Question 1

A corporation is a separate legal entity that is organized independently of its owners.

Accepted Answer

A corporation is a legal entity created by a state, consisting of one or more shareholders but distinct from them. Therefore, it is separate from its owners and has its own legal identity, rights, and obligations.

Question 2

Following is a list of advantages and disadvantages of the corporate form of business.Identify each characteristic as either an advantage (A)or a disadvantage (D).
 $$\begin{array} { | l | l | } 
\hline \text { Corporate Characteristic } & \begin{array} { l } 
\text { Advantage (A) or } \
\text { Disadvantage (D) }
\end{array} \
\hline \begin{array} { l } 
\text { Entity can raise more money than a partnership or sole } \
\text { proprietor. }
\end{array} & \
\hline \text { Startup costs are higher than other business forms. } & \
\hline \text { Stockholders' liability is limited. } & \
\hline \begin{array} { l } 
\text { There is no mutual agency among the stockholders and } \
\text { the corporation. }
\end{array} & \
\hline
\end{array}$$

Accepted Answer

$$\begin{array} {| l | l | } 
\hline \text { Corporate Characteristic } & \begin{array} { l } 
\text { Advantage (A) or } \
\text { Disadvantage (D) }
\end{array} \
\hline \begin{array} { l } 
\text { Entity can raise more money than a partnership or sole } \
\text { proprietor. }
\end{array} & \text { A } \
\hline \begin{array} { l } 
\text { Startup costs are higher than other business forms. } \
\end{array} & \text { D } \
\hline \begin{array} { l } 
\text { Stockholders' liability is limited. }
\end{array}  & \text { A } \
\hline \begin{array} { l } 
\text { There is no mutual agency among the stockholders and } \
\text { the corporation. }
\end{array} & \text { A } \
\hline
\end{array}$$

Question 3

The stock of public corporations cannot be purchased on a stock exchange.

Accepted Answer

The stock of private corporations cannot be purchased on a stock exchange.

Question 4

Both common and preferred stock carry the same degree of investment risk for the stockholder.

Accepted Answer

Preferred stockholders take less investment risk than common stockholders.

Question 5

Which of the following is TRUE of a corporation?

Accepted Answer

The earnings of a corporation may be subject to double taxation- once at the corporate level and again at the individual level when distributed as dividends. A corporation can be privately held, has an unlimited life, and provides limited liability for its stockholders.

Question 6

Jefferson Anderson is a sole proprietor of a successful business.He is interested in incorporating to protect his personal assets.What are some disadvantages of organizing as a corporate entity?

Accepted Answer

The answer of Jefferson Anderson is a sole proprietor of...

Question 7

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

Accepted Answer

The advantage of the corporate form of business is limited liability of stockholders, meaning their personal assets are protected from the debts and liabilities of the corporation. Options A, C, and D are not advantages of the corporate form of business.

Question 8

Following is a list of advantages and disadvantages of the corporate form of business.Identify each characteristic as either an advantage (A)or a disadvantage (D).
 $$\begin{array} { | l | l | } 
\hline \text { Corporate Characteristic } & \begin{array} { l } 
\text { Advantage (A) or } \
\text { Disadvantage (D) }
\end{array} \
\hline \text { Entity has continuous life. } & \
\hline \text { Exposure to double taxation is evident. } & \
\hline \text { Government regulation is expensive. } & \
\hline \text { Transfer of ownership is easy. } & \
\hline
\end{array}$$

Accepted Answer

The answer of Following is a list of advantages and...

Question 9

Most well-known companies are corporations and tend to be large multinational businesses.

Accepted Answer

Most well-known companies are indeed corporations, which are typically large multinational businesses. This is because corporations offer several advantages, such as limited liability for their shareholders and the ability to raise capital from the public by issuing stocks or bonds. As a result, many successful businesses choose to incorporate to take advantage of these benefits.

Question 10

Which of the following statements is TRUE of a corporation?

Accepted Answer

Corporations pay income tax on their earnings, and shareholders pay income tax on dividends received. This is known as double taxation. It is not true that shareholders can be required to pay debts of the corporation or that they can sign contracts on behalf of the corporation. Additionally, shares of stock can be readily bought and sold by investors on organized stock exchanges.

Question 11

Which of the following corporate characteristics is a disadvantage of a corporation?

Accepted Answer

Double taxation refers to the fact that a corporation pays taxes on its profits, and then shareholders also pay taxes on any dividends they receive from those profits. This can result in a lower net return to shareholders compared to other forms of business ownership.

Question 12

A corporation is a business organized under federal law that is a separate legal entity.

Accepted Answer

A corporation is a business organized under state law that is a separate legal entity.

Question 13

Double taxation occurs when corporations make dividend payments to stockholders.

Accepted Answer

Double taxation occurs when corporations pay taxes on their earnings and then distribute dividends to shareholders who also have to pay taxes on those dividends as personal income.

Question 14

Preferred stockholders receive a dividend preference over common stockholders.

Accepted Answer

Preferred stockholders have a higher priority than common stockholders when it comes to receiving dividends. They are entitled to receive dividends before any dividends can be paid to common stockholders.

Question 15

Trent Williams is a sole proprietor of a successful business.He is interested in incorporating to protect his personal assets.Which advantage of incorporation is most applicable? What are other advantages of organizing as a corporate entity?

Accepted Answer

The answer of Trent Williams is a sole proprietor of...

Question 16

Higher start-up costs and expensive government regulations are disadvantages of corporations.

Accepted Answer

Corporations typically require higher start-up costs than other forms of business, such as sole proprietorships or partnerships. Additionally, they are subject to various regulations and compliance requirements from federal and state governments, which can be costly to implement and maintain. These factors can be disadvantages of corporations compared to other business structures.

Question 17

Stockholders of a corporation are not personally liable for the corporation's debt.

Accepted Answer

This is one of the key benefits of incorporating a business. The corporation is considered a separate legal entity, which means that its debts and obligations are separate from those of its stockholders or owners. This provides a level of protection for stockholders, who are only liable for the amount of money they have invested in the corporation.

Question 18

Lack of mutual agency is best described as which of the following?

Accepted Answer

Lack of mutual agency means that stockholders are not authorized to sign contracts or make business commitments on behalf of the corporation. This is because the corporation is a separate legal entity from its shareholders, and it can only act through its board of directors and authorized officers. Therefore, the actions of the board of directors do not create mutual agency, as they do not allow shareholders to act on behalf of the corporation.

Question 19

Paid-in capital is externally generated capital and results from transactions with outsiders.

Accepted Answer

Paid-in capital represents funds that have been received by a company from outside sources, such as investors or shareholders, in exchange for stock or ownership in the company. Therefore, it is considered externally generated capital.

Question 20

Which of the following statements regarding corporations is incorrect?

Accepted Answer

This statement is incorrect because corporations are businesses organized under state law and do have a separate legal existence from their owners.

Quiz 13: Corporations