Management 200 – Introductory Financial Accounting– Spring 2011 Krannert School of Management - Purdue University Solutions to class assignment for January 14, 2011 Problem 1-6A Assumption violated: 1. Going concern 2. Economic entity 3. Monetary unit 4. Periodicity Additional Perspective 1-1 Requirement 1: The three primary forms of business organizations include sole proprietorship, partnership, and corporation. The major advantage of a corporation is limited liability. Stockholders of a corporation are not held personally responsible for the financial obligations of the corporation. Owners of sole proprietorships or partnerships remain personally liable for activities of the business. Corporations have the disadvantages of double taxation and generally higher tax rates compared to sole proprietorships and partnerships. Because of the higher risk of personal injury due to outdoor adventure activities, it is recommended that Great Adventures be organized as a corporation. Requirement 2:
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