Ethics and law multiple choice

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?

· Bond issuance, since additional debt can provide the company with more leverage.

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

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

· 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?

· Indeterminable without more information.

· Miranda is obligated to perform the contract.

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

· 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?

· Avoidance of sole liability

· Ability to close the business easily

· Plenty of capital

· 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?

· None of the above

· Avoidance of personal liability

· Little capital

· 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?

· Vigilance of the board of directors

· Disclosure and transparency

· Integrity and ethical behavior

· 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?

· Sharing profits

· Unfamiliar with each other’s management practices

· Avoiding full liability

· 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?

· Corporation

· LLC

· General partnership

· 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?

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

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

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

· 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?

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

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

· The board is not meeting any basic vigilance requirements.

· The board is meeting all of its vigilance requirements.