Chapter 14 Homework

Which of the following is true about piercing of the corporate veil?

A corporate entity can be disregarded when courts find that it is being misused.

Which of the following is true regarding a general partnership?

A partnership is not a taxable entity.

Assume C&J Antiques is a general partnership with Cleo and Jenny co-equal partners, and the jury awards Billy $10,000 for his birdcage injuries. If C&J Antiques declares bankruptcy, can Billy seek his $10,000 from Jenny individually?

Yes, all partners in a general partnership have unlimited liability for the organization's debts, which includes court judgments against the partnership.

If C&J Antiques is a general partnership with Cleo and Jenny co-equal partners, could the bank seek payment of the entire $100,000 small business loan from Cleo individually?

Yes, all partners in a general partnership have unlimited liability for the organization's debts.

A limited liability is given to:

a contractlike obligation that is imposed as a matter of law.

The legal ability to separate a corporation's shareholders from its managers implies that shareholders have:

limited personal liability

A(n) _____ is an agreement between two or more persons to share a common interest in a commercial endeavor and to share profits and losses.

partnership

Joint and several liability exists in which of the following organizational forms?

partnership firm

Although corporate shareholders are generally not personally liable for the corporation's debts, shareholders are personally liable for the corporation's debts when the corporate form has been misused. This is called _____.

piercing the corporate veil

If C&J Antiques is a general partnership with Cleo and Jenny co-equal partners, which of the following best describes how the business's losses will be reported to the IRS?

Cleo and Jenny will each report a $25,000 loss on their individual income tax return.

Which of the following is true about a corporation?

It is managed by officers.

______ means a creditor can pursue one partner for full payment of the debt, or the creditor can pursue any combination of partners for the entire debt.

Joint and several liability

Which of the following is an incorrect statement regarding a corporation?

No formal documentation is required to incorporate your business.

If C&J Antiques is a corporation with Cleo and Jenny the sole and equal shareholders, could the bank seek payment of the entire $100,000 small business loan from Cleo individually?

No, a corporate shareholder is generally not personally liable for the corporation's debts.

Which of the following is an incorrect statement regarding a general partnership?

P

Which of the following is generally considered to be a benefit of the corporate form?

Shareholders are generally not personally liable for the corporation's debts.

If C&J Antiques is a corporation with Cleo and Jenny the sole and equal shareholders, which of the following best describes how the business's losses will be reported to the IRS?

The $50,000 net operating loss would be reported on the corporation's income tax return.

Which of the following helps in piercing the corporate veil?

The alter-ego theory

If C&J Antiques is a corporation with Cleo and Jenny the sole and equal shareholders, and C&J Antiques has a $50,000 profit one year, which of the following best describes how the business' profit would be reported to the IRS?

The corporation would report the $50,000 profit on its income tax return and both Cleo and Jenny would report any dividend income received based on the profit on their individual income tax return.

Corporations: are created by the issuance of a charter. are all of these. have the potential to face a double tax. are generally more difficult to form than partnerships. must have a name that indicates incorporation.

are all of these

A corporation is created by the state issuing a(n) _____after approving the corporation's articles of incorporation.

charter

Corporations: have the potential to face a double tax. are totally controlled by the proprietor. do not have the problem of double tax. are not taxable entities. need no formal documentation.

have the potential to face a double tax

A corporation:

is an artificial, intangible entity created under the authority of a state's law.