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Which one of the following statements concerning a sole proprietorship is correct?

a. The profits of a sole proprietorship are subject to double taxation.

b. The owner of a sole proprietorship is personally responsible for all of the company's debts.

c. There are very few sole proprietorships remaining in the U.S.A. today.

d. A sole proprietorship is the least common form of business ownership.

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Bunny Greenfelder
Bunny GreenfelderLv2
24 Jan 2020

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Which of the following statements is CORRECT? One of thedisadvantages of a sole proprietorship is that the proprietor isexposed to unlimited liability. It is generally easier to transferone's ownership interest in a partnership than in a corporation.One of the advantages of the corporate form of organization is thatit avoids double taxation. One of the advantages of a corporationfrom a social standpoint is that every stockholder has equal votingrights, i.e., "one person, one vote." Corporations of all types aresubject to the corporate income tax.

1.If a stock is sold on the secondary market between one investor and another, what effect does that have on the financial statements of the company that originally issued the stock?

Its revenues increase

Its "in excess" equity increases

It has a new asset

There is no effect since the sale or trade is among investors only

----------------------

2.

QUESTION 10

Which of the following is an advantage of the corporate form of business organization?

double taxation

amount of regulation

limited liability

entrenched management

3.

Ownership and profit distribution in a sole proprietorship are generally seen on its balance sheet respectively as

A personal capital account and dividends

Common stock and dividends

Common stock and withdrawals

A personal capital account and withdrawals

4.

QUESTION 12

A major difference between common and preferred stock is that usually

Common stockholders receive dividends before preferred

Common stockholders can vote and preferred cannot

Preferred stockholders can only be other institutions and not individuals

Common stockholders have unlimited liability and preferred do not

5.If common stock is issued and sold as "no par"

It is treated as preferred stock

It becomes a liability account

An "additional paid in capital (in excess)" will be recorded

An "additional paid in capital (in excess)" will not be recorded

Architect, a cash basis TP, has been conducting a business as a sole proprietorship for several years. Architect decides to incorporate, and on July 1 of the current year he forms Design, Inc., to which he transfers the following assets:

Assets AB FMV

Accounts Receivable $0 $60,000

Supplies 0 20,000

Unimproved Land 60,000 120,000

Total $60,000 $200,000

The land was subject to contingent environmental liabilities that Architect had not taken into account (i.e., had not deducted or capitalized) for tax purposes at the time of the incorporation. The supplies were acquired nine months ago and their cost was immediately deducted by Architect as an ordinary and necessary business expense.

In exchange, Architect receives 100 shares of Design common stock with a FMV of $100,000. In addition, Design assumes $70,000 of accounts payable to trade creditors of Architect's sole proprietorship and a $30,000 bank loan incurred by Architect two years ago for valid business reasons, and it assumed the environmental liabilities associated with the land.

Design elects to become a cash method, calendar year TaxPayer. During the remainder of the current year, it pays $30,000 of the accounts payable and collects $40,000 of the accounts receivable transferred by Architect. In the following taxable year, Design paid $20,000 in environmental remediation expenses that qualified for a current deduction when paid or accrued under Section 162.

(a)What are the tax consequences (gain or loss recognized, basis and holding period) of the incorporation to Architect and Design, Inc.?

(b) Who will be taxable upon collection of the accounts receivable: Architect, Design or both?

(c) When Design pays the accounts payable assumed from Architect and incurs the environmental remediation costs, may it properly deduct these expenses?

(d)Assume that Architect is in the highest marginal individual tax bracket and Design, Inc. anticipates no significant TI for the current year:

•What result, if Architect decides to pay (and deduct) personally all the accounts payable. and transfers the accounts receivable to the C?

(e) Would your answers be any different if Architect had been an accrual method Taxpayer?

(f) Is Design, Inc. limited in its choice of accounting method (i.e., cash or accrual) or taxable year? See §§ 441; 448

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