Ethics And Law

  1. Koffman Corporation is trying to raise capital. What method would be the least risky to raise capital if it has a less-than-favorable credit rating?
o    Bond issuance, since additional debt can provide the company with more leverage.

o    Bond issuance, since nobody wants to buy shares of a company with a less-than-perfect credit rating.

o    Stock issuance, since stocks are more valuable as finance instruments.

o    Stock issuance, since a credit rating won’t negatively affect Koffman’s ability to sell stock.

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Hal and Miranda have a general partnership business for landscaping projects. Hal makes a contract with a customer for a project one day while Miranda is absent and leaves on vacation the next day. Miranda does not feel she has the time to perform the contract for the customer. Which of the following is true?

o    Indeterminable without more information.

o    Miranda is obligated to perform the contract.

o    Miranda may relinquish her obligation to perform the contract since Hal signed it without her knowledge.

o    Only Hal is obligated to perform the contract.

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Kara wants to build a business. She has plenty of capital and potential investors and partners. She wants to avoid the burden of sole liability for her business and wants to be able to close the business when she is no longer interested in it. Which of the following would lead Kara to choose a sole proprietorship organization for her business?

o    Avoidance of sole liability

o    Ability to close the business easily

o    Plenty of capital

o    Many potential investors/partners

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Lily wants to build a business. She has very little capital. She does, however, have a partner with which she could run a business. Lily wants to be able to avoid being held personally liable for any problems the business has. Which of the following would lead Lily to choose a sole proprietorship organization for her business?

o    None of the above

o    Avoidance of personal liability

o    Little capital

o    Possession of a partner

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Abigail is a manager at her company. The company just launched an initiative to improve its corporate citizenship practices. Abilgail is responsible for all but which of the following areas?

o    Vigilance of the board of directors

o    Disclosure and transparency

o    Integrity and ethical behavior

o    Safeguarding shareholders’ interests

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Match each event with the order in which it occurs in the formation of a corporation.

First

 

 

Fourth

 

 

Third

 

 

Second

 

 

Drag and drop the choices from below.

Incorporators select a name for the corporation

 

Novations are executed

 

Business selects a state of incorporation

Articles of incorporation are filed

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Mario and Johnny want to start a business. They have very little capital. They are new partners and largely unfamiliar with each other’s management practices. They are happy, however, to be organizing a business together in order to avoid full liability for the business. Which detail(s) of this situation would be the largest contributor toward Wade and Hunter’s decision to organize a general partnership?

o    Sharing profits

o    Unfamiliar with each other’s management practices

o    Avoiding full liability

o    Little capital

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Juan wants to be involved in business. He has plenty of capital to invest, but he does not want to be involved in management. He also does not want to worry about fluctuations in the market prices of debt and equity instruments. Which form of business would be best for Juan?

o    Corporation

o    LLC

o    General partnership

o    Sole proprietorship

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Noodleoo, a struggling restaurant chain, wants to enact a franchise agreement with Stephen to sell its product through a chain-style franchise. Stephen agrees and opens the store, and 6 months later Noodleoo goes bankrupt. Which is most likely true of this situation?

o    If Noodleoo was transparent with its financial data, it owes no recompense to Stephen.

o    If Noodleoo was not transparent with its financial data, it has broken the franchise rule.

o    If Noodleoo was not transparent with its financial data, Stephen has no recourse.

o    More than one response is correct.

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J-Chron’s board of directors periodically meets with the CFO of the company. The CFO reports on the financial status of a company project, after which the board inquires about the project’s compliance with legally-required accountings principles. It asks no other questions about the project. Which of the following is true?

o    The board is meeting legally-required vigilance standards, but not necessarily those which would protect shareholders’ interest.

o    The board is not legally required to meet vigilance requirements.

o    The board is not meeting any basic vigilance requirements.

o    The board is meeting all of its vigilance requirements.

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Identify the description that properly completes each prompt.

Piper is a manager in a corporation that was organized in Canada by one of his former coworkers. The company provides consulting services and training for architects employed by construction companies. The company recently went public, with shares being sold to about 500 investors. Piper’s company would be a __________ corporation.

 

 

Tucker works for a retail distribution company that was recently started. Tucker has invested a lot of his earnings into shares of the company. When quarterly earnings are posted, Tucker receives a check for 8% of the quarterly profit of the company. Tucker belongs to a __________ corporation.

 

 

Hal organized his business in Canada. Most of his customers are in Montana. In Montana, Hal’s business would be considered a(n) __________ corporation.

 

 

Zoey is the CEO of a corporation she organized herself with 15 shareholders. The company operates in several states, as well as outside of the U.S. Her business consists mostly of training services for in-home medical care personnel. Her company would be a __________ corporation.

 

 

Lenny organized his business in Delaware. He has customers in Delaware, other states in the U.S., and in foreign countries. Lenny’s business is __________ in Delaware.

 

 

Drag and drop the choices from below.

Domestic

 

Closely-held

 

Professional

 

Subchapter S

 

Alien

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Sandy works for RigorMart. She supervises regional managers and directs them based on orders from the board of directors. Sandy’s position also entitles her to stock ownership in the company. What is Sandy’s position in the company?

o    Executive, shareholder, and director

o    Executive and shareholder

o    Shareholder

o    Executive

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Loptech, a technology firm, wants to issue bonds for investment purposes. Loptech has one of the best credit ratings in the industry. Market rates for debt instruments average at .5% interest. Based on its credit rating, Loptech would likely sell bonds that pay _____.

o    Indeterminable with current information

o    0.75%

o    0.25%

o    0.5%

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Rita wants to be involved in business. She has a fair amount of money to invest, but she does not want to be involved in management. She wants to form a business in the quickest way possible under her circumstances. Which form of business would be best for Rita?

o    LLC

o    Sole proprietorship

o    Corporation

o    Limited partnership

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Match each term with its appropriate description.

Chain-style franchise

 

 

Distributorship

 

 

Plant-processing franchise

 

 

Drag and drop the choices from below.

A franchisee sells a franchisor’s product in a specific geographic area.

 

A franchisee makes or sells a franchisor’s product.

 

A franchisee produces and sells a franchisor’s product using the franchisor’s name.

 

 

 

 

 

  1. Closely-held corporation

 

 

Publicly-held corporation

 

 

Public corporation

 

 

Professional corporation

 

 

Drag and drop the choices from below.

A business formed by the government

 

A business with a small number of shareholders

 

A business formed to assist experts in a particular business field

A business with a large number of shareholders

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Wade and Hunter want to start a business. They have a large amount of capital. They have a good working relationship and believe they will do well sharing management responsibility and in sharing profits. They are happy to be organizing a business together in order to avoid full liability for the business. Which detail(s) of this situation would be most unhelpful toward Wade and Hunter’s decision to organize a general partnership?

 

o    Large amount of capital

o    Avoiding full liability

o    Sharing management responsibility

o    Sharing profits

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Which of the following is true concerning bonds?

o    As company’s credit increases, the interest on its bonds tend to decrease.

o    A bond’s collateral is always based on physical assets.

o    Bonds are considered assets.

o    A bond is an equity interest.

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Chloe is a non-executive supervisor at her company. She directs other employees but has no control of financial information or decision-making responsibilities. She would be responsible for contributing to which of the following areas?

o    Maintaining a strong board of directors

o    Safeguarding the rights and interests of shareholders

o    Disclosure and transparency

o    Promoting integrity and ethical behavior

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Reed works for Marimart. He assembles components for consumer products. He also conducts training for new hires at Marimart. Reed additionally purchases stock in the company? What is Reeds position in the company?

o    Executive

o    Shareholder

o    Director

o    More than one option

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Match each type of organization with the type of franchise it would typically belong to.

Distributorship

 

 

Chain-style franchise

 

 

Plant-processing franchise

 

 

Drag and drop the choices from below.

Restaurants

 

Car dealerships

 

Beverage bottlers

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Which of the following is false concerning LLCs?

o    LLCs are governed by state statute.

o    LLCs are formed in much the same way as a general partnership.

o    LLCs can be taxed as corporations.

o    LLC owners are called members.

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The board of directors for Glenncorp makes an investment in distribution services that ultimately result in a net loss for the company and its shareholders. Shareholders in the company may:

o    Demand compensation for their losses in proportion to their number of shares

o    Sue the board of directors.

o    Sign a petition to fire the board of directors

o    Do nothing, as the board is protected by the business judgment rule

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Papapop makes a franchise agreement with a bottling factory to sell its product to the company for bottling and subsequent sale. Over the next several years, Papapop steadily demands a higher percentage of the bottler’s profit from sales. Which of the following is true?

o    Papapop is restricted from demanding a higher profit percentage.

o    None of the above

o    Papapop is restricted from demanding a higher profit percentage if such increases are arbitrary.

o    Papapop may demand a higher percentage without restriction.

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Which of the following is not a basic requirement of good corporate citizenship?

o    Ethical environment

o    Provision of benefits to employees

o    Disclosure

o    Strong and vigilant board of directors

 

 
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