OLD Exam Three, GBA 281
Dr. Klett
YOUR NAME: _______________________________
Instructions: Each question is worth 2 points, for a total of 100 points. TAKE YOUR TIME and read the questions carefully! Be especially careful of words like “not, must, should, all” and the like. The questions may well have more than one correct answer, in such a case select the best answer from the answer pool.
You may write on the exam, but make sure you place your answers on the scantron. You must turn in the exam with your scantron, no exception. Again, take your time! NO rush.
I intend to post on the internet your scores, using a private identification code that will be shared with you, but based on your social security numbers (note: your social security number itself will not be used). If you object to this, indicate it clearly here. If nothing is inserted, I will assume it is ok to so post your score with the class, albeit in disguised format and not in “alphabetic order.”
I object: _____________
1. Among the reasons that would probably convince Grant to set up his business as a sole proprietorship would be
a. its greater organizational flexibility.
b. its limited liability.
c. the ease of transferring stock.
d. its perpetual existence.
2. The form of business consisting of two or more general partners is
a. a general partnership.
b. a limited partnership.
c. a corporation.
d. a sole proprietorship.
3. For tax purposes, a partnership
a. is required to file an information return but is not a tax-paying entity.
b. is a tax-paying entity.
c. pays 1/2 of the taxes if there are two partners.
d. pays 1/4 of the taxes if there are three partners.
4. In many franchising arrangements, the franchisor charges the franchisee
a. a franchise fee.
b. a percentage of advertising costs.
c. a price for supplies.
d. all of the above.
5. In resolving disputes over whether a business enterprise may be characterized as a partnership, a court will look to see whether the existing business relationship involves
a. a sharing of profits or losses.
b. a joint ownership of the business.
c. an equal right in the management of the business.
d. all of the above.
6. Hugh and Cray are partners in Silver Development, a partnership formed to build and sell Twin Towers, an office and retail-shopping complex. Without Hugh's knowledge, Cray engages in fraud on behalf of Silver that results in Silver's default on several bank loans. Regarding the unpaid loans, Hugh is
a. not responsible under any circumstances.
b. not responsible unless he attempts to declare bankruptcy.
c. responsible.
d. none of the above.
7. A decision by the members of a partnership to enter an entirely new business would probably have to be approved by
a. a majority of the partners.
b. the managing partner.
c. all of the partners.
d. none of the above.
8. Ben is admitted to an existing partnership. Several debts and obligations incurred prior to the date of his admission become due. Ben is
a. personally liable for those debts and obligations.
b. liable for those debts and obligations only up to the amount of his capital contribution.
c. not required to contribute any money to the satisfaction of these debts and obligations.
d. none of the above.
9. In resolving disputes over whether a business enterprise may be characterized as a partnership, a court will look to see whether the existing business relationship involves
a. a sharing of profits or losses.
b. a joint ownership of the business.
c. an equal right in the management of the business.
d. all of the above.
10. Which of the following will, by itself, create a presumption that a partnership exists?
a. The joint ownership of land by two persons
b. The sharing of gross returns from land jointly owned by two persons
c. The sharing of profits from land jointly owned by two persons
d. Any of the above
11. Al and Betty agree while talking on the telephone to form a partnership. Their partnership agreement is legally binding
a. only if it is subsequently reduced to writing.
b. only if one of them gives valid consideration to the other.
c. without any further measures.
d. none of the above.
12. Hugh and Cray are partners in Silver Development, a partnership formed to build and sell Twin Towers, an office and retail-shopping complex. Without Hugh's knowledge, Cray engages in fraud on behalf of Silver that results in Silver's default on several bank loans. Regarding the unpaid loans, Hugh is
a. not responsible under any circumstances.
b. not responsible unless he attempts to declare bankruptcy.
c. responsible.
d. none of the above.
13. Ben is admitted to an existing partnership. Several debts and obligations incurred prior to the date of his admission become due. Ben is
a. personally liable for those debts and obligations.
b. liable for those debts and obligations only up to the amount of his capital contribution.
c. not required to contribute any money to the satisfaction of these debts and obligations.
d. none of the above.
14. Which of the following is not a characteristic of a corporation?
a. Management by a trustee
b. Ownership by shareholders
c. Creature of statute
d. Limited liability for owners
15. Advantages of limited liability companies include
a. limited liability companies are taxed like partnerships.
b. liabilities of members are limited to their investments.
c. members are allowed to participate in management activities.
d. all of the above.
16. An automobile dealership is
a. a distributorship franchise.
b. a chain-style franchise.
c. a manufacturing franchise.
d. a processing-plant franchise.
17. A partner
a. has the right and the power to withdraw from a partnership.
b. has the right but not the power to withdraw from a partnership.
c. has the power but not the right to withdraw from a partnership.
d. does not have the right or the power to withdraw from a partnership.
18. Roy and Clark are partners in an electronic appliance store. On the dissolution of their partnership, the partners can
a. complete transactions begun but not yet finished at the time of the dissolution.
b. initiate transactions with parties who have done prior business with the firm.
c. both a and b.
d. none of the above.
19. The liabilities of a partnership may include amounts owed to
a. creditors.
b. partners for their capital contributions.
c. partners for other than capital and profit.
d. all of the above.
20. Responsibility for the overall management of the corporation is entrusted to
a. the board of directors.
b. the shareholders.
c. corporate officers and managers.
d. the owners of the corporation.
21. The concept of double taxation means that the
a. government taxes both earnings and retained earnings.
b. government taxes both management salaries and dividends to managers.
c. government taxes both earnings to corporations and dividends to individuals.
d. tax rate for corporations is double that of individuals.
22. Ultra vires means
a. by a majority.
b. lawful purpose.
c. a quorum is present.
d. beyond the powers.
23. Acme, Inc., is incorporated in the state of California and is doing business in the state of Nevada. In Nevada, it is properly referred to as
a. an alien corporation.
b. a foreign corporation.
c. a close corporation.
d. a national corporation.
24. Sherrie and Al operate a business out of their home and are thinking of incorporating. Which of the following types of corporations would allow them to avoid the double taxation of the corporate form?
a. A professional corporation
b. An S corporation
c. A C corporation
d. A close corporation
25. Probably the most important function of the first organizational meeting of a corporation is
a. drafting the articles of incorporation.
b. specifying the nature and purpose of the corporation in the articles of incorporation.
c. adopting the corporation's bylaws.
d. chartering the corporation.
26. Which of the following is not a debt obligation of a corporation?
a. Debentures
b. Mortgage bonds
c. Equity securities (stocks)
d. Callable bonds
27. Hazel purchases stock that pays a periodic dividend of 9 percent of the face value of the shares. Hazel's stock, in all likelihood, is
a. common stock.
b. preferred stock.
c. bonded stock.
d. dividend stock.
28. Andy and Flora are directors of Jackson Paper Company. Dick and Jane are Jackson officers. Rachel and Henry, as well as the directors and officers, are Jackson shareholders. Jackson stock dividends are ordered by
a. the directors.
b. the shareholders.
c. a majority of the shareholders.
d. the officers.
29. John is a director of Tyler Toys, Inc. Without informing Tyler, John goes into business with Child's Play, Inc., in competition with Tyler. John is liable for
a. breach of the duty of care.
b. breach of the duty of loyalty.
c. violating the business judgment rule.
d. indemnification of the corporation.
30. The business judgment rule
a. holds that a director can be liable for mistakes in judgment, even if the director's decision is rational and informed, honestly made, and made in what the director believes is the best interest of the corporation.
b. immunizes a director from liability for mistakes in judgment and poor business decisions, as long as the director's decision is rational and informed, honestly made, and made in what the director believes is the best interest of the corporation.
c. does not apply to directors who are not also shareholders of the corporation.
d. applies only to directors who are also corporate officers.
31. The minimum number of shareholders that must be present at a meeting before shareholders can vote is
a. a voting trust.
b. a voting list.
c. a quorum.
d. a proxy.
32. Cumulative voting is designed to allow
a. majority shareholders to retain their control over the corporation.
b. minority shareholders to elect a director of their choice to serve on the board of directors.
c. corporate directors to decide who will be elected to the board of directors.
d. shareholders to vote by proxy over a period of five years.
33. Betty owns 100 shares of the FS Corporation. The corporation makes a new issue of 10,000 shares. According to her stock certificate, Betty is entitled to buy another 100 shares at the time of the new issue. This is an example of
a. the right of first refusal.
b. preemptive rights.
c. indemnification rights.
d. participation rights.
34. A merger can be expressed as A + B =
a. A.
b. C.
c. C + D.
d. none of the above.
35. The primary purpose of the Securities Act of 1933 is to
a. facilitate the payment of overdue stock subscription obligations.
b. reduce fraud by imposing greater disclosure requirements.
c. reduce margin trading.
d. reduce commodity speculation.
36. Laze-R-Matic Corporation plans to issue stock for sale to the public. Before the sale can take place, the company must file a registration statement with the SEC that contains, among other things,
a. a description of the security being offered for sale.
b. a description of the company's business.
c. a financial statement certified by an independent public accounting firm.
d. all of the above.
37. Able Construction and Baker Corporation wish to dissolve and combine all assets, stock, personnel, and so on, into a new firm to be called Charlie Company. This is
a. a consolidation.
b. a merger.
c. a split-off.
d. a sale of assets.
38. A shareholder's derivative suit is a suit brought
a. by a shareholder or shareholders on behalf of the corporation when the directors fail to undertake any action to redress a wrong suffered by the corporation.
b. by the directors against a majority shareholder who has breached his or her fiduciary duty to the corporation or to minority shareholders.
c. against a majority shareholder by a third party who was harmed by the corporate decision approved of, and voted for, by the shareholder.
d. by a shareholder who is also a director of the corporation being sued.
39. Shares that have no face value are called
a. watered stock.
b. par-value shares.
c. no-par shares.
d. nonvoting shares.
40. The Securities Exchange Act of 1934 regulates the activities of
a. the security exchanges.
b. stockbrokers.
c. national securities associations.
d. all of the above.
41. Which of the following rules of the Securities and Exchange Commission govern insider trading?
a. Rule 4a-3
b. Rule 8c-4
c. Rule l0b-5
d. Rule 12d-7
42. A mutual fund is a type of
a. government corporation.
b. investment company.
c. equity security.
d. debt security.
43. Able Construction and Baker Corporation wish to dissolve and combine all assets, stock, personnel, and so on, into a new firm to be called Charlie Company. This is
a. a consolidation.
b. a merger.
c. a split-off.
d. a sale of assets.
44. Once the articles of merger or consolidation are approved by all the directors and the shareholders, they are usually filed with
a. the Internal Revenue Service.
b. the U.S. Department of Justice.
c. the state secretary of state.
d. the county recording office.
45. A company that acquires all or substantially all of the assets of another corporation by direct purchase is not required to obtain shareholder approval for the purchase because
a. the purchase does not result in a change of the acquiring company's legal entity.
b. the terms of the purchase will always be examined by counsel to ensure that the transaction itself is fair to the shareholders.
c. obtaining shareholder approval will greatly increase the costs of the purchase.
d. none of the above.
46. Across the Universe, Inc., a maker of telecommunications satellites, wishes to acquire a controlling interest in its sole competitor, Shuttle Company, by purchasing a large block of stock. A public offer made by Across the Universe to Shuttle shareholders is known as
a. a buyout notice.
b. an acquisition call.
c. a tender offer.
d. none of the above.
47. Al owns 100 shares in Dole, Inc., and has 100 separate stock certificates, one representing each share. Twenty-five of the certificates are eaten by Al's dog, Spot.
a. Al now owns only 75 shares of Dole, Inc.
b. Al's interest in Dole, Inc., has been lost.
c. Al still owns 100 shares of Dole, Inc.
d. Spot now owns 25 shares of Dole, Inc.
48. A shareholder's derivative suit is a suit brought
a. by a shareholder or shareholders on behalf of the corporation when the directors fail to undertake any action to redress a wrong suffered by the corporation.
b. by the directors against a majority shareholder who has breached his or her fiduciary duty to the corporation or to minority shareholders.
c. against a majority shareholder by a third party who was harmed by the corporate decision approved of, and voted for, by the shareholder.
d. by a shareholder who is also a director of the corporation being sued.
49. Shares are referred to as watered stock if they are
a. issued by the corporation for less than their stated value.
b. no-par shares.
c. transferred in violation of a shareholders' stock-transfer agreement.
d. subject to stock warrants.
50. Gail wishes to sell her products outside of the state in which she currently does business. Normally, she will have to qualify to do business and obtain a certificate of authority from any other prospective states if her business is set up as
a. a corporation.
b. a partnership.
c. a sole proprietorship.
d. none of the above.
Answer Key
1.
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2.
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3.
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4.
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5.
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6.
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7.
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8.
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9.
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10.
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11.
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19.
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21.
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22.
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23.
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24.
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25.
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26.
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27.
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28.
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29.
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30.
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31.
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32.
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33.
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34.
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35.
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36.
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38.
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39.
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40.
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41.
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42.
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43.
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44.
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45.
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48.
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49.
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50.
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