Financial & Managerial Accounting Custom Edition For University Of South Dakota Volume 2, 1/e
Financial & Managerial Accounting Custom Edition For University Of South Dakota Volume 2, 1/e
1st Edition
ISBN: 9781323402399
Author: MILLER-NOBLES
Publisher: Pearson Education
Question
Chapter 13, Problem 1QC
To determine

Corporation: A business concern where there is a separate legal entity, and are owned by shareholders, are classified as corporation. Transfer of ownership and raising funds are easy in this form of organization. The liabilities of the stockholders to its creditors is limited up to their invested capital amount in the corporation.

To find: which characteristic of a corporation is a disadvantage.

Expert Solution & Answer
Check Mark

Answer to Problem 1QC

(b) Double taxation

Explanation of Solution

Explanation for correct answer:

A corporation is entitled to double taxation. The corporation is required to pay the taxes based on its net income. In addition, the dividend income that are distributed to the shareholders are also taxable. Hence, this option is correct.

Explanation for incorrect answers:

  • Option (a) Mutual agency: Mutual agency is an advantage for a corporation. Unlike ,partnership and sole proprietorship, there is no mutual agency in a corporation as there is no mutual agreement between the stockholders’ and the corporation to form a corporation. The stockholders’ cannot bind the business into a contract. In a corporation form of business, the company is not liable for any unethical or immoral activities done by the stockholders. Hence, this option is incorrect.
  • Option (c) Limited liability: The liability of a corporation is limited and it is an adavantage. It means that the liability of a stockholders is limited only to the extent of their investment amount. They are not personally liable. This is because, a corporation is a separate legal entity. Thus, the corporation is liable to settle all its debts and obligations from the assets available in the corporation. Hence, this option is incorrect.
  • Option (d) None are disadvanatages: As explained above, since double taxation is the disadvanatage of the corporation out of the given four options, this option is incorrect.
Conclusion

Hence, the correct answer is option (b).

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Which characteristic of a corporation is a disadvantage? a. Mutual agency b. Double taxation c. Limited liability d. None are disadvantages.
Which characteristic of a corporation is a disadvantage? Mutual agency Double taxation Limited liability None are disadvantages
Which of the following is the disadvantage of setting up a "Corporation"? Double taxation and limited capital Double taxation and agency problem Illiquidity and agency problem Illiquidity and double taxation

Chapter 13 Solutions

Financial & Managerial Accounting Custom Edition For University Of South Dakota Volume 2, 1/e

Ch. 13 - Prob. 1RQCh. 13 - Prob. 2RQCh. 13 - How does authorized stock differ from outstanding...Ch. 13 - What are the four basic rights of stockholders?Ch. 13 - How does preferred stock differ from common stock?Ch. 13 - Prob. 6RQCh. 13 - What are the two basic sources of stockholders'...Ch. 13 - Prob. 8RQCh. 13 - If stock is issued for assets other than cash,...Ch. 13 - Prob. 10RQCh. 13 - Where and how is treasury stock reported on the...Ch. 13 - What is the effect on the accounting equation when...Ch. 13 - What are the three relevant dates involving cash...Ch. 13 - How does cumulative preferred stock differ from...Ch. 13 - What is a stock dividend?Ch. 13 - Prob. 16RQCh. 13 - What are some reasons corporations issue stock...Ch. 13 - Prob. 18RQCh. 13 - What does the statement of retained earnings...Ch. 13 - What is a prior-period adjustment?Ch. 13 - Prob. 21RQCh. 13 - What does earnings per share report, and how is it...Ch. 13 - What is the price/earnings ratio, and how is it...Ch. 13 - What does the rate of return on common stock show,...Ch. 13 - Prob. 13.1SECh. 13 - Journalizing issuance of stock- at par and at a...Ch. 13 - Journalizing issuance of stock-no-par Ashford...Ch. 13 - Journalizing issuance of stock- stated value...Ch. 13 - Journalizing issuance o f stock for assets other...Ch. 13 - Prob. 13.6SECh. 13 - Accounting for cash dividends Frenchroast Company...Ch. 13 - Dividing cash dividends between preferred and...Ch. 13 - Prob. 13.9SECh. 13 - Prob. 13.10SECh. 13 - Prob. 13.11SECh. 13 - Preparing a statement of retained earnings Tinder,...Ch. 13 - Analyzing the effect of prior-period adjustments...Ch. 13 - Prob. 13.14SECh. 13 - Prob. 13.15SECh. 13 - Prob. 13.16SECh. 13 - Prob. 13.17ECh. 13 - Prob. 13.18ECh. 13 - Journaling issuance of stock Skylar Systems...Ch. 13 - Prob. 13.20ECh. 13 - Prob. 13.21ECh. 13 - Prob. 13.22ECh. 13 - Journalizing treasury stock transactions and...Ch. 13 - Journalizing issuance of s tock and treasury stock...Ch. 13 - Computing dividends on preferred and common stock...Ch. 13 - Computing dividends on preferred and common stock...Ch. 13 - Journalizing a stock dividend and reporting...Ch. 13 - Prob. 13.28ECh. 13 - Reporting stockholders' equity after a stock split...Ch. 13 - Determining the effects of cash dividends, stock...Ch. 13 - Prob. 13.31ECh. 13 - Prob. 13.32ECh. 13 - Computing earnings per share and price/earnings...Ch. 13 - Computing rate of return on common stockholders'...Ch. 13 - Organizing a corporation and issuing stock John...Ch. 13 - Identifying sources of equity, stock issuance, and...Ch. 13 - Prob. 13.37APCh. 13 - Journalizing dividends and treasury stock...Ch. 13 - Journalizing dividend and treasury stock...Ch. 13 - Prob. 13.40APCh. 13 - Prob. 13.41BPCh. 13 - Prob. 13.42BPCh. 13 - Prob. 13.43BPCh. 13 - Journalizing dividends and treasury stock...Ch. 13 - Journalizing dividend and treasury stock...Ch. 13 - Prob. 13.46BPCh. 13 - Sources of equity and journalizing stock issuance...Ch. 13 - Prob. 13.1CTFSCCh. 13 - Prob. 13.1CTCA
Knowledge Booster
Similar questions
    • SEE MORE QUESTIONS
    Recommended textbooks for you
  • Entrepreneurial Finance
    Finance
    ISBN:9781337635653
    Author:Leach
    Publisher:Cengage
    Income Tax Fundamentals 2020
    Accounting
    ISBN:9780357391129
    Author:WHITTENBURG
    Publisher:Cengage
    SWFT Comprehensive Volume 2019
    Accounting
    ISBN:9780357233306
    Author:Maloney
    Publisher:Cengage
  • Intermediate Accounting: Reporting And Analysis
    Accounting
    ISBN:9781337788281
    Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
    Publisher:Cengage Learning
    CONCEPTS IN FED.TAX., 2020-W/ACCESS
    Accounting
    ISBN:9780357110362
    Author:Murphy
    Publisher:CENGAGE L
    SWFT Corp Partner Estates Trusts
    Accounting
    ISBN:9780357161548
    Author:Raabe
    Publisher:Cengage
  • Entrepreneurial Finance
    Finance
    ISBN:9781337635653
    Author:Leach
    Publisher:Cengage
    Income Tax Fundamentals 2020
    Accounting
    ISBN:9780357391129
    Author:WHITTENBURG
    Publisher:Cengage
    SWFT Comprehensive Volume 2019
    Accounting
    ISBN:9780357233306
    Author:Maloney
    Publisher:Cengage
    Intermediate Accounting: Reporting And Analysis
    Accounting
    ISBN:9781337788281
    Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
    Publisher:Cengage Learning
    CONCEPTS IN FED.TAX., 2020-W/ACCESS
    Accounting
    ISBN:9780357110362
    Author:Murphy
    Publisher:CENGAGE L
    SWFT Corp Partner Estates Trusts
    Accounting
    ISBN:9780357161548
    Author:Raabe
    Publisher:Cengage