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1. Green desires to form a new company to manufacture lawn mowers. Green is concerned about having his personal assets exposed to liability for the new companys contracts and torts. Furthermore, he wants to retain control over the companys operations and growth for the next few years. He will need an infusion of equity capital to begin operations. He hopes to take the company public in about five years if it is advantageous to do so at the time. Which of the following types of business associations would be best for Greens new company?

(A) Corporation

(B) General partnership

(C) Limited partnership

(D) Member-managed limited-liability company

2. If a firm increases its regular quarterly dividend payment, the increase could indicate which of the following?

I. Improved earnings prospects for the firm

II. A reduction in agency problems of free cash flow

III. A reduction in tax payments for shareholders

(A) I only

(B) II only

(C) I and II only

(D) II and III only

5. Which of the following should be shown net of tax on a corporations income statement?

(A) Discontinued operations

(B) Operating income

(C) Gross profit

(D) Gain on sale of delivery truck

6. In the statement of cash flows, the section for cash flows from operating activities will include which of the following?

(A) Dividends paid

(B) Issuance of common stock

(C) A decrease in accounts payable

(D) Purchase of a building financed entirely by a mortgage

7. Net income $100,000;

Depreciation expense $10,000;

Net increase in accounts: receivable $5,000;

Net increase in accounts: payable $3,000;

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