Packet 11 videos/quiz

Crowe Company began operations on January 1, Year 1. The company was organized as a sole proprietorship. During Year 1, Crowe acquired $40,000 of capital from John Crowe, the owner. Also, during Year 1 the company earned net income of $20,000 and John Crowe withdrew $15,000 from the business. Based on this information, the Company would show

$45,000 in its capital account on the Year 1 balance sheet. (The ending balance in the capital account is $45,000 (Zero Beginning capital balance + $40,000 Owner investment + $20,000 Net income - $15,000 Withdrawal).

Alpha Associates was organized on January 1, Year 1. Alpha was organized as a corporation. Alpha reported $200,000 of before tax income during Year 1 and paid a $30,000 cash dividend to its stockholders. Assuming a corporate income tax rate of 30% and a personal income tax rate of 15%, the total amount of tax collected by the government is

$64,500. (The government would collect $60,000 ($200,000 × .30) from the corporation and $4,500 ($30,000 × .15) from the stockholders. Therefore, the total tax collected by the government is $64,500 ($60,000 + $4,500). The corporate form of business structure results in double taxation. The income is taxed first at the corporate level and then again at the personal level when dividends are paid to the owners.)

Crowe Company began operations on January 1, Year 1. The company was organized as a sole proprietorship. During Year 1, Crowe acquired $50,000 of capital from John Crowe, the owner. Also, during Year 1 the company earned net income of $20,000. Based on this information, Crowe can withdraw (assume all transactions are cash transactions)

$70,000 from the business. (Unlike dividends, withdrawals are not limited by retained earnings. The earnings and contributed capital are combined in a single account and the owner can withdraw any amount including 100% of the capital from the business at any time it is deemed desirable to do so.)

Which of the following is a disadvantage of a corporate form of business?

Double taxation (Double taxation is a disadvantage of a corporate form of business. The others are all advantages.)

Which of the following has a single owner?

Sole proprietorship

Partnerships are frequently managed by the owners of the business. This statement is

True (Many professionals such as doctors, lawyers, and accountants organize their practices as partnerships. The professionals not only own a part of the business but also participate in managing the organizations.)

In a business organized as a sole proprietorship, retained earnings and capital acquired from owners are combined is a single account. This statement is

True (The proprietorship form of business organization does not distinguish between retained earnings and capital collected from owners. Both sources of assets are shown in a single account called owner capital.)