Financial Accounting Part 5

Financial Accounting Part 5 - FINANCIAL ACCOUNTING PART 5...

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FINANCIAL ACCOUNTING PART 5 Question 1 of 49 A business entity owned by an individual is called a _______ ____________. Sole Proprietorship. This is the simplest form for a business organization. There are no fees involved and the owner begins business with a license and any other government or industry requirements. The sole proprietor can not issue stock or bonds, therefore it is more difficult to raise large amounts of financing. The main source of capital is debt financing through lending institutions. A sole proprietor is personally responsible for the liabilities of the company and earnings are paid at the personal income tax rate. Question 2 of 49 A ____________ is an unincorporated business owned by two or more persons jointly. Partnership. A partnership has the same features of a proprietorship except there is more than one owner. Each owner is personably liable for the entity’s debt and potential liability extends to all partners regardless of who initiated the activity that lead to the liability. Question 3 of 49 The amounts credited to each partner depends on the partnership ___________. Agreement. In absence of a partnership agreement, the law assumes that net income is divided equally among the partners. Question 4 of 49 The partnership agreement between Abdul and Cowell provided that Cowell work part-time and receive a salary of $75,000, Abdul would work full time with $150,000 salary. They would each receive 9% interest on their invested capital and the remaining net income would be shared equally. On average Abdul’s capital account was $100,000 and Cowell’s was $90,000. If the net income before salaries was $280,000, by what amount was Cowell’s capital account increased? ________ $27,050. Here's what's going on--First we subtract their salaries from $280,000, which leaves us with $55,000 in remaining net income. 1
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Then from that, each of them receives interest on their invested capital. Abdul had an average of $100,000 in his capital account, so he receives ($100,000 x 9%) which equals 9,000 and Cowell receives ($90,000 x 9%) = 8,100. After removing salaries and interest, $37,900 in net income is left. They agreed to split this evenly, so each partner receives another $18,950. Question 5 of 49 A _____________ is a legal entity separate from the owners and it has a charter under which to operate. Corporation. There are significant legal fees required to start a corporation and the activities of a corporation are limited by those specifically granted in the charter. There are numerous rules and regulations to follow and it must secure permission from the state it wants to operate in. The income of a corporation is taxed at the corporate rate and any distributions paid to owners in the form of dividends are taxed again at the owner’s personal income tax rate. Question 6 of 49
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This note was uploaded on 04/27/2010 for the course MATH 327 taught by Professor Schultz during the Spring '09 term at Christian Brothers.

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Financial Accounting Part 5 - FINANCIAL ACCOUNTING PART 5...

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