.
Answer: TRUE
Explanation: Proxy is a document that authorizes another person to vote on behalf of a shareholder in a corporation.
Page Ref: 104
Difficulty: Easy
Chapter LO: 4
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
22) The chief operating officer is the highest-ranking officer of a corporation.
Answer: FALSE
Explanation: Corporate officers are the top executives who run a corporation. Of them, the highest-ranking officer is the chief executive officer (CEO).
Page Ref: 105
Difficulty: Easy
Chapter LO: 4
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
23) One company buys a controlling interest in the voting stock of another company in a merger.
Answer: FALSE
Explanation: In a merger, two companies join to form a single entity. In an acquisition, one company buys a controlling interest in the voting stock of another company.
Page Ref: 106
Difficulty: Moderate
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
24) A horizontal merger occurs when different companies at the same stage or level merge.
Answer: TRUE
Explanation: A horizontal merger occurs when different companies at the same stage or level merge. Example: Merger between a lumber supplier and a leather supplier.
Page Ref: 107
Difficulty: Easy
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
25) A joint venture does not result in a separate legal entity.
Answer: FALSE
Explanation: A joint venture is a separate legal entity established by two or more companies to pursue shared business objectives.
Page Ref: 109
Difficulty: Moderate
Chapter LO: 6
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
26) A sole proprietorship ________.
- A) is taxed as a separate corporation
- B) requires immense paperwork
- C) does not have a legal status
- D) is owned by only one person
- E) gives reduced control to the owner
Answer: D
Explanation: D) A sole proprietorship is a business owned by one person. However, it may have many employees.
Page Ref: 95
Difficulty: Easy
Chapter LO: 1
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
27) Robert owns three restaurants in Atlanta. He pays taxes for the income from the restaurants as his personal income. Roberts business is an example of a ________.
- A) personal partnership
- B) sole proprietorship
- C) joint venture
- D) small corporation
- E) limited liability firm
Answer: B
Explanation: B) A sole proprietorship is a business owned by one person.The restaurant is owned by Robert alone although its has three branches.
Page Ref: 95
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 1
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Application
28) Profits of sole proprietorships ________.
- A) reach shareholders through intermediaries
- B) flow directly to the owners
- C) are considered fixed assets
- D) are taxed at corporate rates
- E) are subject to double taxation
Answer: B
Explanation: B) Profits and losses of sole proprietorships flow directly to the owners and are taxed at individual rates.
Page Ref: 95
Difficulty: Easy
Chapter LO: 1
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
29) Which of the following statements is true of the liability of investors in a corporation?
- A) Majority investors are personally liable, whereas minority investors are not personally liable.
- B) Investors have personal liability for the business transactions in corporations.
- C) Investors liability is limited to the amount invested in the corporation.
- D) Investors are personally liable for transactions, whereas their property is not liable.
- E) Investors property is liable for the business transactions but investors are not personally liable.
Answer: C
Explanation: C) Investors liability is limited to the amount of his or her investment in a corporation.
Page Ref: 95
Difficulty: Moderate
Chapter LO: 1
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
30) Which of the following business structures is the most complicated and expensive?
- A) unlimited partnership
- B) corporation
- C) general partnership
- D) sole proprietorship
- E) limited partnership
Answer: B
Explanation: B) Corporations are more complicated and expensive to establish than other structures. It involves more documentation and other requirements.
Page Ref: 95
Difficulty: Easy
Chapter LO: 1
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
31) Edwin runs an antique retail shop that is registered as a sole proprietorship. The liability exposure of Edwins business ________.
- A) is limited to the amount he has invested on fixed assets
- B) refers to the amount invested on variable assets
- C) is more if the size of transactions is limited
- D) refers to the total fixed investments made by him
- E) is unlimited for the businesss personal obligations
Answer: E
Explanation: E) The owner has unlimited personal liability for the businesss financial obligations in a sole proprietorship. Edwins business is a sole proprietorship in this case.
Page Ref: 95
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 1
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Application
32) Which of the following is a key difference between a corporation and a sole proprietorship?
- A) Establishing a corporation is easier compared to establishing a proprietorship.
- B) Unlike a corporation, a proprietorship is subject to double taxation.
- C) Regulatory requirements are less severe for corporations than sole proprietorships.
- D) Unlike a sole proprietorship, a corporation is subject to limited liability.
- E) Establishing a sole proprietorship has complex legal requirements unlike a corporation.
Answer: D
Explanation: D) In a sole proprietorship, the owner has unlimited personal liability for the businesss financial obligations. In a corporation, the investors liability is limited to the amount of their investment.
Page Ref: 95
Difficulty: Moderate
Chapter LO: 1
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
33) Which of the following is a key advantage of incorporating a business as a sole proprietorship?
- A) Owners receive tax exemptions when a business is a sole proprietorship.
- B) It helps proprietors file taxes separately from their personal income.
- C) It is easy to establish and requires less paperwork than other structures.
- D) Owners risk is limited to the extent he/she has invested in the business.
- E) Risk associated with sole proprietorship is less compared to other structures.
Answer: C
Explanation: C) A sole proprietorship is easy to establish and requires far less paperwork than other structures. The only legal requirement for establishing a sole proprietorship is obtaining the necessary business licenses and permits required by the city, county, and state.
Page Ref: 96
Difficulty: Moderate
Chapter LO: 1
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
34) In a sole proprietorship, the owner ________.
- A) obtains limited liability protection on the businesss actions
- B) is taxed more than once for the income generated
- C) and the business are legally inseparable
- D) has lesser responsibility compared to other forms
- E) does not have personal liability for the transactions of the business
Answer: C
Explanation: C) In a sole proprietorship, the owner and the business are legally inseparable, which gives the proprietor unlimited liability. Any legal damages or debts incurred by the business are the owners personal responsibility.
Page Ref: 96
Difficulty: Moderate
Chapter LO: 1
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
35) A ________ is an unincorporated company owned by two or more people.
- A) limited company
- B) partnership
- C) corporation
- D) S corporation
- E) proprietorship
Answer: B
Explanation: B) Partnership is an unincorporated company owned by two or more people. The partnership structure is appropriate for firms that need more resources and leadership talent than a sole proprietorship but dont need the fundraising capabilities or other advantages of a corporation.
Page Ref: 97
Difficulty: Easy
Chapter LO: 2
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
36) In a general partnership, ________.
- A) all partners have joint authority to make decisions
- B) all partners have limited liability
- C) the number of partners is limited to five
- D) units of ownership are sold to the general public
- E) risk is limited to the amount invested in a partnership
Answer: A
Explanation: A) In a general partnership, all partners have joint authority to make decisions for the firm and joint liability for the firms financial obligations.
Page Ref: 98
Difficulty: Moderate
Chapter LO: 2
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
37) A ________ is allowed to raise money by selling units of ownership to the general public in the same way corporations sell shares of stock to the public.
- A) master limited partnership
- B) general partnership
- C) sole proprietorship
- D) unlimited proprietorship
- E) limited liability partnership
Answer: A
Explanation: A) A master limited partnership (MLP) is allowed to raise money by selling units of ownership to the general public in the same way corporations sell shares of stock to the public. This gives MLPs the fundraising capabilities of corporations without the double-taxation disadvantage.
Page Ref: 98
Difficulty: Easy
Chapter LO: 2
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
38) A ________ is a partnership in which each partner has unrestricted accountability only for his or her own actions and at least some degree of responsibility for the partnership as a whole.
- A) master limited partnership
- B) general partnership
- C) sole proprietorship
- D) combined proprietorship
- E) limited liability partnership
Answer: E
Explanation: E) A limited liability partnership is a partnership in which each partner has unlimited liability only for his or her own actions and at least some degree of limited liability for the partnership as a whole.
Page Ref: 98
Difficulty: Easy
Chapter LO: 2
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
39) Which of the following is a key difference between a master limited partnership (MLP) and other forms of partnerships?
- A) A MLP allows partnerships to sell units of ownership to the general public.
- B) Other partnerships should have more members than an MLP.
- C) Other partnerships have double-taxation disadvantage unlike an MLP.
- D) A MLP allows the partners to have limited liability on their investments.
- E) A MLP is characterized by double taxation unlike the other forms of partnerships.
Answer: A
Explanation: A) A master limited partnership (MLP) is allowed to raise money by selling units of ownership to the general public in the same way corporations sell shares of stock to the public. This gives MLPs the fundraising capabilities of corporations without the double-taxation disadvantage.
Page Ref: 98
Difficulty: Moderate
Chapter LO: 2
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
40) A major advantage of partnerships is that they ________.
- A) do not require owners to take personal responsibility for their actions
- B) provide limited liability protection to partners
- C) have a straightforward income tax structure
- D) are less vulnerable to conflicts between investors
- E) allow investors to handle issues such as succession and termination better
Answer: C
Explanation: C) Income tax is straightforward for partnerships. Profit is split between or among the owners based on whatever percentages they have agreed to.
Page Ref: 98
Difficulty: Moderate
Chapter LO: 2
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
41) A potentially significant disadvantage of a partnership is that ________.
- A) it involves double taxation of the income generated
- B) income tax is not straightforward and is complex
- C) it has more chances for disagreement and conflict
- D) it does not present opportunities to share costs
- E) the amount of money generated in a partnership is low
Answer: C
Explanation: C) Partners can disagree over business strategy, the division of profits (or the liability for losses), hiring and firing of employees, and other significant matters. This attracts more conflicts in the business.
Page Ref: 99
Difficulty: Moderate
Chapter LO: 2
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
42) Which of the following is a valid observation of corporations?
- A) A corporation cannot own property of its own.
- B) All corporations should sell its stock to the public.
- C) The owners of a corporation are called directors.
- D) A corporation is distinct from the people running it.
- E) A corporation must be owned by less than fifty people.
Answer: D
Explanation: D) A corporation is a legal entity, distinct from any individual persons, that has the power to own property and conduct business.
Page Ref: 100
Difficulty: Moderate
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
43) Which of the following is a key difference between private corporations and public corporations?
- A) Private corporations are legally a group of people, whereas public corporations are distinct from any individual persons.
- B) Private corporations cannot own property, whereas public corporations can own property.
- C) Public corporations cannot own property, whereas private corporations can own property.
- D) Private corporations do not have the power to run business of its own, whereas public corporations can run a business of its own.
- E) Private corporations are owned by a few people, whereas public corporations can be owned by anyone who has the means to buy stake.
Answer: E
Explanation: E) The stock of a private corporation is owned by only a few individuals or companies, whereas the stock of a public corporation is sold to anyone who has the means to buy it.
Page Ref: 100
Difficulty: Moderate
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
44) Which of the following is a key advantage that corporations have over sole proprietorships and partnerships?
- A) Management is less likely to lose control of operations in corporations than proprietorships and partnerships.
- B) Reporting requirements of corporations are simpler than sole proprietorships and partnerships.
- C) Forming corporations involves less cost over sole proprietorships and partnerships.
- D) Investments in corporations have more liquidity than partnerships and sole proprietorships.
- E) Corporations have a less complex structure compared to sole proprietorships and partnerships.
Answer: D
Explanation: D) The stock of publicly-traded companies has a high degree of liquidity, which means that investors can easily and quickly convert their stock into cash by selling it on the open market. In contrast, liquidating (selling) the assets of a sole proprietorship or a partnership can be slow and difficult.
Page Ref: 100
Difficulty: Moderate
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
45) A disadvantage of the corporate structure is that it ________.
- A) limits the businesss ability to raise capital
- B) limits the liquidity that businesses have
- C) increases the risk of conducting business
- D) involves strict reporting requirements
- E) imposes unlimited liability on the owners
Answer: D
Explanation: D) To help investors make informed decisions about stocks, government agencies require publicly-traded companies to publish extensive and detailed financial reports. These reports can eat up a lot of staff and management time, and they can expose strategic information that might benefit competitors or discourage investors unwilling to wait for long-term results.
Page Ref: 101
Difficulty: Moderate
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
46) S corporation is a type of corporation that ________.
- A) combines limited liability of a corporation with the federal taxation advantages of a partnership
- B) does not have such advantages as limited liability of investments
- C) does not split the ownership into smaller units
- D) files income tax returns in a country other than the country of operation
- E) combines limited ownership of a proprietorship with the capital-raising options of a corporation
Answer: A
Explanation: A) S corporation is a type of corporation that combines the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership.
Page Ref: 101; 102
Difficulty: Moderate
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
47) A group of college graduates starts a business. They want to give their business a structure such that their risk is limited to the amount they have invested in the business. They also want to avoid double taxation of the income that they generate from the business. Which of the following structures is most suitable to satisfy these wants?
- A) sole proprietorship
- B) corporation
- C) direct partnership
- D) S corporation
- E) general partnership
Answer: D
Explanation: D) S corporation is a type of corporation that combines the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership. The owners can incorporate their business as an S corporation in order to satisfy their requirements.
Page Ref: 101; 102
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Application
48) A(n) ________ has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated non-financial goal.
- A) limited liability corporation
- B) general partnership
- C) S corporation
- D) sole proprietorship
- E) benefit corporation
Answer: E
Explanation: E) A benefit corporation has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated non-financial goal, such as hiring workers whose life histories make employment difficult to attain, or reducing the environmental impact of particular products.
Page Ref: 102
Difficulty: Easy
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
49) RSS Bank is registered as a corporation in Maryland. Apart from its financial objectives, the company has also formed a legal requirement to work for the welfare of the elderly citizens in the state. The bank is obligated to work for the cause even if there is a change in ownership. Based on this information, it can be concluded that RSS bank is a(n) ________.
- A) public corporation
- B) benefit corporation
- C) unlimited company
- D) S corporation
- E) not-for-profit company
Answer: B
Explanation: B) A benefit corporation has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated non-financial goal, such as hiring workers whose life histories make employment difficult to attain, or reducing the environmental impact of particular products. Using the given information, we can conclude that RSS bank is such a corporation.
Page Ref: 102
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Application
50) A public corporation refers to a corporation ________.
- A) that is allowed to sell stock only to a limited number of investors
- B) whose stock is sold to general people
- C) that is owned solely by the federal government
- D) that is owned solely by state/federal government
- E) whose stock is not traded in stock exchanges or other markets
Answer: B
Explanation: B) A public corporation refers to a corporation whose stock is sold to the general public. It is also known as publicly held or publicly traded corporation.
Page Ref: 102
Difficulty: Easy
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
51) A corporation primarily or wholly owned by another company is known as a(n) ________.
- A) domestic company
- B) alien company
- C) subsidiary
- D) parent company
- E) holding company
Answer: C
Explanation: C) A corporation primarily or wholly owned by another company is known as a subsidiary.
Page Ref: 102
Difficulty: Easy
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
52) Pacific Electronics is a Swiss corporation doing business in the U.S. It was incorporated in Switzerland, in the year 1997. The company sells products such as electronic measuring devices, microprocessors, and microcontrollers. Pacific Electronics is called a(n) ________.
- A) alien corporation
- B) foreign corporation
- C) domestic corporation
- D) external company
- E) unlimited company
Answer: A
Explanation: A) A corporation that operates in the United States but is incorporated in another country is called an alien corporation. Pacific Electronics is such a corporation.
Page Ref: 102
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Application
53) A company that is incorporated in one state (frequently the state of Delaware, where incorporation laws are more lenient) but that does business in several other states where it is registered is called a(n) ________.
- A) foreign corporation
- B) domestic corporation
- C) global corporation
- D) alien corporation
- E) international corporation
Answer: A
Explanation: A) A company that is incorporated in one state (frequently the state of Delaware, where incorporation laws are more lenient) but that does business in several other states where it is registered is called a foreign corporation.
Page Ref: 102
Difficulty: Easy
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
54) RK Associates is a firm incorporated in the state of Delaware. The company has operations in thirteen states. However, the company does not have any facilities in countries other than the United States. RK Associates is a(n) ________.
- A) international company
- B) local corporation
- C) domestic company
- D) alien corporation
- E) foreign corporation
Answer: E
Explanation: E) A company that is incorporated in one state but that does business in several other states where it is registered is called a foreign corporation. RK Associates is such a firm.
Page Ref: 102
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Application
55) In the United States, a corporation is called a domestic corporation if it ________.
- A) does business only in the state where it is chartered
- B) files income taxes with the U.S. government
- C) does business only within the United States
- D) has more than 5 subsidiaries in the United States
- E) has incorporated its business in any of the U.S. states
Answer: A
Explanation: A) A domestic corporation is a corporation that does business only in the state where it is chartered or incorporated.
Page Ref: 102
Difficulty: Easy
Chapter LO: 3
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
56) The board of directors are ________.
- A) the highest-ranked managers of a corporation
- B) elected by corporate officers
- C) representatives of the shareholders
- D) the top executives running a corporation
- E) elected by the employees of an organization
Answer: C
Explanation: C) The board of directors are a group of professionals elected by shareholders as their representatives, with responsibility for the overall direction of the company and the selection of top executives.
Page Ref: 103
Difficulty: Easy
Chapter LO: 4
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
57) Which of the following is a document that authorizes another person to vote on behalf of a shareholder in a corporation?
- A) agency agreement
- B) proxy
- C) draft
- D) affidavit
- E) share certificate
Answer: B
Explanation: B) A proxy is a document that authorizes another person to vote on behalf of a shareholder in a corporation.
Page Ref: 104
Difficulty: Easy
Chapter LO: 4
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
58) Robex Retail is a retail chain that has more than 390 stores in the United States. The directors of the company decide to launch operations in Italy to increase the companys market reach. Many of the shareholders think that this decision is not appropriate in light of the economic slowdown in Europe. A group of shareholders unite to pressurize the board of directors to change their decision. This is an example of ________.
- A) shareholder protection
- B) shareholder activism
- C) hostile takeover
- D) corporate governance
- E) shareholder resolution
Answer: B
Explanation: B) Shareholder activism refers to activities taken by shareholders (individually or in groups) to influence executive decision making in areas ranging from strategic planning to social responsibility.
Page Ref: 104
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 4
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Application
59) Corporate officers are the ________.
- A) people who elect directors of a company
- B) official representatives of shareholders
- C) top executives who run a corporation
- D) middle level managers of a corporation
- E) lower level employees of an organization
Answer: C
Explanation: C) Corporate officers are the top executives who run the company. Executives such as CEO and CFO are corporate officers.
Page Ref: 105
Difficulty: Easy
Chapter LO: 4
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
60) Who is the highest-ranked officer of a corporation?
- A) chief information officer
- B) chief financial officer
- C) chief operating officer
- D) chief executive officer
- E) chief technology officer
Answer: D
Explanation: D) The highest-ranking officer is the chief executive officer (CEO), and that person is aided by a team of other C-level executives, such as the chief financial officer (CFO), chief information officer (CIO), chief technology officer (CTO), and chief operating officer (COO).
Page Ref: 105
Difficulty: Easy
Chapter LO: 4
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
61) Corporate officers of a company ________.
- A) are hired by the board of directors of a company
- B) have voting rights in directorial meetings
- C) are hired by the chief executives of a firm
- D) have voting rights on shareholding issues
- E) are elected by the shareholders of the company
Answer: A
Explanation: A) Corporate officers are hired by the board and generally have legal authority to conduct the companys business, in everything from hiring the rest of the employees to launching new products.
Page Ref: 105
Difficulty: Easy
Chapter LO: 4
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
62) In a(n) ________, two companies join to form a single entity either by pooling their resources or by one company purchasing the assets of the other.
- A) limited partnership
- B) acquisition
- C) merger
- D) joint venture
- E) strategic alliance
Answer: C
Explanation: C) In a merger, two companies join to form a single entity. Companies can merge either by pooling their resources or by one company purchasing the assets of the other.
Page Ref: 106
Difficulty: Easy
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
63) In a(n) ________, two companies create a new, third entity that then purchases the two original companies.
- A) limited partnership
- B) consolidation
- C) acquisition
- D) joint venture
- E) strategic alliance
Answer: B
Explanation: B) Consolidation is an arrangement in which two companies create a new, third entity that then purchases the two original companies. It is often lumped together with the other merger approaches.
Page Ref: 106
Difficulty: Easy
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
64) In a(n) ________, one company simply buys a controlling interest in the voting stock of another company.
- A) limited partnership
- B) consolidation
- C) acquisition
- D) joint venture
- E) strategic alliance
Answer: C
Explanation: C) In an acquisition, one company simply buys a controlling interest in the voting stock of another company. In most acquisitions, the selling parties agree to be purchased.
Page Ref: 106
Difficulty: Easy
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
65) RDS Bank has been making losses for many years now. The companys management wants to continue with the same style of operations, whereas many shareholders demand a change in management. A majority of shareholders unite and vote against the managements wish to sell the company to a larger counterpart subject to pressures from an external buyer. This is an example of a(n) ________.
- A) forced joint venture
- B) hostile takeover
- C) strategic alliance
- D) majority merger
- E) operational alliance
Answer: B
Explanation: B) In some situations, a buyer attempts to acquire a company against the wishes of management. In such a situation, the buyer tries to convince enough shareholders to go against management and vote to sell. This situation is known as a hostile takeover.
Page Ref: 106
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Application
66) A ________ occurs when someone purchases a companys publicly-traded stock primarily by using borrowed funds, sometimes using the target companys assets as collateral for these loans.
- A) leveraged buyout
- B) hostile takeover
- C) forced joint venture
- D) consolidation
- E) strategic alliance
Answer: A
Explanation: A) A leveraged buyout (LBO) occurs when someone purchases a companys publicly-traded stock primarily by using borrowed funds, sometimes using the target companys assets as collateral for these loans.
Page Ref: 106
Difficulty: Easy
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
67) A vertical merger occurs when ________.
- A) a merger expands the geographic range of markets that it can serve
- B) different stages or levels of the same industry unite
- C) different companies at the same stage or level unite
- D) a merger expands the mix of goods and services available for sale
- E) two companies from unrelated industries unite to become a single company
Answer: B
Explanation: B) Vertical Merger occurs when different stages or levels of the same industry merge.
Page Ref: 107
Difficulty: Easy
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
68) An electronic appliance marketing company merges with one of its suppliers to form a larger company. This is an example of a ________ merger.
- A) market-extension
- B) product differentiation
- C) conglomerate
- D) vertical
- E) product-extension
Answer: D
Explanation: D) Vertical Merger occurs when different stages or levels of the same industry merge. Here the vertical merger has occurred because both companies are in the same market.
Page Ref: 107
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Application
69) A product-extension merger occurs when ________.
- A) two companies from unrelated industries unite to become a single company
- B) different stages or levels of the same industry unite
- C) different companies merge to increase global reach
- D) a merger expands the mix of goods and services available for sale
- E) a merger expands the geographic range of markets that it can serve
Answer: D
Explanation: D) A product-extension merger occurs when a merger expands the mix of goods and services that a company has available for sale.
Page Ref: 107
Difficulty: Easy
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
70) A ________ merger occurs when different companies at the same stage or level merge.
- A) standardized
- B) horizontal
- C) conglomerate
- D) vertical
- E) operational
Answer: B
Explanation: B) A horizontal merger occurs when different companies at the same stage or level merge.
Page Ref: 107
Difficulty: Easy
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
71) Eurotec, a manufacturer of security systems in Italy, merges with a company in China to expand its reach. This is an example of a ________ merger.
- A) product-extension
- B) vertical
- C) conglomerate
- D) retail
- E) market-extension
Answer: E
Explanation: E) Market-extension merger occurs when a merger expands the geographic range of markets that a company can serve. In this case two companies are merging to extend the geographic range.
Page Ref: 107
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Application
72) A ________ merger occurs when companies in unrelated industries join to form a single entity.
- A) product-extension
- B) vertical
- C) conglomerate
- D) retail
- E) market-extension
Answer: C
Explanation: C) A conglomerate merger occurs when companies in unrelated industries join to form a single entity.
Page Ref: 107
Difficulty: Easy
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
73) Froxer Electronics is an electronic appliance manufacturer. The company merges with a food manufacturer to form a larger company. This is an example of a ________ merger.
- A) product-extension
- B) vertical
- C) retail
- D) market-extension
- E) conglomerate
Answer: E
Explanation: E) A conglomerate merger occurs when companies in unrelated industries join to form a single entity. Two unrelated companies are merging in this case.
Page Ref: 107
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Application
74) Which of the following is a key disadvantage of mergers and acquisitions?
- A) They limit the market reach of the companies involved.
- B) They reduce the chances of cross-selling products.
- C) They reduce the bargaining power of the companies.
- D) They might present issues related to cultural harmony.
- E) They limit the geographic range of the companies involved.
Answer: D
Explanation: D) The organizational cultures of the two firms engaging in a merger must be harmonized somehow after a merger. It can result in clashes between different values, management styles, communication practices, workplace atmosphere, and approaches to managing the changes required to implement the merger.
Page Ref: 108
Difficulty: Moderate
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
75) In a ________, the raider launches a public relations battle for shareholder votes, hoping to enlist enough votes to oust the board and management.
- A) poison pill tactic
- B) proxy fight
- C) tender offer
- D) direct offer
- E) white knight tactic
Answer: B
Explanation: B) In a proxy fight, the raider launches a public relations battle for shareholder votes, hoping to enlist enough votes to oust the board and management.
Page Ref: 108
Difficulty: Easy
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
76) With a ________, a targeted company invokes some move that makes it less valuable to the potential raider, with the hope of discouraging the takeover.
- A) white knight tactic
- B) tender offer
- C) proxy fight
- D) direct offer
- E) poison pill defense
Answer: E
Explanation: E) With a poison pill defense, a targeted company invokes some move that makes it less valuable to the potential raider, with the hope of discouraging the takeover.
Page Ref: 108
Difficulty: Easy
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
77) Integral Solutions is a firm that offers open source enterprise software services to small and medium companies. The company had a public issue two years ago and the company has shown significant growth in the current financial year. A major rival is silently amassing the companys shares to acquire majority stake in the company. In order to prevent this, the company issues shares to current shareholders at prices below the market value. This tactic used by Integral Solutions to prevent a takeover is an example of a ________.
- A) poison pill defense
- B) proxy fight
- C) direct offer
- D) tender offer
- E) white knight tactic
Answer: A
Explanation: A) With a poison pill defense, a targeted company invokes some move that makes it less valuable to the potential raider, with the hope of discouraging the takeover. Integral Solutions is using a poison pill defense in the given case.
Page Ref: 108
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Application
78) With the ________, a third company is invited to acquire a company that is in danger of being swallowed up in a hostile takeover.
- A) poison pill defense
- B) proxy fight
- C) direct offer
- D) tender offer
- E) white knight tactic
Answer: E
Explanation: E) With the white knight tactic, a third company is invited to acquire a company that is in danger of being swallowed up in a hostile takeover.
Page Ref: 108
Difficulty: Easy
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
79) Albama Associates is a consulting firm owned by a few entrepreneurs. Rogo Consulting, a large consulting firm, tries to buy shares from some of the shareholders of Albama to obtain control of the company without making a formal acquisition proposal with the management. Albamas management invites a third party to acquire the company to prevent a hostile takeover by Rogo Consulting. This approach used by Albama to prevent hostile takeover is an example of a ________.
- A) white knight tactic
- B) counteroffer
- C) proxy fight
- D) direct offer
- E) poison pill defense
Answer: A
Explanation: A) With the white knight tactic, a third company is invited to acquire a company that is in danger of being swallowed up in a hostile takeover. The given situation exemplifies a white knight tactic.
Page Ref: 108
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 5
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Application
80) Which of the following is an action that allows the companies to collaborate without formally combining?
- A) strategic alliance
- B) joint venture
- C) merger
- D) acquisition
- E) amalgamation
Answer: A
Explanation: A) Strategic alliances can accomplish many of the same goals as a merger or acquisition with less risk and work than permanently integrating two companies. Strategic partnership allows the companies to collaborate without formally combining.
Page Ref: 109
Difficulty: Easy
Chapter LO: 6
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
81) Strategic alliances are ________.
- A) internal agreements formed between the subsidiaries of a company
- B) not helpful when a company has to gain credibility in a new field
- C) a means of permanently integrating two companies in a business
- D) an alternative to mergers and acquisitions with less risk and work
- E) not helpful when a companys aim is expanding its market presence
Answer: D
Explanation: D) Strategic alliances can accomplish many of the same goals as a merger or acquisition with less risk and work than permanently integrating two companies. Strategic partnership allows the companies to collaborate without formally combining.
Page Ref: 109
Difficulty: Easy
Chapter LO: 6
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
82) Carton Life is an insurance firm. The firm wants to enter an Asian country that recently removed protectionist barriers in the insurance industry. The company wants to enter the country with the help of a local firm. However, the company does not want to permanently integrate with another firm. Which of the following arrangements is most suited for this company?
- A) amalgamation
- B) acquisition
- C) merger
- D) joint venture
- E) strategic alliance
Answer: E
Explanation: E) Strategic alliances can accomplish many of the same goals as a merger or acquisition with less risk and work than permanently integrating two companies. Strategic partnership allows the companies to collaborate without formally combining.
Page Ref: 109
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 6
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Application
83) Which of the following statements is true of strategic alliances?
- A) Establishing strategic alliances have more legal requirements than mergers and acquisitions.
- B) Strategic alliances attract more work than other forms of business.
- C) Strategic alliances are not an effective way to collaborate.
- D) Establishing strategic alliances involves more risks than other forms.
- E) Strategic alliances dont create a unified entity with a single management structure.
Answer: E
Explanation: E) While strategic alliances avoid much of the work and risk of formal mergers, they dont create a unified entity that functions with a single management structure, information system, and other organizational elements.
Page Ref: 109
Difficulty: Moderate
Chapter LO: 6
Course LO: Discuss the factors that influence decisions about organizational structure
Classification: Concept
84) Joint ventures ________.
- A) let companies create tightly integrated operations
- B) are less risky compared to strategic alliances
- C) are riskier to a firm than f
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