While a sole proprietorship gives the owner maximum flexibility in running the business, it also:

r: makes the company a prime target for an acquisition or merger.

creates a sense of isolation.

makes it difficult to hire management talent to help grow the business.

makes it difficult to sell.

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Question 2. Question :

A partnership is:

r: taxed like a corporation.

not subject to the double taxation of some other forms of business.

taxed at the lowest rate for an individual.

taxed under capital gains laws as all profits are considered to come from appreciated assets.


Question 3. Question :

An owner should choose an S-corporation form of ownership when he/she:

r: has an established company that is suffering losses due to double taxation.

is starting up a company and anticipating either net losses or high profits with large dividends.

owns a company in which net profits before any compensation to shareholders are less than $100,000 per year.

has an existing sole proprietorship and wants to lower the tax bill through deducting fringe benefits as business expenses.

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Question 4. Question :

When choosing a form of ownership, the entrepreneur should realize that:

r: it is difficult if not impossible to change forms of ownership once the company is established.

the expense of changing forms of ownership makes it prohibitively expensive to change.

the most common form of ownership is the partnership and is the least expensive to establish.

he/she will most likely change the form of ownership as the company grows in size and revenues.

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Question 5. Question :

Which of the following is a disadvantage of the corporation form of ownership?

r: An inability to accumulate capital

The unlimited liability to the members of the board

Double taxation on profits and individuals

The lack of continuity

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Question 6. Question :

An S-corporation form of ownership overcomes which disadvantage of the regular or "C" corporation form of ownership?

r: The double taxation issue

The expense and difficulty of formation

The amount of regulation and red tape involved in its operation

The potential loss of control by the founder

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Question 7. Question :

One disadvantage of the proprietorship is:

r: the least regulated form of business ownership.

limited personal liability.

excessive access to capital.

limited skills and abilities.

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Question 8. Question :

Sole proprietorships characteristically are:

r: fairly complex to create.

subject to special legal restrictions.

expensive to create.

easy to discontinue.

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Question 9. Question :

If a partnership is formed without an agreement, the partnership is automatically subject to the:

r: Certification of Incorporation laws.

Uniform Partnership Act.

Limited Liability Company Act.

Revised Uniform Limited Partnership Act.

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Question 10. Question :

A limited partnership is a modification of a(n) ________ form of ownership.

r: sole proprietorship

general partnership



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Question 11. Question :

A significant disadvantage of a partnership is:

r: the unlimited personal liability for all partners.

the inability to attract either additional capital or new partners due to the complexity of rewriting the agreement.

the difficulty of disposing a partnership interest without dissolving the partnership.

the regulatory complexity under which a partnership must be formed and operated.

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Question 12. Question :

A corporation doing business in the state in which it is incorporated is considered to be a(n) ________ corporation.

r: alien




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Question 13. Question :

Depreciation is:

r: the difference between the total sources available to the owner and the total uses of those assets.

listed as a source of funds because it is a noncash expense, deducted as a cost of doing business.

the owner's total investment at the company's inception plus retained earnings.

creditors' total claims against the firm's assets.

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Question 14. Question :

The ________ ratio measures the owner's rate of return on the investment in the business.

r: net profit-to-equity

net profit on sales

quick profit

net sales-to-working capital

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Question 15. Question :

As a general rule, financial analysts suggest that a small business maintain a(n) ________ ratio of at least 2:1.

r: debt-to-net worth


inventory turnover


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Question 16. Question :

________ are those items of value the business owns; ________ are those things the business owes.

r: Assets; liabilities

Liabilities; assets

Ratios; equities

Equities; liabilities

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Question 17. Question :

________ is one indication that a small business may be undercapitalized.

r: A current ratio below 1:1

A quick ratio above 2:1

A debt-to-net worth ratio above 1:1

A net-sales-to-working capital ratio equal to 3:1

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Question 18. Question :

In the balance sheet, intangible assets include items such as:

r: goodwill.

copyrights and patents.

Both A and B

accounts receivable.

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Question 19. Question :

A high debt ratio:

r: means that creditors provide a large percentage of the company's total financing.

gives a small business more borrowing capacity.

decreases the chances that creditors will lose money if the business is liquidated.

decreases the creditor's interest in the business.

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Question 20. Question :

The ________ is built on the basic accounting equation: Assets = Liabilities + Owner's Equity.

r: income statement

sources and uses of funds statement

balance sheet

cash budget

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Question 21. Question :

________ ratios indicate how efficiently the small firm is being managed.

r: Liquidity




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Question 22. Question :

The ________ ratio is the liquidity ratio most commonly used as a measure of short-term solvency.

r: working capital ratio


debt-to-net worth


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Question 23. Question :

The ________ shows what assets the business owns and what claims creditors and owners have against those assets.

r: balance sheet

income statement

sources and uses of funds statement

pro forma

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Question 24. Question :

________ are those things that a business owes; they represent creditors' claims against the business.

r: Assets


Owners' equities


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Question 25. Question :

The cash budget is based on the ________ method of accounting.

r: cash




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Question 26. Question :

The budgeting strategy that evaluates the necessity of every item on the budget each year by starting with a zero in each budget category is called:

r: accrual budgeting.

cash budgeting.

zero-based budgeting.

cash flow budgeting.

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Question 27. Question :

________ measures a company's liquidity and its ability to pay its bills and other financial obligations on time by tracking the flow of cash into and out of the business over a period of time.

r: Forecasting

Cash Flow

Cash on hand

None of the above

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Question 28. Question :

Marking down inventory items that don't sell will result in:

r: keeping the inventory lean.

reduction in inventory turnover ratio.

paying expenses on time.

all of the above.

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Question 29. Question :

The purchases for inventory and production lead sales. This statement means that:

r: purchases for inventory and production provide sales leads.

the bills for inventory typically must be paid before sales are generated.

cash must be available in order to pay for the purchases.

Both B and C

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Question 30. Question :

The statement, "collection of accounts receivable lags behind sales," means that:

r: the collection of funds in the accounts receivable is always late.

customers always are late in paying their bills.

the customers who purchased goods on credit may not pay until a month or more later.

None of the above

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Question 31. Question :

A cash budget is only as accurate as the ________ forecast from which it is derived.

r: profit




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Question 32. Question :

Many successful, growing, and profitable businesses fail because they:

r: become insolvent.

don't have adequate cash to meet the sales.

don't have management expertise.

Both A and B

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Question 33. Question :

The first step to building a workable credit policy is:

r: screening customers carefully before granting them credit.

establishing a firm credit policy in writing.

developing a policy for pursuing past-due accounts.

creating a thorough credit application.

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Question 34. Question :

An arrangement in which customers mail their payments on account to a post office box which the company's bank monitors, from which it collects the payments, and then immediately deposits the payments into the firm's interest-bearing account is called a:

r: zero balance account.


sweep account.

credit reference.

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Question 35. Question :

A ________ is a contract in which a business selling an asset on credit gets a security interest in that asset, protecting the company's legal rights in case the buyer fails to pay.

r: security agreement

lock box

cash on delivery agreement

None of the above

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Question 36. Question :

Once a credit account becomes past due, a small business owner should:

r: wait patiently; the customer will most likely pay the bill sooner or later.

turn the account over to a collection agency the day it becomes past due.

contact the customer immediately, ask for full payment, and set a deadline.

call the "deadbeat" in the middle of the night and make harassing and threatening remarks until he pays.

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Question 37. Question :

________ is not one of the three estimates a financial analyst suggests.

r: Optimistic



Most likely

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Question 38. Question :

When it comes to gathering market research on customers, most small companies tend to be:

r: as good at it as large companies.

at a severe disadvantage in comparison to large companies.

data rich, lots of facts, but information poor, little in a useful form.

less effective at defining the research problem than larger companies.

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Question 39. Question :

One of the first steps in building a marketing plan is identifying a small company's ________, the group of customers at whom the company aims its products and services.

r: target market



Both A and C

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Question 40. Question :

________ refers to developing, maintaining, and managing long-term relationships with customers so that they will want to keep coming back.

r: Customer Relationship Management

Customer Retention Management

Customer Management Software

Customer Reassurance Management

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Question 41. Question :

One "natural" advantage small businesses have over large business, which can be a significant competitive advantage, is:

r: relationship marketing.

their ability to conduct market research.

their lower costs.

their ability to serve many highly diverse target markets.

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Question 42. Question :

Companies with strong reputations for quality follow certain guidelines, such as:

r: establishing long-term relationships with suppliers.

fostering individual effort and pride of workmanship.

rewarding employees for compliance to rules and procedures.

building an extensive quality inspection system with many quality inspectors.

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Question 43. Question :

A business plan for the small business owner:

r: is of relatively little importance due to the dynamic nature of the marketplace.

is synonymous with the marketing plan.

tends to stress how the entrepreneur will operate rather than detailing what he/she wants to accomplish.

contains both a marketing plan and a financial plan.

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Question 44. Question :

Small businesses can compete with larger rivals with bigger budgets by employing unconventional, low-cost creative techniques known as:

r: market research.

astonishing customer service.

guerrilla marketing techniques.


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Question 45. Question :

The marketing plan should include certain key objectives, such as:

r: determining product costs through market research.

pinpointing the specific target markets a small business will serve.

determining what costing strategies to use.

discovering what the company's ETDB index is.

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Question 46. Question :

Entrepreneurs who recognize demographic, social, and cultural trends as they emerge have the opportunity to ________ their companies from the competition in meaningful ways.

r: integrate




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Question 47. Question :

The right price for a product depends on which factors?

r: A small company cost structure

The desired image the company wants to create in its customers' minds

An assessment of what the market will bear

All of the above

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Question 48. Question :

________ is the process of creating and delivering desired goods and services to customers, and involves all of the activities associated with winning and retaining loyal customers.

r: Marketing

Personal selling


Advertising and public relations

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Question 49. Question :

Small businesses are able to maintain a leadership role in innovation by:

r: using their size, flexibility, and speed to their advantage.

spending much more money on R & D than large companies do.

foreseeing trends better and far enough in advance that they can spread innovation costs over several years.

making better use of technology than large companies.

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Question 50. Question :

The marketing goal of a small business is to treat each customer as a(n):

r: individual.


profit center.

cost center.

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