Chapter 2 DQ1) Jennifer and Jamie are starting a business and have asked you for advice about whether theyshould form a partnership, a corporation, or some other type of entity. Prepare a list of questions youwould ask in helping them decide which type of entity they should choose. Explain your reasons forasking each of the questions.Do you guys are going to be partners? If they are going to be partners, the company could not be a Sole the partnership ordinary business income (loss) and separately reported income and expense Items andreport these items on his or her own tax return.Will you guys receive dividends? The income of a C corporation is subject to double taxation, which DQ2)Barbara owns 40% of the stock of Cassowary Corporation (a C corporation) and 40% of the stock ofEmu Corporation (an S corporation). In the current year, each corporation has operating income of$120,000 and tax-exempt interest income of $8,000. Neither corporation pays any dividends during theyear. Discuss how this information will be reported by the corporations and Barbara for the year. DQ3)Art, an executive with Azure Corporation, plans to start a part-time business selling products onthe Internet. He will devote about 15 hours each week to running the business. Art’s salary from Azureplaces him in the 35% tax bracket. He projects substantial losses from the new business in each of thefirst three years and expects sizable profits thereafter. Art plans to leave the profits in the business forseveral years, sell the business, and retire. Would you advise Art to incorporate the business or operate itas a sole proprietorship? Why?
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- Summer '12