Fi515 Midterm

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 1.| Question :| (TCO A) Which of the following statements is CORRECT?|
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 | Student Answer:| |  One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt.|  | | |  Sole proprietorships are subject to more regulations than corporations.|  | | |  In any type of partnership, every partner has the same rights, privileges, and liability exposure as every other partner.|  | | |  Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large ones.|  | | |  Corporations of all types are subject to the corporate income tax.|  | Instructor Explanation:| Chapter 1Explanation:  Ch 1:  d is correct, all others are incorrecta: incorporating provides owners limited liabilityb: sole proprietorship has less regulation than corporationc: In limited partnerships certain partners can be designated general partners and others limited partners with differences in control and liabilityd.  sole proprietorships and partnerships are taxed just once at owner level (pass-through of income to owners) whereas corporation earnings can be double or triple taxed depending on individual or corporate ownership of stocke.  S-corps can elect to be taxed as proprietorship  or partnership| |

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 | Points Received:| 0 of 8|
 | Comments:| |
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 2.| Question :| (TCO A) Which of the following statements is CORRECT?|
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 | Student Answer:| |  It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required.|  | | |  Corporations face fewer regulations than sole proprietorships.|  | | |  One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level.|  | | |  One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership.|  | | |  If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.|  | Instructor Explanation:| Chapter 1Explanation:  Ch 1:  d is correct, all others are incorrecta.  False- Corporate formation is more complex and expensive, in general, than are partnershipsb.  False- Corporations are regulated at state level and thus are more regulated than sole proprietorshipsc:  False- sole proprietors are taxed once at owner leveld:  true- the corporate form provides owners limited liabilitye:  False- Under partnership law, each partner is liable for the business debts. | |

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 | Points Received:| 8 of 8|
 | Comments:| |
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 3.| Question :| (TCO A) Which of the following statements is CORRECT?|
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 | Student Answer:| |  One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability.|  | | |  It is generally easier to transfer one’s ownership interest in a partnership than in a corporation.|  | | |  One of the advantages of the corporate form of organization is that it avoids double taxation.|  | | |  One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., “one person, one vote.”|  | | |  Corporations of all types are subject to the corporate income tax.|  | Instructor Explanation:|  Explanation:  Ch 1:  a is correct, all others are incorrecta:  Trueb:  false- corporate shares provide easiest transfer of ownershipc:  false- the corporate form results in double taxation- earnings are taxed at corporate level and dividends distributed are taxed at ownership leveld:  corporations may issue classes of stock that differ in voting rightse.  S-corps can elect to be taxed as proprietorship  or partnership | |

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 | Points Received:| 0 of 8|
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