Principles of Managerial Finance 15th Global Edition by Chad J. Zutter Test bank

Learning Outcome:  F-01
AACSB:  Analytical Thinking
 
6) Which of the following is a strength of a corporation?
A) low taxes
B) limited liability
C) low organization costs
D) less government regulation
Answer:  B
Diff: 1
Topic:  Legal Forms of Business Organization
Learning Obj.:  LG 5
Learning Outcome:  F-01
AACSB:  Analytical Thinking
 

7) Which of the following legal forms of organizations is characterized by unlimited liability?
A) sole proprietorship
B) limited partnership
C) corporation
D) C-corporation
Answer:  A
Diff: 2
Topic:  Legal Forms of Business Organization
Learning Obj.:  LG 5
Learning Outcome:  F-01
AACSB:  Analytical Thinking
 
8) Which of the following is true of a partnership and a corporation?
A) In a corporation, income is taxed at the corporate level; whereas, in a partnership, income is taxed twice.
B) In a partnership, income is taxed once at the individual level; whereas, in a corporation, income is taxed twice.
C) Income from both forms of organizations are double-taxed.
D) In a partnership, income is exempted from tax up to $10 million; whereas, in a corporation, income is taxed twice.
Answer:  B
Diff: 1
Topic:  Taxes
Learning Obj.:  LG 5
Learning Outcome:  F-01
AACSB:  Analytical Thinking
9) Which of the following is true of sole proprietorships and corporations?
A) It is difficult to transfer ownership of corporations compared to that of sole proprietorships.
B) Income from both forms of organizations are taxed only at the corporate level.
C) Both sole proprietorships and corporations are equally scrutinized and regulated by government bodies.
D) In sole proprietorships, owners have unlimited liability; whereas, in corporations, owners have limited liability.
Answer:  D
Diff: 1
Topic:  Legal Forms of Business Organization
Learning Obj.:  LG 5
Learning Outcome:  F-01
AACSB:  Analytical Thinking
 
10) In partnerships, partners can readily transfer their wealth to other partners.
Answer:  FALSE
Diff: 1
Topic:  Legal Forms of Business Organization
Learning Obj.:  LG 5
Learning Outcome:  F-01
AACSB:  Analytical Thinking
 

11) A sole proprietor has unlimited liability; his or her total investment in the business, but not his or her personal assets, can be taken to satisfy creditors.
Answer:  FALSE
Diff: 1
Topic:  Legal Forms of Business Organization
Learning Obj.:  LG 5
Learning Outcome:  F-01
AACSB:  Analytical Thinking
 
12) In a limited partnership, all partners' liabilities are limited to their investment in the partnership.
Answer:  TRUE
Diff: 1
Topic:  Legal Forms of Business Organization
Learning Obj.:  LG 5
Learning Outcome:  F-01
AACSB:  Analytical Thinking
 
13) Under a progressive tax structure in which tax rates rise with income levels ________.
A) the marginal tax rate and the average tax rate are the same
B) the average tax rate is what really matters when an individual or business is making a financial decision
C) the marginal tax rate is usually less than the average tax rate
D) the marginal tax rate is usually greater than the average tax rate
Answer:  D
Diff: 2
Topic:  Taxes
Learning Obj.:  LG 5
Learning Outcome:  F-01
AACSB:  Analytical Thinking
14) The term "double taxation" means that ________.
A) partnerships and sole proprietorships pay tax on the income that they earn, and then income distributed from the business to the owner is taxed again at the individual level
B) the highest federal income tax rate faced by corporations is twice the highest tax rate faced by individuals
C) corporations pay tax on the income they earn and then shareholders pay tax on income that the corporation distributes to them
D) a corporation pays tax on the interest it pays to bondholders and then bondholders pay tax again on the interest payments they receive from firms
Answer:  C
Diff: 2
Topic:  Taxes
Learning Obj.:  LG 5
Learning Outcome:  F-01
AACSB:  Reflective Thinking
 

15) Suppose a certain business pays 10% tax on its first $10,000 in come, 12% tax on income above $10,000 but below $40,000, and 22% tax on income above $40,000.  Suppose the business earns $50,000 in income this year.  It's marginal tax rate is ________.
A) 10%
B) 12%