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Chapter 13: Q1SE_2 (page 702)

Question - Describing corporation characteristics

Due to recent beef recalls, Southwest Steakhouse is considering incorporating. Bob, the owner, wants to protect his personal assets in the event the restaurant is sued.

Requirements

2. What are some disadvantages of organizing as a corporation?

Short Answer

Expert verified

Answer

Corporates are obliged to pay double tax on its earnings and there might be conflict of interest as the ownership and management are not in the same hands. The incorporation process is expensive and complex.

Step by step solution

01

Basic introduction-

Corporation is considered as a legal entity that is distinct from its owners and have its separate existence in the eye of law. It possesses similar rights and responsibilities as an individual may have.

02

Disadvantages of organization as a corporation-

The corporation's revenue is subject to double taxation.

Ownership and management are separated as shareholders are the owners and directors are the managers.

Compare to other business forms the start-up costs are higher.

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Most popular questions from this chapter

Journalizing treasury stock transactions and reporting stockholders鈥� equity

Southern Amusements Corporation had the following stockholders鈥� equity on

November 30:

Paid-In Capital:

Common Stock鈥擻(5 Par Value; 1,300 sharesauthorized, 250 shares issued and outstanding1,250

Retained Earnings50,000

Total Stockholders鈥� Equity \) 55,000

Stockholders鈥� Equity

Paid-In Capital in Excess of Par鈥擟ommon 3,750

Total Paid-In Capital

\(5,000

On December 30, Southern purchased 200 shares of treasury stock at \)15 per share.

Requirements

1. Journalize the purchase of the treasury stock.

Analyzing the effect of prior-period adjustments

Taylor Corporation discovered in 2019 that it had incorrectly recorded in 2018 a cash payment of \(70,000 for utilities expense. The correct amount of the utilities expense was \)35,000.

Requirements

2. How should this error be reported in the 2019 financial statements?

Identifying advantages and disadvantages of a corporation

Following is a list of advantages and disadvantages of the corporate form of business. Identify each quality as either an advantage or a disadvantage.

a. Ownership and management are separated.

List three characteristics of a corporation.

Question: Journalizing issuance of stock鈥攁t par and at a premium

Colorado Corporation has two classes of stock: common, \(3 par value; and preferred, \)30 par value.

Requirements

1. Journalize Colorado鈥檚 issuance of 4,500 shares of common stock for $6 per share.
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