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Chapter 1: Q. 4SE (page 33)

You would like to start a cellular telephone equipment service business. You are considering organizing the business as a sole proprietorship. Identify the advantages and disadvantages of owning a sole proprietorship.

Short Answer

Expert verified

The advantage of sole proprietorship includes a single owner and it does not require sharing of profits with anyone. Disadvantages include termination of the organization and personal liability of the owner.

Step by step solution

01

Explanation on Sole Proprietorship

Sole proprietorship is one of the forms of business organization in which there is only one owner.

02

Advantages and disadvantages

Advantages are as follows:

  • There is only a single owner of the business who receives all profits.
  • The profits are not shared with anyone in the organization.

Disadvantages are as follows:

  • It can be terminated at the death of the owner or at the will of the owner.
  • The personal property of the owner can be used to repay the debts of the businesses.

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Most popular questions from this chapter

Match each example with a component of a computerized accounting information system. Components may be used more than once.

ExampleComponent
1. Server
a. Source documents and input devices
2. Bank checksb. Processing and storage
3. Reportsc. Outputs
4. Keyboard
5. Software
6. Financial statement
7. Bar code scanner

Describe the similarities and differences among the four different types of business entities discussed in the chapter.

Consider the following accounting terms and definitions, and match each term to the definition:

1. Sole proprietorship

2. Faithful representation

3. Partnership

4. IFRS

5. Corporation

6. Audit

a. Set of global accounting guidelines, formulated by

the IASB

b. Holds that fair market value should not be used

over actual costs

c. Stands for Financial Accounting Standards Board

d. Owner is referred to as a proprietor

e. Asserts that accounting information should be

complete, neutral, and free from material error

7. Cost principle

8. FASB

9. Creditors

10. SEC

f. An examination of a company鈥檚 financial statements

and records

g. Has two or more owners (called partners)

h. U.S. governmental agency that oversees the U.S.

financial markets

i. Type of entity that is designed to limit personal

liability exposure of owners to the entity鈥檚 debts

j. Person or business lending money

Let鈥檚 examine a case using Greg鈥檚 Tunes and Sal鈥檚 Silly Songs. It is now the end of the first year of operations, and the stockholders want to know how well each business came out at the end of the year. Neither business kept complete accounting records, and no dividends were paid. The businesses throw together the data shown on the next page at year-end: \( 23,000 8,000 35,000 22,000 \) 10,000 6,000 44,000 9,000 Total Assets Common Stock Total Revenues Total Expenses Greg鈥檚 Tunes: Sal鈥檚 Silly Songs: Total Liabilities Common Stock Total Expenses Net Income To gain information for evaluating the businesses, the stockholders ask you several questions. For each answer, you must show your work to convince the stockholders that you know what you are talking about. Requirements 4. Which business brought in more revenue?

For each transaction, identify the appropriate section on the statement of cash flows to report the transaction. Choose from: Cash flows from operating activities (O), Cash flows from investing activities (I), Cash flows from financing activities (F), or Is not reported on the statement of cash flows (X). If reported on the statement, decide whether the transaction should be shown as a positive cash flow (+) or a negative cash flow (鈥�):

a. The business received cash from the issuance of common stock.

b. Paid cash on accounts payable for office supplies purchased.

c. Performed services for a customer on account.

d. Cash dividends were paid to stockholders.

e. Received cash from a customer for services performed.

f. Purchased equipment with cash.

g. Paid rent for the month.

h. Purchased land; signed a note payable.

i. Paid employees wages for the week.

j. Incurred utility expense on account.
See all solutions

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