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Reading 16: Organizing Production - LOS e, (Part 1) ~ Q1-3

1.Which of the following potential disadvantages are most likely to be associated with the indicated type of business organization?

 

Type of
Business Organization

Disadvantage

 

A)                                        Corporation   Principal-agent problem

B)                                        Proprietorship       Double taxation

C)                                        Partnership   Double taxation

D)                                        Proprietorship       Principal-agent problem

2.Consider the following two business firms:

Firm 1 has more than one owner. Each owner’s legal liability for the debts and obligations of the firm can exceed the amount they have invested in the firm.

Firm 2 is a legal entity that pays income taxes.

Which choice most accurately describes the type of business organization characterized by Firm 1 and Firm 2?

 

Firm 1

Firm 2

 

A)                                        Partnership   Corporation

B)                                        Partnership   Proprietorship

C)                                        Corporation   Proprietorship

D)                                        Corporation   Corporation

3.For which of the following organizational structures is (are) the entire wealth of the owner(s) at risk?

A)   Proprietorships only.

B)   Partnerships only.

C)   Partnerships and proprietorships.

D)   Corporations.

答案和详解如下:

1.Which of the following potential disadvantages are most likely to be associated with the indicated type of business organization?

 

Type of
Business Organization

Disadvantage

 

A)                                        Corporation   Principal-agent problem

B)                                        Proprietorship       Double taxation

C)                                        Partnership   Double taxation

D)                                        Proprietorship       Principal-agent problem

Click for Answer and Explanation A)

The principal-agent problem arises when the incentives and motivations of managers and workers (agents) are not the same as the incentives and motivations of their firm’s owners (principals). The principal-agent problem is associated with the corporate form of business organization, where the owners of the firm are its shareholders.

2.Consider the following two business firms:

Firm 1 has more than one owner. Each owner’s legal liability for the debts and obligations of the firm can exceed the amount they have invested in the firm.

Firm 2 is a legal entity that pays income taxes.

Which choice most accurately describes the type of business organization characterized by Firm 1 and Firm 2?

 

Firm 1

Firm 2

 

A)                                        Partnership   Corporation

B)                                        Partnership   Proprietorship

C)                                        Corporation   Proprietorship

D)                                        Corporation   Corporation

Click for Answer and Explanation A)

Firm 1 is a partnership. If it were a corporation, the owners’ liability would be limited to the amount they have invested. Firm 2 is a corporation, the only type of business organization that pays income taxes. Proprietorship or partnership income flows through to the individual owners, who pay personal income taxes on it.

3.For which of the following organizational structures is (are) the entire wealth of the owner(s) at risk?

A)   Proprietorships only.

B)   Partnerships only.

C)   Partnerships and proprietorships.

D)   Corporations.

Click for Answer and Explanation C)

The owners (shareholders) of a corporation have only the amount of their investment at risk. This is referred to as limited liability.

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