DSST Introduction to Business Practice Questions Answer Key

1. C: In “a”, limited partnership involves ownership with at least one other person, so this answer is wrong. With “b”, a general partnership shares profits and liabilities, so this answer is wrong. In “c”, a sole proprietorship is set up with the business owner making decisions and also getting the benefits or rewards, so this is the best answer. With “d”, a master limited partnership is similar to a corporation, so there would not be one person taking ownership or making decisions.
2. B: When two or more people enter a business as owners, it’s known as partnership. It can’t be a general partnership because the investors funded the operation, so “a” is incorrect. A master limited partnership is similar to a corporation, so answer “c” is incorrect since only two men own the business. The answer “d” is incorrect since more than one man is involved in leading the company. The best answer would be “b”, a limited partnership since there are several “limited” partners who invest in the business in addition to the general “partners” who operate it.
3. D: This can’t be a general or limited partnership because a board of directors is acting as “officers” of the business. That makes “a”, “b” and “c” wrong. The best answer is “d”. There is no partnership effort in this effort. The board of directors makes decisions for Jake and his family when they barbeque.
4. D: In a corporation, the business is the owner, so the shareholders cannot be held responsible when creditors seek compensation over debts owed. That eliminates answer choices “a”, “b” and “c”. The only recourse that creditors have in seeking to collect on debts from a corporation would be to get it from the assets of the corporation.
5. B: In chapter 7, the debtor wants to be free from all repayment of debt. Their assets would then be sold and distributed to their creditors. This is not what Joe and Tom want since they just need more time in order to make some changes and continue in business, so answer choice “a” is wrong. In Chapter 11, the business is reorganized with a plan on how to repay the creditors. In addition, the plan addresses any changes or plans for the future. In that sense, answer choice “b” seems to be a good fit for Joe and Tom. Chapter 12 is for family farmers or fishermen, neither of which would apply to Joe and Tom, so answer choice “c” would not be right. Chapter 13 is to stop foreclosure actions in individual wage earners. This doesn’t apply to Joe and Tom since their houses are not at risk, so answer choice “d” would not be right.
6. D: This is a judgment call since it involves opinions. Some business owners like to follow corporate rules. But this can get quite involved when it comes to the details that franchisees can face at all levels of their operation. There are exact rules about all stages of the business, and you can violate the contract by refusing to follow them as stated. That makes answer choice “a” more of a disadvantage. Traditionally, start up costs can be high for franchises. This can be a drain on new business owners at a time when they need capital. That makes answer choice “b” a disadvantage. Franchises are also at risk since their operations are standardized. Customers understand this and can make judgments about one outlet and generalize bad service or bad news about another in the same chain. That makes answer choice “c” a disadvantage. The best choice in this question would be “d” since it would be hard to see operating as a sole proprietor or help in management and marketing as a disadvantage.
7. A: In a vertical merger, two different businesses have different phases of a related business. They then join as one entity. This could be true of Bowers and T-Rate since they are both producing equipment for sports. In that sense, answer choice “a” would be a good fit. In a horizontal merger, two groups in the same industry decide to join and expand their products. This does not apply since Bowers only produces racquetballs and not other equipment for sports. Answer choice “b” or “d” would not be good. In a conglomerate merger, two firms that are unrelated decide to join forces and expand their product range. This would not apply in this case since they are both involved in equipment for sports. That eliminates answer choice “c”.
8. C: Unlimited liability means there are no limits on the amount that you might have to pay if you are in a sole proprietorship. Both “a” and “b” represent the types of potential losses that you can face. This question is asking for the item that is NOT true when it comes to unlimited liability. Answer choice “c” is the best option since it doesn’t matter how much income you make as a sole proprietorship. You’re still responsible for any losses.
9. D: The word “limited” restricts a creditor. All partners are protected from damages that are larger than their investment. That eliminates answer choice “a”. Both “b” and “c” are true, so answer choice “d” would be best since personal assets cannot be taken by creditors, and the partners are not responsible for the amount of debt beyond the level of investment that each partner has in the business.
10. D: Both were incorporated in another state or country and are authorized to do business in another area. That could be another state from the area where they were incorporated. They can also be formed in another country from the U.S. and be authorized to do business in the U.S.